From Novice to Investor:

Understanding the
Basics of the Ugandan
Stock Market
INFINITY FINANCE Empowering you to financial freedom! infinityfinancezw@gmail.com
[Document subtitle]
I
nvesting in stocks can be a daunting task for many, but for me, it was a passion
that was ignited by a chance encounter with a close friend. It was a Tuesday
morning in November 2018, and I had expected to sleep in, but instead, fate
had other plans for me. My friend, Nyasha Sozinyo, was on his way to school, and
in a spur of the moment decision, he decided to pay me a visit.

Despite attending different schools in different towns, we had always shared a

common dream - to leave behind the struggles of the ghetto life and achieve
financial freedom. During our school holidays, Nyasha and I would meet up and
engage in lengthy discussions about prominent business people in our country and
beyond. We brainstormed and shared ideas on how we could make money, and
even attempted some of those ideas in practice. But on this particular day, Nyasha
brought me a gift that changed the course of my life forever - a book titled "Think
and Grow Rich" by Napoleon Hill.

Nyasha had read the book and was eager to share its contents with me. As he
spoke about the lessons he had learned and the insights he had gained from the
book, I felt like I had struck gold. Nyasha had been given the book by his uncle,
and he was keen for us to read it together, discuss the lessons and apply them to
our lives.

That book became a turning point for me, igniting a passion for investing in stocks
that I never knew existed. It opened up a world of possibilities and opportunities
that I had never considered before. And now, as I share my knowledge and
experience in this handbook, I hope to inspire others to embark on their own
journey of investing in stocks and achieving financial freedom.

East Africa has always held a special place in my heart. Not only do I have mentors
and role models who have invested in East African Countries, but they have also
shared incredible stories of success and growth within the East African business
and economic landscape. Their stories have inspired me to explore the
opportunities that East Africa has to offer.

In 2020, I took a leap of faith and looked to the East for new and exciting investment
prospects. It was during this time that I was introduced to the world of Kenyan
equities, Ugandan equities and equities from the East African Region as a whole,
and my passion for investing in the East African stock markets was ignited.

~1~
As I reflect on my journey, I am reminded of the power of sharing knowledge and
ideas. It was through a simple book recommendation that my friend opened my
eyes to the world of equities, and I am forever grateful for that.

With this handbook, I hope to share the knowledge and experience I have gained
in the world of East African equities, particularly Ugandan Equities. Whether you
are a seasoned investor or just starting, this handbook provides a solid foundation
and answers to frequently asked questions. Let's dive in and uncover the exciting
world of investing in Ugandan stocks!

We will start with the definition of equities/shares/stocks.

A share/stock is a unit of ownership in a business. It represents an interest in

the ownership of a business. In the measurement of mass, the unit is the kilogram.
In the same manner, the unit of ownership in a business is called the share.
Someone who buys shares is called a shareholder. Since a share represents an
interest in a business, I like to call and think of shareholders as business
owners, because behind a stock/share, there is a business, and we would be
wise to find out what that business does.

Shares are bought and sold on the stock exchange. The stock exchange is a
government regulated department through the Ministry of Finance and Economic
Development. In Uganda, we have the Uganda Securities Exchange, it is regulated
by the Ministry of Finance and Economic development through the Capital Markets
Authority.

The Capital Markets Authority (CMA) is responsible for ensuring that the
securities(stock market) market operates in a fair, transparent, and efficient
manner, and it has the power to investigate and take action against any parties
that breach the regulations. The government also plays a role in setting policies
and regulations for the securities market in Uganda.This means that buying and
selling of shares is not a ponzi scheme, nor is it a scam.

Investing in stocks through stock exchanges is different from bitcoin as well. Bitcoin
has no jurisdiction and is not subject to any regulations, as we have already
established, the stock market is regulated by the relevant authorities in each
jurisdiction.

