20 Red flags that could wreck your investments, lessons from Nigeria

By Joan Chioma Obinagwam

Nnamdi was 40 years old, an accountant in Port Harcourt, and by every measure a careful man. He read the financial news. He understood basic economics. He had watched colleagues build quiet wealth through the Nigerian stock market and decided, finally, that it was his turn.

The company he chose was the talk of every investment group on WhatsApp. Share prices were climbing. People in his office were smiling. The excitement was real and contagious. Nnamdi invested everything he had set aside over three years of careful saving.

18 months later, the company’s financial scandals broke. Profits had been fabricated. Senior management had been selling their shares quietly while encouraging the public to buy. The share price collapsed. Investigations began. And Nnamdi’s savings, every kobo of them, were gone.

“The signs were there,” he said afterward, voice flat with the exhaustion of someone who had spent months replaying the same moment over and over. “I just didn’t know I was supposed to be looking.”

Nnamdi’s story is not unusual. It is not even particularly extreme. In 2024 alone, Nigerian financial institutions lost N52.26 billion to fraud, a figure that represents a 196 percent increase over five years.

The CBN’s Financial Stability Report 2024 reveals a 45 percent surge in financial fraud cases, with 70 percent of losses linked to digital channels, including unregulated investment platforms.

And while not all of these losses occurred in the stock market specifically, the pattern they reveal is the same one that destroyed Nnamdi’s savings: Nigerians investing without knowing what to look for.

The Securities and Exchange Commission has shut down more than 400 fraudulent investment schemes across Nigeria, and its executive commissioner has said plainly: “We are not just shutting down illegal schemes; we are also empowering investors with the knowledge to identify and avoid fraudulent operators.”

That knowledge, for most ordinary Nigerians, arrives too late.

This story is an attempt to change that.

WHAT THE EXPERTS SAY

Kalu Aja, a Certified Financial Education Instructor with extensive experience in capital market operations and investment, has long warned about the gap between what Nigerian investors think they know and what the market actually demands of them. He has written that any investment offer combining the words “trading” and “guaranteed” is almost certainly fraudulent, regardless of whether it involves currency, bitcoin, or stock.

His rule of thumb is straightforward: the risk-free rate in Nigeria, currently the rate at which the Federal Government borrows, is your guide. The wider the gap between what an investment promises and that rate, the more suspicious you should be.

Tosin Olaseinde, founder of Money Africa and one of Nigeria’s most followed financial educators, has consistently argued that the entry barrier to investing is not money. It is information. “To gain true economic power, it is important to invest and benefit from the power of compounding,” she said.

But compounding only works when the investment is sound. And a sound investment, she has argued, begins with understanding the going inflation rate and insisting that any investment at minimum matches it.

Jennifer Awirigwe, known as Financial Jennifer, is a Chartered Accountant, Chartered Stockbroker, and founder of FinTribe, Nigeria’s first women-only finance community. Her position on risk is clear. “There is always the chance that the company you invested in may not perform as well as anticipated. Be prepared for price fluctuations, as stock prices are not stable and can rise and fall,” she noted.

Her advice to investors, particularly those new to the market, is consistent: research before you commit, and never invest on the basis of excitement alone. “Don’t rush into an offer just because it’s popular and being actively promoted. Take the time to research and comprehend the figures and financial reports.”

These voices share a single message: the market rewards the informed and punishes the careless in equal measure.

THE 20 RED FLAGS

Based on years of observing Nigeria’s capital market, conversations with financial professionals, and the painful experiences of investors like Nnamdi, here is the complete checklist.

THE COMPANY CONSISTENTLY REPORTS LOSSES

A company that loses money year after year is a company in trouble. Check the financial results for at least three consecutive years. If losses are a pattern and not a temporary setback with a clear and credible explanation, do not invest.

THE DEBT IS BIGGER THAN THE BUSINESS

Every company borrows. But when debt significantly outweighs assets or annual revenue, the company is operating on borrowed time. Shareholders are always the last to be protected when repayments become unmanageable.

THE AUDITORS ARE RAISING CONCERNS

Every listed Nigerian company is required to have its accounts audited annually. When auditors flag “going concern” doubts or decline to sign off cleanly, that is a serious structural warning. Most ordinary investors never read the auditor’s report. This is one of the costliest mistakes they make.

MANAGEMENT IS QUIETLY SELLING THEIR OWN SHARES

Directors and senior executives must disclose when they buy or sell shares in their own company. When the people closest to the business are selling while the public is being encouraged to buy, the question to ask is: what do they know that we don’t?

THE COMPANY KEEPS CHANGING ITS AUDITORS

Frequent changes in audit firms signal a company searching for one willing to approve questionable numbers. Stability in auditing relationships signals transparency. Frequent changes signal the opposite.

THE PROFITS LOOK GOOD BUT THE CASH IS MISSING

A company can report impressive profits on paper while holding very little real cash. This happens when profits are inflated through accounting manoeuvres rather than genuine performance. Always check the cash flow statement alongside profit figures. Real profit generates real cash. Paper profit does not.

