Xolane Ndhlovu - Introduction to the Exciting Avenues of Equity Shares and Cryptocurrencies

With the revolution brought by Information Technology in Financial Markets, entry to the Capital Markets, especially Stock Market, and Equity Markets has become more welcoming than ever before. But what exactly are these new mediums of investment? How do they differ from the old-school lending or depositing of funds for fixed interest rates? Are they the way to go for you or should you still stick to the good old bank deposits?

In the strictly technical parlance, Shares, or Equity Shares, are financial instruments that signify an ownership interest in a company. Imagine an ambitious, potent firm that wishes to grow its business further, only to face a shortage of funds from its promoters. The promoters may preferz borrowing the funds from financial institutions, but is it even feasible every time? What if the promoters don’t want the liability of fixed instalments hanging over their heads? This is where they decide to part away with their ownership of the company by issuing shares to the outsiders. The Share Certificate, the documentary evidence of the sale of such shares, certifies the proportionate ownership of the company by the holder.

To understand the way shares earn you returns, focus on the very basic difference between ownership and mere loaning. With the ownership, comes the opportunity of being a beneficiary of everything a company may earn – in the present (in the form of dividends) as well as in the future (in the form of capital gains). We will come to that later. On the other hand, depositing the money in banks or loaning funds to firms give you a fixed return every period, but you lose the opportunity to be a part of the firm’s growth, extraordinary returns and inflationary safety.

Coming to the forms of returns mentioned earlier, Shares earn you returns in two ways –

• Dividends: As companies generate cash returns, the management may decide to distribute some of the cash to its shareholders. This pro-rata distribution is called Dividend. It may be paid off after the Annual General Meeting held yearly (called final dividends) or even sometime before it (called interim dividends). Most jurisdictions have Tax benefits associated with such returns – they’re charged at much lower rates as compared to the traditional interest.

• Capital Gains: The shares of companies may be bought and sold either in the stock market where it is listed (if the company is publicly listed) or off the stock market (if the company is not publicly listed). As the reputation, revenues and market share of the company grows, the share prices grow. This brings up the potential of realizing capital gains as and when you decide to part away with your shares. Most jurisdictions have Tax benefits associated with capital gains too.

So how would you invest in such shares? Well, there are two routes to the allotment of shares of a company –

• Primary Market: Companies in need of equity funds make an offer to the potential investors to buy their shares. You may apply for the shares of exciting, high growth companies that make such offers. This is called the Primary Market. Once the company makes an allotment of the shares amongst the applicants, it may list the shares on a stock exchange, thereby allowing the investors to buy and sell such shares amongst each other. This mechanism is called the Initial Public Offer (IPO). Many retail investors follow the strategy of subscribing to the shares of very promising companies during such IPOs and then selling the shares, if allotted, immediately once they’re listed. If the company holds a positive reputation, such investors are more often than not guaranteed immediate profits!

• Secondary Market: Do you feel that the shares of Apple Inc. or Amazon Inc. are bound to soar due to their financial performances? You may bid for their shares on the stock exchange where they’re listed, at the prices at which they’re currently traded. If your forecast comes true, the prices of these stocks will rise.

So what makes the stock/share market so much more exciting and effective as compared to loaning or depositing funds? Well, every investor has his risk appetite, return expectations, preferred industries and favourite companies. The share market allows the investor to choose the shares accordingly. Besides, it provides the investor with the best of both worlds – liquidity and risk-return trade-off. Furthermore, as an investor, you may even further leverage your returns by selecting one or more of the following approaches to share trading –

• Speculation: This involves riding on the trends of price changes to earn yourself returns. Do you feel that the market sentiments towards Alphabet Inc. are positive? Go for an intra-day trade to earn the price increment immediately!

• Long Term Investment: The more prudent of the two approaches, this involves buying and holding the shares of a promising company, to let the prices rise. While trends may be deceptive, illogical or temporary, you are assured of returns in the long term if you invest in a company with good fundamentals and able management.

My experience as an investor in the Stock Market has been vivid, starting from a risk-averse approach nearly decade ago, as I only applied to the IPOs of well-known, highly oversubscribed companies, to a high risk-appetite approach involving a well-diversified portfolio. I started participating in Intra-Day trading a couple of years back, with calculated risk-taking and active study of the market. Barring a couple of blunders and some instances of bad luck, I have been quite satisfied with my investment performances. However, I must warn you – Opting for the right approach to Share Investments is the only way you can avoid misadventures and outperform the debt returns. Like any other avenue, choose your action wisely. A retired couple with limited savings should, for instance, avoid being lured by higher returns of the share market and should stick to the fixed interest earnings!

How to select the most promising shares, deal with them, and ensure the safety of your capital? The most important step to this is to appoint a good, learned Stock Broker. If you are from South Africa, EasyEquities or Standard Bank SGB are two of the most recommended ones. However, ensure the platform you select is registered with the Johannesburg Stock Exchange. Any self-proclaimed platform not registered with JSE is in all probability a scam, and depositing your money there will be as good as throwing it away.

Besides the need for some good research and a good stockbroker, you’ll need a SARS Tax Number (no stockbroking platform will register you without it). If you don’t have one, simply register with SARS, find a qualified platform, and you’ll be good to go. Unlike the old times when the rich, high net worth players held the exclusive privilege to benefit from the share trading, the stock markets are now quite welcoming to the smaller retail investors too.

Crypto Assets: A road to the future

Despite being only 12 years old, Crypto assets have seen success like no other financial asset! What started as a decentralized currency idea is now the investment avenue with sky-high returns, lightning-paced development and incredibly well-executed integration into financial systems.

How can you earn from Crypto tokens?.

There are over 8000 crypto coins/ tokens available in the crypto market, and picking a good project is the biggest challenge faced by first time investors. Timing of your entry is also critical, as they say, early birds catch the worm. It is always the best practice to invest in crypto tokens as an early investor, as the demands are seen to rise exponentially. Go for those crypto tokens that are being issued by reputed players! Token with a real backing project powering the ecosystem. Digital Bank of Africa (DBA), for instance, issued by a South African startup digital bank outfit, DafriBank Digital, is set to be integrated into the financial functions of the bank. I personally backed the project with R190 million in 2020 as an early applicant, with a 10-year ROI forecast of R3.4 billion.

The surge in Bitcoin prices in 2014 was what attracted me to cryptocurrencies investment. The prices had increased by 50+ times in a year then! However, I regretted my decision soon enough, as the prices halved in the next year or so, and I sold a fraction of my holdings. However, the trends have seen a deserved correction since then as the remaining holdings of Bitcoins gave me exponential returns. Ever since bagging the unrealised gains in this investment, I have been actively tracing new, exciting Crypto tokens with sound value mechanisms to be an early subscriber to the same. For instance, I got in BNB in 2017, when it was still unheard of to many. I still hold 390 000 BNB tokens, now worth over $140 million dollars.

When making a decision on investment in crypto tokens, keep one thing in mind. The higher the supply, the longer it will take to pick up. Opting for a weak or baseless token can lead to a sorry state of affairs. PayCoin, for example, was plagued with over-valuation and implementation failures before failing. The investors lost their capital in no time. Bitcoin, Ethereum and Binance, on the other hand, moved from strength to strength to reward their investors handsomely. Ultimately, you are required to study a token well and get in as early as possible, and you can earn theoretically improbable returns with comparatively minimal risks!

Xolane Ndhlovu is the founder & the chairman of DafriGroup PLC. He also sit on the board of DafriBank Digital Limited, and OMAHA Hotels LTD