~2~
From the book rich dad poor dad, we learn that there are 3 types of income;
1. Earned Income- This is money that one earns from selling a product or
offering services. It comes in the form of salary for those formally employed
and in the form of sales for those self-employed.
2. Investment/Portfolio Income- This is income from investment activities such
as investing in different investment vehicles like stocks, government bonds,
derivatives and commodities.
3. Passive Income- Money that comes without one having to work for it, for
example if you write and publish a book, sales from the book will keep
coming in without you having written the same book again, rental income
from rental properties and dividend income from stocks.

There are 2 primary reasons why you would consider setting up

Investment/Portfolio Income for yourself

1. Capital Gains
Mr. Kabaka bought a house in Kololo Hill neighborhood in 2009 for a total cost of
USD 450 000. In January 2023, Mr. Kabaka would like to sell his house, he
contacted a realtor, and his property is valued at USD 1.4 million. As we can see,
there has been an appreciation in the value of the property over time. If Mr. Kabaka
sells the property, the transaction is as follows:

Profit = Selling Price - Buying Price

= USD1 400 000 - USD 450 000
= USD 950 000
Capital gains is the one-time profit made from the sale of a property, asset
or investment. In this case, Mr. Kabaka makes capital gains of USD 950 000.
Capital gains are subject to tax, hence what is called Capital Gains Tax. It is the
tax payable on capital gains. In Uganda, the Capital Gains tax is 30%. This means
that in this transaction, to keep things simple, Mr. Kabaka would pay 30% of USD
950 000 as tax.

Capital Gains are applicable to shares too. For example, the share price of British
American Tobacco Uganda was UGX 1900 on 21 February 2012, the share price
rose to UGX 30 000 in July 2020. We can see the appreciation in price over the
years. Someone could have made a killing, buying the shares at a lower price and
selling them at a higher price.

Do the calculation for someone who bought 10 000 shares of BAT Uganda in
February 2012 and then decided to sell them in July 2020.This is called buy low
and sell high in investment circles. What causes share prices to drop or to
rise? In Uganda, Capital Gains Tax is not applicable to the buying and selling of
~3~
shares for all residents, hence all the proceeds would be available to the investor,
tax free. However, for foreign investors, Capital Gains Tax is applicable to the sale
of shares, and the tax is 15%, it is paid as a withholding tax.

2. Dividends
Let us consider the following analogy. Students A and B enroll for a 4 year degree
program at the Makerere University in 2019. As they start their university journeys,
both students decide to each buy goats with UGX 250 000 per goat out of their
savings which they will have accumulated over the years. For purposes of our
discussion, let us assume they each manage to buy 3 goats, 1 male and 2 female.

Student A manages to keep buying 2 more goats every year adding to the initial 3
goats which was the start. Student B leaves the 3 goats to multiply on their own,
the student adds no more goats in the course of 4 years. When student A gets
home after graduating in 2023, he finds that his goats have multiplied to 28 (on
average a goat gives birth to 2 kids per year). Student B finds out that the goats
have multiplied to 19.

What each student decides to do with the goats, for example slaughtering them
and selling goat meat, or selling the goats, the return on initial investment is
pleasing. All things being constant, the goats mate and multiply on their own. Even
if both students decide to not buy more goats each year, they still make an
attractive return on Investment. From the analogy, we note that the more the goats
deployed as initial investment, the more the offspring (dividend) there will be over
time.

This is similar to what happens with shares, whenever a company makes profits,
it can give those profits to the shareholders. Money paid to shareholders out of
the profits made by a company is called dividends. The more the shares one
has, the more the dividend they can receive. Dividends can be a source of passive
income for investors.

