It’s imperative to be very familiar with SA companies before investing
Identify what kind of investor you are
» The novice
If you are new to investing, then a good starting point is to buy an exchange traded fund (ETF) that gives you exposure to a range of top South African companies (see inside page).
By purchasing your ETFs through a good broker and having access to their brokers’ daily report, as well as their educational material and courses, you can build up your knowledge until you are confident in buying shares.
» The beginner
If you feel comfortable about starting to purchase individual shares, you need to have a strategy in place. Firstly, you need to decide if you are a trader or an investor.
Trading shares means that you buy and sell frequently and aim to make short-term profits. This can be far more risky as you are investing more on sentiment and where the market will go in the short term than on long-term information about the actual company you are investing in.
It is a preferable strategy to start as an investor and build up a share portfolio. You can then treat this as a two- or three-year learning process, starting slowly.
Control your emotions by having a strategy
Private client investors get caught up in the emotions of the market. When they see headlines that the JSE is breaking new highs or that the market is up 30% in just six months, that is when they want to invest. Invariably, that is exactly when you do not want to invest, as it means the market is getting expensive.
When the share market crashes, they forget that this is a long-term investment and tend to sell at the bottom. So they have bought the shares at the peak of the market and sold at the lowest price, which loses them money.
People also see the stock market as a get-rich-quick scheme. They bet on tips they hear at dinner parties without thoroughly researching the company they are investing in. For some people, share investing has a bling value, and people feel if they talk about their shares it gives them status.
It’s important to realise that people who trade on the JSE usually talk about the shares they have made money on, not the shares that have cost them.
This creates the perception that there is easy money to be made.
It isn’t easy. It takes steady emotions, research and a plan.
Private client investors get caught up in the emotions of the market. It is precisely the wrong time to buy when there are flashy reports of the stock market being at an ‘all-time high’
BUILD A LONG-TERM SHARE PORTFOLIO
1 A good starting point is to invest in some of South Africa’s top 20 companies. These are successful companies that have good track records and you will be familiar with most of them as they are household names.
There is also a lot of research on these companies available so you can read up on them and see which you believe is offering the best value at the moment.
As you are starting off, it is best to buy shares in different sectors (industries) so that you have a diversified portfolio.
Some of the large companies that unit trust fund managers are currently holding include Anglo American, Sasol, MTN, SABMiller, Naspers and FirstRand.
The growing companies
2 Large- to medium-sized companies are established businesses but they are still growing and can offer more growth potential over time.
These can include the next 20 largest companies like Shoprite, Vodacom, Pick n Pay, Bowler Metcalf and Tiger Brands, for example.
It would also include medium-sized companies like Mr Price.
As you save up additional funds, you could add to your portfolio every few months by purchasing shares outside of the top 20 largest companies.
The lotto ticket
3 Smaller companies in your portfolio tend to be the most risky because they can still suffer growing pains, however, this is where real money can be made. In 2002, if you had invested R5 000 in Capitec on the day it listed at R1.80 a share, that investment would be worth nearly R520 000 today. But you would have gone through a bumpy ride, which would have seen your investment halve a month after you had bought it.
Only investors who had bought because they understood it and believed in management would have held on to those shares.
By the same token, there are many small companies that listed on the JSE in the late 1990s which no longer exist and which lost investors a lot of money. Again, make sure you understand the business and that you are not just buying it because of a hot tip.
There is always room for a small company in your portfolio but the rule of thumb is it should not make up more than 10% to 15% of your total investment.
The best online brokerages for beginners
FNB online trading:
FNB Share Builder allows you to invest in 23 top South African companies. This helps narrow down the decision on which shares to buy first. This is a great way to start building up a share portfolio. Once you are ready to expand and buy into the broader range of shares you can move on to the FNB Share Investor platform.
For an investor who is not quite ready to make their own share selection, FNB introduced the Share Saver, which allows investors to invest in exchanged traded funds with a monthly debit order starting at R300 per month. With an annual administration fee of only 0.4% and trading costs of about 0.7%, this is one of the most cost effective ways to access exchange traded funds.
Share Saver combines the RMB Top40, the 40 largest shares on the JSE and the RMB MidCap, which are the next 60 largest companies on the JSE, giving investors direct access to the top 100 JSE-listed companies. Most exchange traded funds focus only on the 40 largest companies so this offering provides investors a broader range; mid-cap stocks have also outperformed the larger cap shares as they are still in a growth phase.
Sanlam iTrade is the online share-trading platform of Sanlam Private Investments. Sanlam iTrade is a full-service online stockbroker with a learning centre both for beginners and serious analysts.
Online education and interactive training courses are available to empower investors to manage their own investments successfully. A Virtual Trade Simulator is available where you can learn to trade with a fictitious R1 million share portfolio.
Sanlam iTrade provides modules on how to analyse the macroeconomy and shares, in addition to technical analyses and information gathering on warrants, share analysis and futures.
Clients receive daily market commentary and analysis as well as intraday tables with graphs of indicators like JSE indices, global indices, and currencies and commodities.
PSG Online focuses on educating their clients and provides free online tutorials. They also offer a 30-day free trial whereby clients have access to the trading simulator, research tools and watch lists. This enables you to learn risk free.
Thereafter, the client registers and continues until they have enough confidence to start trading with their own capital.
PSG Online also offers investment clients the opportunity to receive a FREE bimonthly newsletter called The Investor, in which they highlight one share with its pros and cons.
They provide bimonthly webinars that cover a range of topics, including fundamental and technical analysis, as well as investment and trading strategies.
For the more advanced investor or trader, PSG Online offers face-to-face trader forum meetings in Joburg, Pretoria and Cape Town.
Standard Bank’s Online Share Trading:
Standard Bank offers its clients free educational seminars, including a “getting started in shares” presentation.
For individuals who are just starting out and are still building their portfolios, Standard Bank offers Auto Share Invest, which allows you to invest with
a R500 monthly debit order. Every month you invest R500 or more and on the 25th of each month, Standard Bank will buy the shares you have chosen from their range of selected shares, which includes the 100 largest companies listed on the JSE. The costs are about R25, which works out to 5% on a R500 investment. This means that the share price must first increase by 5% before you make money.
The higher the debit order amount, the lower the cost as a percentage of the investment.
You can, at any stage, convert to a full-featured online share trading (OST) account at no cost. Most people would choose to do this once the size of the portfolio warrants the use of more advanced tools, and more flexibility in the management of orders.
For example, the ability to place orders at price, date and quantity of your choice. OST is also more cost effective for trades greater than R10 000.
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