Greetings, dear readers! As my vacation in Switzerland comes to a close and I prepare to return to my usual work in Canada,
I wanted to share one more article focused on the fundamentals of wealth creation.
This is a vital topic, and one that I hope demystifies the stock market for all Zimbabwean and African readers.
(Trade and invest wisely, as always! And as it’s the end of my planned vacation, I’m eager to get back to my regular routines.)
I’ve written about introductory investment topics before in The Standard, which you can see here in this column under my articles.
However, this piece offers a different perspective. The hope is to cut through the clutter and make it easier for you, the readers, to understand the markets.
As I prepare to shift my focus to more frequent updates on recent events in the US, Canadian, and global markets — as well as exploring the exciting intersection of travel economics and global investing on Streetwise Economics — it felt right to share these basics one last time before I’m fully back to those tasks.
In a world of increasing complexity, understanding the basics is more crucial than ever. So, let’s break down the foundations of stock market investing, particularly for those taking their first steps.
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At its core, a stock represents ownership in a company. When you buy a share of stock, you’re becoming a part-owner of that business.
That share gives you rights to the value of that company. In an ideal scenario, that company creates products or services that are highly valued, which creates profits, some of which is then returned to you.
Companies sell shares of stock to raise capital—money they can use to grow their business, develop new products, or expand into new markets.
Buying stock is therefore an investment and a vote of confidence for that company.
There are two primary ways stocks generate returns for investors:
Dividends: Some companies distribute a portion of their profits to shareholders in the form of dividends.
These are typically paid quarterly and can provide a steady stream of income. Not all companies pay dividends; those that do are usually mature, well-established businesses with consistent profits.
Capital gains: The most common way investors make money from stocks is through capital gains. If you buy a stock for $10 and sell it later for $15, you’ve realised a capital gain of $5 per share.
The goal is to find companies whose value is likely to increase over time. By holding your shares for the long term, you can benefit from the compounding effect of rising stock prices and reinvested dividends.
It’s also important to grasp the distinction between these two investment styles. This can help you select the types of stock to put into your portfolio and whether you should aim for low to medium risk or medium to high risk.
Growth stocks: Companies that are expected to grow at an above-average rate compared to their industry or the overall market. As shown in the provided table, Tesla (TSLA) is up 22.69% for the day. They’re not a bad place to start and many newer, risk-averse people get pulled into the excitement of a company like Tesla. Note, this is note a recommendation or solicitation to buy the stock.
Value stocks: These are generally considered low risk, where a company may not be the flashiest but it makes profit. Take Walmart for example: I shop at Walmart, and it sells almost everything I need and is the biggest retailer in the USA.
Therefore, regardless of the market activity, the company will most likely still be making money. Disclaimer at the time of writing, I own WMT and it’s not a solicitation to buy the stock.
You should note that there are risks to both. Growth may not always be as predicted, but can be quite flashy and make a good foundation for an investor who doesn’t mind taking risks. Value stocks on the other hand, can give the appearance of stability but also not be the smartest place to store your money for the long-term if you do not see the company growing or providing profits.
One of the most fundamental principles of investing is diversification. This means spreading your investments across different asset classes, industries, and geographic regions.
As you start the first day in your stock market investing journey, it might be worthwhile to ask yourself questions like What sort of product you like, the business you like and what sectors you like.
For example, tech and retail stocks. Once you start diving into specific sectors, you might have to make other decisions that are less broad based like your risk appetites. This will allow you to more concretely and accurately select whether to start in growth or value and begin building the kind of portfolio that suits you.
Exchange-traded funds (ETFs): A simple way to diversify
An ETF is a type of investment fund that holds a basket of assets, such as stocks or bonds, and trades on stock exchanges like a single stock.
ETFs offer instant diversification at a low cost. This is an especially good area for a beginner to be in if there is no clear idea of a particular stock and wanting a risk-averse investment for the long-term.
As shown in the trading day after the 9.52% gain rally, we can see the tech companies mentioned earlier like Meta, Amazon, Apple and Tesla. However, if we check one week later, the market prices might look very different.
The overall goal with any of these examples for long-term portfolio building is to show that short-term activity, whether volatile or not, shouldn’t sway you out of your long-term investing.
Investing in Zimbabwe: Adapting to local conditions
I know that investing from Zimbabwe comes with unique challenges. Currency instability, limited access to foreign exchange, and political uncertainty can make it difficult to participate in global markets.
However, these challenges also highlight the importance of taking control of your financial future and seeking opportunities beyond our borders.
Even with modest savings, you can start investing in US and Canadian stock markets using the strategies I’ve outlined.
Again, It’s important to consult a financial professional for tailored advice.
Investing can seem daunting, especially if you’re just starting out. But I want to assure you that it’s achievable for anyone willing to learn and take action.
Don’t be intimidated by the jargon or the complexity of the market. Start small, stay disciplined, and focus on the long term.
If you ever have specific questions or want to discuss your unique investment situation, you are welcome to book a paid consultation over at www.streetwiseeconomics.com. I truly believe anyone can achieve financial freedom. I hope these articles have helped you.
As always, Trade and invest wisely and May the Markets be on Your Side!