Dr. James Mwangi

Source: Harvard Business School, creating emerging markets, interviews, profile

Dr. James Mwangi is the current Group CEO and

Managing Director of Equity Group Holdings, one of the
largest banks on the African continent and Kenya in terms
of assets and customers. Mr. Mwangi owns a 3.4% direct
equity stake in Equity Bank (rebranded in 2019 to Equity
Group Holdings) which is valued at KShs 8.3 billion as at 29
March 2023. Equity Bank which is dually listed on
Uganda Securities Exchange and Nairobi Securities

~4~
Exchange declared a dividend of KShs 4 per share and Mr. Mwangi will
receive KShs 685.3 million (UGX 19 458 315 067.73 using official rates as of
the time of writing) as a result of his ownership of 188.6 million shares in
Equity Bank. Mr. Mwangi is the highest individual dividend earner in Kenya
as of the time of writing. Read more on the top dividend earners in Kenya as of
March 2023 here:
https://www.businessdailyafrica.com/bd/markets/capital-markets/kenyattas-
equity-ceo-top-in-sh63bn-bank-dividends--4178088

Let us look at a few secondary reasons as to why you would consider setting
up investment income through stocks:

• Shares can be used as collateral when taking a bank loan. This makes
funding accessible in case someone has limited options as to what to list as
collateral when taking a loan.
• As we have already established, when one buys shares, they own a part of
a business. They become business owners. This means that they are
entitled to attending the Annual General Meetings of the company and
participate in the decision making by shareholders.
• In the event of passing on, shareholding can be transferred/inherited by
our loved ones together with all the benefits such as dividends that
come with it. This implies that investment income by way of shareholding
can be a path to family/generational wealth.
• Dividends can be a source of passive income, who wouldn't want an
extra source of income?
• If we reference the 3 types of income mentioned earlier, Earned Income is
the highly taxed income, followed by investment income and Portfolio
Income is the least taxed. In Uganda, in general, Earned Income is taxed
up to 40% depending on the tax bracket, while Investment Income is taxed
up to only 15% and Passive Income is taxed up to 10%. Let us always
remember, as our earned income increases, the more we pay in taxes.
With Passive and Investment Income, we pay less in taxes, implying more
is available to us to spend as we please.
• Since shares can appreciate in value over time, it means they can be used
to protect one’s money against inflation. This is one of the most
overlooked reasons for investing, money loses its buying power over time,
investing in appreciating assets can preserve value for us and hedge
our money against inflation.
• Investing in companies through shareholding can be a way of saving
and growing our money for retirement. Dividend income and proceeds
from capital gains can take care of us in our old age when we can no longer
work or earn. How nice would it be to have financial security in our old age.

~5~
 Old age is coming to us all, we better start thinking of how we are going to
secure the finances to take care of us in our old age.
• If we buy a large enough number of shares in a company, we can become
the largest single shareholder, which means we will be the controlling
shareholder, known as the major shareholder in other terms.
• In theory, an employee with the highest number of shares in the
company can become the CEO if the company’s by-laws allow it.
Therefore, shareholding could be a pathway to rising up the corporate
ladder. Take note however, that shareholding is not the only factor to be
considered when a CEO is appointed, relevant qualifications, experience
and other considerations come into play. Having the largest shareholding
as an employee could be a contributing factor to one becoming a CEO,
NOT the only factor.

In summary, let us remember that one makes money through shareholding by one
or both of the following ways:
1. Capital Gains
2. Dividends

Having established the above few concepts, let us take a look at a few more basic
concepts.

Who buys/sells shares?

Anyone interested in becoming a shareholder can buy shares:

1. Retail Investors- These are people who buy/sell shares as individuals
2. Corporate Investors- These are companies that are interested in becoming
shareholders in other companies. This means that companies can invest
and own shares in other companies. If individuals can own shares, then why
not companies and vice-versa?
3. Funds- There are many different types of funds which invest in shares, the
most common ones are Pensions Funds, Mutual Funds, Family Trust Funds
and so on
4. Foreign Investors

For one to become a shareholder in companies listed on the Uganda Securities

Exchange, the following are the requirements:
• Money which is not required for immediate use- One should invest
money they can afford to lose, things can go terribly wrong with stocks, it's
not always rosy and returns are not guaranteed, hence caution should be
exercised.
The minimum amount required to buy shares in companies listed on the
Uganda Securities Exchange is variable. It should be the amount that can

~6~
buy at least 100 shares in your company of choice. Share price changes almost
on a daily basis, hence on the day you want to buy shares, make sure the amount
you have at your disposal can buy at least 100 shares.

