As renewed optimism fuels increased activities in the Nigerian stock market, the Group Executive Director of CardinalStone Partners Limited, Elile Olutimayin, has urged first-time investors to channel their funds into mutual funds rather than directly buying stocks without proper knowledge of market dynamics.
Why Mutual Funds Are Safer for Beginners
According to Olutimayin, mutual funds offer a safer entry point for beginners as they protect investors from mistakes that often occur when they rush into the market during periods of boom. Speaking on measures needed to sustain liquidity in the stock market, she pointed out that investor education must remain a priority, especially given the growing number of first-time participants entering the market amid the recent rally.
Olutimayin argued that many retail investors still lack a proper understanding of market trends, corporate earnings and investment risks. She noted that first-time investors are often attracted to stocks after prices have already risen significantly, only to suffer losses when more experienced investors begin to sell and take profits.
“Most times, you will probably buy stocks at the high point when a lot of people are trying to exit. But if you are just trying to learn and figure out what is happening in the stock market, you are probably going to stick with mutual funds,” she said.
Professional Management and Gradual Learning
She pointed out that mutual funds provide access to professionally managed portfolios, allowing investors to gain market exposure while gradually building their knowledge and confidence. Olutimayin argued that sustaining liquidity in the equities market goes beyond attracting new investors, urging market operators and regulators to intensify efforts at improving financial literacy and protecting investors from fraudulent schemes.
She observed that while some investors are becoming more knowledgeable, the market still faces a growing threat from scammers who exploit the rising interest in investing.
“As for whether investors are becoming smarter, I think it’s a mix, really. We have seen a lot of scammers. People just put reputable companies’ logos on different platforms and create all sorts of things. They tell people to buy this stock or sell that stock and many people fall for it,” she said.
Need for Market Structure Reforms
Beyond investor education, Olutimayin also underscored the need to revisit market structure initiatives that can boost trading activity on the exchange. She stressed the need to strengthen market-making activities and expand securities lending and borrowing frameworks.
According to her, such measures could encourage more efficient price discovery, improve market depth and support higher levels of liquidity across the market.
“There was a time when we had market makers and policies designed to support market making. It may be time to look at some of those policies again,” she said.