THE SHARE PRICE IS RISING WITHOUT EXPLANATION

When a company’s share price climbs sharply without new contracts, strong earnings results, or credible expansion news, be suspicious. Artificial price inflation, sometimes called a pump, is almost always followed by a sharp crash that destroys late investors.

THE COMPANY OPERATES IN NEAR TOTAL SECRECY

Reputable listed companies communicate regularly with shareholders. They publish quarterly and annual reports. They hold Annual General Meetings. A company that goes quiet, releases information late, or makes it difficult to access basic financial data is hiding something.

THE DIVIDEND HISTORY IS ERRATIC OR NONEXISTENT

Consistent dividend payments over many years are one of the strongest signals of genuine financial health and disciplined management. Erratic or suddenly discontinued dividend payments tell a very different story.

EVERYONE IS TALKING ABOUT IT BUT NOBODY CAN EXPLAIN IT

This was Nnamdi’s most expensive mistake. The company was the hottest topic in every group chat. But when he asked people why exactly it was a good investment, nobody had a clear answer. Excitement is not analysis. Momentum is not due diligence.

THE COMPANY HAS A PATTERN OF REGULATORY TROUBLE

A company that is frequently investigated, sanctioned, or penalised by the SEC, the CBN, or the Corporate Affairs Commission has a character problem, not just a compliance problem. One regulatory issue can be isolated. A pattern of them is a warning about culture.

THE BOARD IS CONTROLLED BY ONE PERSON

Healthy companies have strong, independent boards that hold management accountable. When one individual dominates both the board and the management team, the internal checks that protect shareholders disappear. Concentrated power in one person is structural weakness, not leadership strength.

THE COMPANY CONSISTENTLY MISSES ITS OWN TARGETS

When a company repeatedly falls short of its own projections, it either does not understand its business or is setting optimistic targets deliberately to attract investors. Neither is acceptable.

RELATED PARTY TRANSACTIONS ARE EVERYWHERE

When a significant portion of a company’s contracts and service agreements flow to businesses owned by its own directors or their families, money may be leaving the company through the back door. Always check the notes section of financial statements for related party disclosures.

CORE BUSINESS IS SHRINKING WHILE HEADLINE NUMBERS LOOK FINE

Some companies mask a declining core business with one-off asset sales, currency gains, or other non-recurring income. When revenue from the actual business falls year on year, no accounting manoeuvre can hide it permanently.

KEY EXECUTIVES ARE LEAVING WITHOUT EXPLANATION

Sudden unexplained resignations, particularly from the Chief Financial Officer or Chief Executive, are rarely coincidental. The people closest to a company’s financial reality are often the first to leave when something is wrong.

THE COMPANY HAS NO CLEAR COMPETITIVE ADVANTAGE

Before investing in any company, ask one question: why would customers choose this company over its competitors? If the answer is unclear, the company’s long-term profitability is vulnerable. A business without a defensible edge is one strong rival away from irrelevance.

THE COMPANY IS IN A DYING INDUSTRY WITH NO ADAPTATION PLAN

Industries evolve. Technology disrupts. Consumer behaviour shifts. A company deeply embedded in a contracting industry with no credible plan to evolve is an investment in slow decline.

THE STOCK IS EXTREMELY ILLIQUID

Some Nigerian stocks trade so rarely that finding a buyer at a fair price when you want to exit becomes nearly impossible. Always check average daily trading volumes before investing. A stock nobody else is trading is a stock you may be permanently stuck with.

THE GROWTH STORY SOUNDS TOO PERFECT

Real businesses face real challenges. When a company’s investor presentations paint a flawless picture with no honest acknowledgment of risks, be suspicious. Credible management teams discuss both their wins and their difficulties. A company that only ever tells you good news is editing the story you need to make an informed decision.

THE LESSON NNAMDI PAID DEARLY TO LEARN

Nnamdi eventually recovered. Slowly. He started again with smaller amounts, better questions, and a checklist he refuses to skip. He is not bitter about the market. He is precise about it now in a way he never was before.

“The market didn’t fail me,” he says today. “I walked in without a map and blamed the territory.”

The Nigerian capital market is a genuine vehicle for wealth creation. The NGX All-Share Index delivered a 37.65 percent return in 2024. As of mid-2025, at least 17 companies listed on the NGX boast market capitalisations exceeding one billion dollars.

The opportunity is real. But so is the risk.

As Financial Jennifer has said, the goal is not to avoid the market. The goal is to enter it with knowledge, not just hope. “Real inclusion means empowering people to make informed money decisions, to save, invest, and own assets.”
And informed decisions begin with knowing what to look for before a single naira changes hands.

This checklist is that map.

Joan Chioma Obinagwam is an award-winning financial journalist and Editor-in-Chief of The Elucidator, Confiance News, and OpporTechies. She holds ICFJ and Code for Africa Research fellowships.