• Knowledge- You have to know what you are doing, the biggest risk
with investing comes from not knowing what you are doing. When is
the right time to buy shares, what are ETF’s, REITs, how do you choose
companies to invest in, what is your investment strategy etc. Take short
courses, read widely, research, do your homework so that you become
knowledgeable. Investing is an art as well as a skill, it is learned and
perfected over time.

• When you have the above 2, open a Security Central Depository

Account (SCD) with a stock broker or investment bank of your choice.
A SCD account is a requirement for one to be able to buy and sell shares
listed on USE. A bank account houses your money, right? and you execute
money transactions from your bank account, the SCD account is your
shares account, it houses your shares.

You can find the list of authorized stockbrokers and investment banks in Uganda
here: https://www.use.or.ug/content/trading-participants

I recommend opening a SCD and brokerage account with Dyer & Blair Uganda or
the investment desk of your bank, the bank you have an account with. Equity Bank
Uganda and Stanbic Uganda are my top recommendations in this regard.
They have great customer care, amazing research services and low trading costs.

In general, there are 2 methods of buying shares on Uganda Securities Exchange

1. Online method- The main advantage of buying and selling shares online is
that you are in total and direct control of your securities account, you
can access and do everything on your own. This can be done through
the USE affiliated online platform called Easy Portal, you can sign up
here: https://scd.use.or.ug/.
The different stock brokers may also have their own online trading platforms for
stocks, consult with them as you setup your SCD and trading accounts.

2. Offline method- This can be done by opening a brokerage account with

your broker. Through this method, you transfer your funds to your broker
and you give them instructions as to which trade to execute. You don't have
exclusive access to the market as you operate by issuing out
instructions to your broker.

~7~
 Take note, it is a prerequisite to have a Ugandan Bank Account in your own name
for you to be able to open these accounts. Other requirements include national ID,
passport sized photos and a bank statement.

In summary, here’s how to buy shares listed on USE:

I.Open a SCD and trading account with a stock broker or investment bank of
your choice
II.Fund your trading Account (Move funds from your bank account to your
trading account)
III.Buy/Sell shares in any company of your choice

What is a Stock Broker?

Let us consider the following analogy, when one walks into Shoprite (the stock
market), they go onto the shelves and take items (shares of companies) they would
like to buy. On checking out, they pass through the till operator (stock broker), who
facilitates and processes the request of all the items the customer would like to
buy and gives them a receipt (a deal advice slip).

A stock broker is a key stock market participant who facilitates the trading of
securities on USE. One cannot do anything in terms of buying and selling
shares without going through the broker. Since the stock market is a
government regulated department, the government can obtain information on who
owns which shares, when the shares were bought etc. The stock broker is a key
player in terms of facilitating and monitoring the activities of the stock market.

Stock brokers offer other services such as research, advisory and wealth
management services. In every trade (buy or sell transaction in the stock market),
the stock broker gets a commission and it is a fixed % age of the transaction, 2%.
Take note, the more one actively trades, the more one pays in taxes and charges.
Take time to compare and contrast active and passive investing.

For the list of companies listed on USE visit:

https://www.use.or.ug/content/equities
Take note, there are different types of securities listed on the stock exchange
depending on how developed the exchange is. These can be debt securities
(government bonds, treasury bills and debentures etc) and equity & equity related
securities such as ETFs, REITs, stock options, stock futures.

Factors to consider when investing

~8~
 A. Your Investment Goals- What do you aim to achieve by investing in
stocks? This will help you figure out which investment strategies to use, when to
buy, when to sell, how many shares to buy etc.

B. Your Income- As mentioned earlier, one has to invest what they can afford
to lose as returns are not guaranteed. Depending on our earning capabilities, what
we can invest will vary from individual to individual.

C. Risk Appetite- In general, there are 2 different investment styles, namely;

aggressive and defensive investing. Some people are more risk averse than
others. This will make all the difference in terms of which companies you will invest
in. Get to know yourself, what are you willing to lose, what's your risk profile.

