By Babajide Komolafe
I received the following request from a reader.
“I would like to ask for your expert opinion regarding investment in the Nigeria Stock Exchange (NGX).
I want to invest in the following stocks, but I’m looking at the price of stock which may be best for a small investor like me: Dangote Cement, MTN Nigeria Communications, Aradel, BUA Foods? Kindly advise me sir on the best investment option in the NGX.”
The stock market is where ownership of companies is traded through registered stockbrokers. The stocks or shares of companies traded in the market represent fragments of ownership of each company. These stocks are traded at prices largely influenced by demand and supply, and over time by the performance of the company.
There are two ways to earn money from investing in stocks. The first is the dividend paid to shareholders by the company. The second is an increase in the price of the stock. If a company achieves good financial performance and pays a good dividend, this will fuel demand for its shares and lead to an increase in price. There are other factors that determine movements in stock prices, but these are the basic ones.
Investment in the stock market entails numerous risks, many of which are unknown and unpredictable.
However, the stock market also offers tantalising opportunities to make huge returns. In 2025, the prices of the shares of some companies more than doubled, while some shares recorded a decline.
The best strategy to reduce the risk of losing money in the stock market is to invest in blue chip companies and to invest for the long term. In the short term, stock prices experience up and down movements based on perception, sentiment and the expectations of investors. But in the long term, most, if not all, blue chip companies record significant price increases. This means the stock market is not a place to invest money meant for children’s school fees or rent.
There are two main options to invest in the stock market. The first option, which is indirect and highly recommended for small investors who intend to invest for the short term and minimise risk, is to patronise top-performing equity-based mutual funds.
These are funds invested in stocks by professional fund managers with the skills and experience to make sound investment decisions. In most cases, these funds record better performance in terms of returns compared to the general performance of the stock market.
For example, one of the top equity-based mutual funds recorded 62 per cent returns last year, while another recorded 56 per cent, compared with about 58 per cent returns by the stock market as a whole. (To be continued)