Investing in Stocks Demystified-Nairobi Securities Exchange

An easy 3-step process to get started at the NSE

7 min readJan 30, 2020

Have you ever had a quote stuck in your mind and all it did was consume you? You know, the way you sometimes have a song stuck in your mind and it just won’t go away? This often happens with quotes from books I read as well. Here’s one that guilt-tripped me to start learning about money and investing:

“What you don’t know, you either fear or worship.”

I can’t remember which book I read it from and a quick Google search didn’t give me the name. It was stuck with me for most of 2018.

Most self-proclaimed finance and investment ‘gurus’ use a lot of jargon. They make us think that financial intelligence is not for us. That it’s reserved for a certain class of people.

Sometimes I think it’s a deliberate effort to keep most of us out. The more we wallow in our ignorance when it comes to money, the more we fear, and the more we keep worshipping people who seem to know. But they often know very little as well, and since two blind men can’t lead each other, we end up getting conned.

If you don’t do the work that’s required, you’ll stay stuck in fear. We all have money. We should learn to manage the little we have and grow it.

I have always entertained the idea of investing in stocks. For years, I thought that buying shares of a company is only reserved for the rich.

There’s this group on Facebook that I follow. It’s called ‘Young Nairobi Stock Exchange Investors’. I read its posts for years, keenly observing how every time a young person asked, “How do I invest in the Nairobi Securities Exchange?’’

“How do I buy shares/stocks?”

The gurus would emerge like dark knights with inflated grammar and vague responses. They reply with answers like this;

‘You have to have a minimum of KES 100,000.’

The idea that I had to have such a huge amount of money always held me back. Truth be told, I’d never held/had KES 100,000 in cash or in my bank account. With time, I started believing that owning a piece of Safaricom, or the other 169+ companies listed on the Nairobi Securities Exchange was not for people like me.

I always read the replies, hoping that somebody would say something different — An assurance that I could afford it. But I still held the belief that I couldn’t. I kept worshipping people who posted on the group asking when would be a good time to sell their KES 200k+ (rolls eyes) worth of company X shares.

In owning stocks, we own businesses. These businesses have assets and create products. The value of those rise with inflation, providing a hedge against the falling value of the currency. This is especially true in times of low to moderate inflation. — Excerpt from A Simple Path to Wealth by JL Collins

There’s always hope when you have friends who talk to you about money. I remember late 2018 when my friend asked me whether I’d ever thought of investing in the stock market.

You’d have thought I’d been waiting for years to make a presentation as I went ahead and poured all my fears is his DM. Especially the KES 100K one. That’s when he demystified the whole concept.

All you need to start investing in the Nairobi stock market are three things listed in order of importance;

Verbal confidence
Personal documents
Money (an amount that’s nowhere close to 100K.)

If you have100K or more, kudos to you! You have more leverage.

In this financial freedom journey, you will need to ask a lot of questions, mostly from people who have a head start. I would, however, caution you to always seek professional advice to avoid burning your fingers or in this case, your money.

You’ll need to ask questions, ask even those questions that that little voice in your head tells you are stupid. There’s a risk of sounding dumb but for me, I’d rather sound dumb than lose my hard-earned money. Test your assumptions, ask.

Do you take the time to read your monthly bank statements or payslip?

Do you understand what debits and credits are? I didn’t understand until late last year when I registered for an accounting course.

Not knowing how to read financial statements is a vulnerability. Make it a habit to call your banker, broker, or talk to HR and ask them to explain any figures you don’t understand.

Nowadays I’m not scared to tell them ‘please repeat what you just said’, ‘explain to me at a slower pace’ or ‘I’m sorry I don’t understand’.

The more you practice your verbal confidence the more your financial fears lose power. Schools didn’t teach us these things, and if the person can’t explain it to you in simpler terms, then they also don’t understand it.

Additionally, you have to read and do your own research because you don’t want to make the grave mistake of investing your money in stuff you don’t understand.

I’ll give you an easy, step by step guide that I used…

You will need to identify a licensed stockbroker to register and open an account. Here is a list of all the licensed brokers. All you need to do is pick one, call them and ask them to give you their list of requirements.

I use Standard Investment Bank (SIB) located at ICEA Building, Kenyatta Avenue. Here is the list of documents you’ll need to bring with you if you use SIB.

ID copy
KRA pin
2 coloured passport photos
1 page of Bank or Mpesa statements
A filled application form-SIB will provide.

If you decide to use SIB, here are the key questions you might have;

How much does it cost to create an account? No cost.

How much to operate it for a year? No charges for ordinary customers except when buying and selling your stocks. They have Premium customers who are charged a monthly fee depending on the investment product. Ideally, you should start as an ordinary customer then upgrade when you’ve learned.

Are there any other costs associated with holding the account and making trades, including buying and selling stocks? No costs for holding the account except for premium customers. There is a commission of 2.1% for amounts below KES 100K and 1.8% above for every transaction.

Is there a minimum investment sum? Only for premium customers. For an ordinary customer, we work with 100 minimum shares.

Let’s use an example:

Company: Longhorn Publishers

Share price as of 26th Jan 2020: KES 6.28

You need to buy a minimum of 100 shares: 6.28*100=KES 628

You can start your stocks’ investment journey with as low as 628 bob!

When you’re done with the registration, you’ll have two accounts. One with your broker and one with the Central Depository System (CDS). Your CDS account is an electronic account that stores all the shares from the different companies that you own. The two accounts are independent, which means you can always change your broker if you’re unhappy with them. Yup, you can always take your business elsewhere Mr/Ms Investor!

When I walked out of that SIB office after my first purchase, I remember feeling accomplished, I was on cloud nine, my heart racing fast with excitement; I had made my first long term investment!

After opening an account and making your first purchase, you will need to figure out how to automate your purchases so that investing becomes a habit.

When I lend anyone money, I always give them the SIB pay bill number and my account number and instruct them to deposit the money directly to my stocks account. In this one hack, I ensure that I’m buying on a regular basis because there’s always a chap out there who needs a loan. Not having access to the money when they pay back also means that I avoid the temptation to spend in other unproductive ways.

As soon as I get a text message from my bank that my salary has landed in my account, I literally walk to the branch next to my office, withdraw the amount I budgeted to save and invest every month, then distribute it to the various accounts.

You will also get monthly statements from the Central Depository System (CDS) via email. These will show you a record of all your stocks. I look forward to those ‘Dear Investor’ emails because it feels good to imagine that I’m in the same league with Christ Kirubi (hahaha, oh the lies we tell ourselves )

Note; Investing in stocks only makes sense if it’s a long term investment. We’re talking about 5+ years. As D. Muthukrishnan aptly said “the stock market punishes the impulsive and the impatient. It rewards the discipline and patient.”

So if you haven’t come up with a monthly budget that you adhere to, spend less than you earn, paid your debts and built an emergency fund, you might want to hold off till you do.

Stop thinking about what your money can buy. Start thinking about what your money can earn. And then think about what it earns can earn. — JL Collins