D. Time Horizon- For how long do you intend to hold on to your investment,
when are you most likely going to want to liquidate all your investments? Time
horizon plays an important factor as what to invest in for the short term may differ
from what to invest in for the long term. Investment horizon is partly influenced by
investment goals.

E. Age- The investment strategy and goals for someone in their twenties are
different from those for someone close to retiring, therefore age should be
considered when it comes to investing.

F. Market conditions: Economic and market conditions can have a significant

impact on the performance of different asset classes and individual investments.
It's important to keep up with market trends and news that may affect your
investments.

Remember, the biggest risk when it comes to stocks comes from not knowing what
you are doing. Know yourself, know what you are doing, know what you invest in
and why you have invested in it.

Let us now delve into common terminology in investment circles

I.DIVERSIFICATION - This is the act of not putting all your eggs in one basket, that
is to mean, investing in different asset classes so as to spread and minimise your
risk. In the event that one stock or asset class has performed poorly, your entire
savings or portfolio won’t go down with that specific stock or asset class.
II.PORTFOLIO- A portfolio is a collection of investments, for example a portfolio of
real estate properties, a portfolio of shares etc.
III.STOCK MARKET INDEX- This is a tool that tracks the performance of a specific
group of stocks, this group could be stocks belonging to the same sector of the
economy or it could be a curated group to meet other criteria in a stock market.

~9~
Stock market indices are used as benchmarks to measure the overall performance
of the stock market or a specific sector of the market.

For example, the USE All Share Index is a stock market index that tracks the
performance of all listed companies on the Uganda Securities Exchange (USE). It
can be used by investors to track the overall performance of the Ugandan stock
market, compare their investment portfolios to the market, and make informed
investment decisions based on market trends and analysis. What do you think is
the meaning of the USE 20 Share Index?

Stock market indices and other relevant information on the USE is published daily
in the evening News on TV channels like NTV Uganda, UBC Television. Some of
you may recall seeing stock prices and stock market indices when watching news
in the business section and not understanding anything at all. It is my hope that by
the next time you watch the news, the indices will make sense to you.

IV. VOLATILITY- This is a measure of how quickly and by how much a

company’s share price moves over time, It reflects the fluctuations of the
share price. Highly volatile means the share price changes rapidly in a very
short space of time. In general, tech stocks are known to be highly volatile.
V. LIQUIDITY- When consuming information to do with investing, we may
come across the term liquidity or liquidity risk. Liquidity refers to the ease
with which shares in a company are readily available for sale at any given
day. Highly liquid means the stock trades frequently, on any given day if you
are selling you will find a buyer and the opposite is true. Illiquid means the
stock trades less frequently and at any given day, you may or may not find
someone selling when you are looking to buy. The converse is true.
VI. BULLISH SENTIMENTS/BULL RUN- “We are bullish on BAT Uganda, The
USE is bullish lately.” Bullish is the term used to describe the trend in share
prices where the prices will be going up for considerable time. If someone
says they are bullish on a certain stock, they are simply saying they expect
the share price of that stock to rally up, they see upside potential,
appreciation in value. Optimism and the fear of missing out are usually
behind the appreciation in share prices. Optimism is influenced by news
about dividends, news about a merger/demerger, strong performance in
financial terms.
VII. BEARISH SENTIMENTS/BEAR MARKET- “We are Bearish on Umeme
Limited, The USE is bearish lately, It’s a bloodbath in the market.” Bloodbath
or bearish is the term used to describe the general trend of declining share
prices for a considerable amount of time. Profit taking and pessimism are
usually behind bearish sentiments. Pessimism is usually a result of a decline
in the earnings of the companies, panic amongst investors, changes in

