Your Money Questions Answered – Part 1
Firstly, I would like say thank you very much for all the ‘money questions’ you sent my way when I requested for them on my facebook page. I love to hear from you and I appreciate your contributions because it lets me know exactly what you would like to learn about and ensures that the content on my website is relevant for you! I am at your service after all.
Secondly please read my disclaimer here before you go any further as I would like it to be very clear that I am not a financial advisor or planner. I am an educator and as such anything contained on my website is for information purposes only. Kindly read the disclaimer here.
And now to your questions:
1. MK from Lusaka Zambia asked: “What are shares? How do they work? How are dividends calculated? How can I get shares in Zambia?”
Lelemba: Shares can be defined as a portion of a company that is owned by an individual or group. Another way to put it is that shares are a unit of one’s ownership interest in a company.
NOTE: Shares can also represent ownership of other classes of financial assets, such as mutual funds
How they work: Owning shares in a company does not mean that the shareholder (owner of the shares) has direct control over the company’s daily operations. However it entitles them to a distribution in any declared profits, in the form of dividends.
How dividends are calculated: A dividend is a distribution of any declared profits of a company to the shareholders. This is calculated in proportion to the number of shares each shareholder owns.
HYPOTHETICAL EXAMPLE: Company ‘A’ has a total shareholding worth ZMK1000. You own shares worth ZMK200 in this company and in a given year it declares a profit of ZMK500. This would entitle you to dividends worth ZMK100. This would be calculated by dividing your shares by the company’s total shareholding and multiplying it by the declared profits or as follows:
Your Share: ZMK200 X Declared profits: ZMK500 = Your dividends: ZMK100
Total Shares: ZMK1000
How to get shares in Zambia: In order to buy shares in companies listed on the Lusaka Stock Exchange you would need to use stockbrokers. Some examples of stockbrokers in Zambia are Intermarket Securites (Z) Ltd (which I use) and Pangaea/EMI Securities Ltd.
CAUTION: Shares are a highly volatile investment vehicle. Please ensure that you educate yourself thoroughly before investing in them. A good resource is the Investor Information section on the Lusaka Stock Exchange Website which you can get to by clicking here.
2. CN from Cape Town South Africa asked: In the Rich Woman article in which you were featured, you mentioned that you invested in an IPO. What is an IPO?
Lelemba: IPO stands for Initial Public Offering. It is the first sale of stocks/shares by a company to the public.
Companies fall into two broad categories: private and public. These follow different rules.
Private companies usually have fewer shareholders and their owners do not usually have to disclose much information about the company. Public companies, on the other hand, may have thousands of shareholders and are subject to strict rules and regulations, including disclosing financial information to the public. They have sold at least a portion of their shares to the public and trade on a stock exchange.
Selling shares is one way in which a company can raise funds. If the company has never issued shares to the public before, then the first sale is known as an IPO. Thus doing an IPO is also referred to as “going public”. A private company can do an IPO even before they become listed on the stock exchange by using an undewriter. These underwiters are basically the middle man between the company and the investing public and are usually investment banks.
3. KM from London England asked: How much money do you have?
Lelemba: ***giggles*** Now, wouldn’t you just love to know? Well as at 31st August 2010 my personal current account had exactly ZAR3798.66 (GBP 334.07) and my handbag had ZAR200 (GBP 18.11)! Since my family and business trusts, and my registered company are not ‘public companies’, I am not obliged to say how much is in there. 🙂
That said it is not about the money that you actually have in your personal name that matters, but how much money you control. I’ll give an example of Harry Oppenheimer who was a prominent South African businessman and one of the world’s richest men with an estimated fortune of ZAR30 billion. It was reported that when he died in 2000, his will referred to wealth of only ZAR 307 million. It was also rumoured that he only had about ZAR 200,000 in his personal account. The rest of his wealth is believed to have been left in trust before he died.
Now I am in no way comparing myself to Mr Oppenheimer. It is simply an illustration of the fact that it is not what you own in your personal name that matters but what you control.
I will also mention that I am working a very strict financial plan which would enable me to ‘retire’ within the next five years if I chose to. However retirement is a myth for those that do not love their work. I love my work and will work for as long as I have breath in me. My grandfather is an internationally renowned medical professor specialized in Paediatrics, Haematology and Oncology. He is in his mid 80s and still does ‘rounds’ at the University Teaching Hospital in Lusaka Zambia, still conducts lectures and is still a jetsetter. I am also here to stay.
Look out for the next segment of Your Money Questions Answered!