Factors considered by individual investors in investing in shares of companies quoted At the Nairobi stock exchange (NSE)

Abstract

This study concentrated on investment in securities by individuals investing in securities (ordinary shares) of quoted companies at the Nairobi Stock exchange. Since Kenya is a growing economy, assessing the level of investment is a positive step towards strategy formulation aimed at improving the level of economic growth. The main objective of this paper was to identify the factors considered by individual investors in making investment decisions in ordinary shares of companies quoted at the Nairobi Stock Exchange. To facilitate and to achieve the objectives of the study, convenience sampling was used to collect data from local and foreign investors. Questionnaires were administered to the respondents at the stock brokerage firms, at the NSE public gallery, at the foreign embassies and at joints frequented by foreigners. The response rate for the questionnaires administered was 83% for the local investors and 58% for the foreign investors. Thus, the overall response rate was 77%. Data was presented using tables and graphs from the coded questionnaires and means, modes, medians and standard deviations were used to discuss and present the findings. From the study, it was found that most of the local investors interviewed are young and are in the age bracket of26-35 while most foreign investors interviewed are aged between 36 and 45. Where as the majority of local investors (51%) have technical education, the majority (48%) of foreign investors have university education. Apart from education level and age, there ware no big differences between the local and foreign investors. The research findings reveal that the factors individual investors consider when investing in shares ranked in order of importance include; managerial forecasts, safety of the amount invested, relevant items in investment decision, specific considerations, monetary and fiscal policies, industrial factors and accounting policies. Individual factors that were rated highly by the respondents are; profitability of the company, marketability of the shares, present and future conditions and interest rates. However, accounting policies like depreciation method received low rating by the respondents. Further findings reveal that most of the investors do not use risk analysis models to analyse the risks associated with the investment in ordinary shares, though a bigger number consider risk in ordinary shares as medium. Never the less, investors are satisfied with investment in ordinary shares and would invest given the opportunity. Their preference would be mostly in the finance and investment segment. Although the study was successful, there were limitations mainly due to time, literacy level and suspicion among others. Based on the findings, there is need for the government/NSE/CMA to educate the investors and to encourage more stock brokerage firms to enter the capital market.