~ 10 ~
 policies which affect the investors and in the end they feel they should take
their capital out of the stock market.
VIII. MARKET CAPITALISATION- “MTN Uganda is a UGX 4 trillion company,
Apple Inc is a trillion-dollar company.” Shortened to market cap, market
capitalization is a measure of the total value of a company’s shares, that is
to say the total value of the company. Market cap is a product of share price
and the number of outstanding shares of the company. When someone says
MTN Uganda is a UGX 4 trillion company, what they mean is that, as of that
moment, if you take the share price of MTN Uganda and multiply it with the
total number of outstanding shares, the result will be UGX 4 trillion. That is
to say, the total value of all MTN Uganda shares, as of that day, is UGX 4
trillion. Since share prices fluctuate and Market cap is dependent on share
price, market cap varies from time to time with change in share price and
total number of outstanding shares.
IX. BLUE CHIP/LARGE CAP STOCKS- Blue chip refers to well-managed,
largely capitalised stocks of companies which are well known, have a
consistent operating history and are well established in their markets,
probably market leaders.
X. PENNY STOCKS- These are stocks that trade for the smallest share prices,
according to international standards, or US standards, stocks trading for less
than a dollar are penny stocks. This definition does not hold true for our
African and Ugandan context. Penny stocks are those stocks which have
the lowest share prices and are usually speculative in nature.

Websites to get information from

1. https://www.use.or.ug/
2. africanfinancials.com
3. african-markets.com
4. investing.com
5. https://www.tradingview.com/
6. Research services offered by your stock broker

Here are some social media handles that post content about Ugandan equities:
1. Twitter: You can follow the Uganda Securities Exchange official Twitter
handle, @USE_Limited, for real-time updates, market news, and
information on listed companies.
2. LinkedIn: Dyer & Blair Uganda, Crested Capital, and Stanbic Bank Uganda
have official LinkedIn pages where they post market insights, research
reports, and analysis on the Ugandan stock market.
3. Facebook: There are several Facebook groups and pages related to the
Ugandan stock market, such as Uganda Stock Market News, Uganda
Investment Authority, and Uganda Securities Exchange.
~ 11 ~
 4. YouTube: Money and Markets Uganda, Maro of Africa. Others you can
discover on your own
It's important to note that social media should be used as a supplementary source
of information, and one should always verify the accuracy and reliability of the
information before making any investment decisions.

A SHORT COURSE ON STOCKS

Do you wish you had the knowledge and skills to confidently invest in stocks and see
significant returns on your investments? I have created an online course about investing
in stocks for just $20, it is a comprehensive short course that covers everything you need
to know to become a successful and knowledgeable investor. With this course, you'll gain
the skills and confidence to invest in any stock market and see real profits. Enroll in my
course today and take control of your financial future! Here is the course outline:

-Personal finance 101: Assets, liabilities, goal setting, steps to attaining financial
freedom.

-INVESTING IN STOCKS: dates you need to know, understanding the dividend notice,
investment strategies, fundamental analysis of a business, technical analysis of a
business, when to buy shares, when to sell shares, analysis and interpretation of financial
statements from a value investors perspective, identifying companies to invest in that suit
you, mental models for success as an investor, stocks to avoid, calculation of intrinsic
value of a business, how to manage your portfolio.

-Investing in Exchanged Traded funds: what are ETFS, how to choose ETFs to invest
in, strategies for ETF investing, ETF valuations.

-Investing in Real Estate Investment Trusts: What are REITs, How to choose Reits to
invest in, Reit valuations.

-Mistakes i made in my own investing journey, things to look for and things to avoid

-Portfolio tracker template + research insights on specific companies.

In short, investing is about information, especially in capital markets. That's a muscle

investors need to develop.

~ 12 ~
Knowing;

What to look for

Where to look for it

How to make sense of it are the keys and it’s what we will be doing in these
tutorials.

On average, the duration of the tutorials is 3 weeks, I provide the relevant materials in
form of pdfs, books and video material. Depending on your location, these tutorials can
be held face to face or online via zoom or any platform convenient to you. The cost is
USD $20 or the equivalent in your local currency.

If you have any questions, or you are interested in taking the short course, you can contact
me on +213697543145 WhatsApp or direct calls. You can also reach me via email on
infinityfinancezw@gmail.com

~ 13 ~