If you want to start trading on the JSE there are many great products to get you started. It is important to understand the risks of investing in shares and that this is not a get rich quick scheme.
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 individual 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 – when 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, people feel if they talk about their shares it gives them status. What is important to realise is 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.
The best way to invest is to have a strategy and to stick to it. Building up a long-term share portfolio is one way to do this:
» The stalwarts
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 and SABMiller, Naspers and FirstRand.
» The growing companies
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 TigerBrands 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
As you become more familiar with the stock market you will want to include one or two smaller companies in your portfolio. Smaller companies tend to be the most risky because they can still suffer growing pains, however this is where the real money can also be made.
In 2002 if you had invested R5000 in Capitec on the day it listed in at R1.80 a share, that investment would be worth nearly R520 000 today. It is these kind of success stories that attract people to the stock market.
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 the company because they understood it and believed in management would have held onto 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 you have to 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 that is that it should not make up more than 10% to 15% of your total investment.
The best online brokerages for beginners
Online trading is an inexpensive way to start trading and it also caters for investors with smaller capital to invest. These online stock brokers are ideal for new investors and offer entry products as well as educational material:
•Sanlam i-Trade:
•www.sanlamitrade.co.za
•Absa Stockbrokers
•www.absastockbrokers.co.za
•Standard Bank’s Online Share Trading:
•www.standardbank.co.za/ost
•PSG Online:
•www.psgonline.co.za
•FNB online trading:
•www.fnb.co.za/share-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 individual 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 – when 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, people feel if they talk about their shares it gives them status. What is important to realise is 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.
The best way to invest is to have a strategy and to stick to it. Building up a long-term share portfolio is one way to do this:
» The stalwarts
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 and SABMiller, Naspers and FirstRand.
» The growing companies
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 TigerBrands 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
As you become more familiar with the stock market you will want to include one or two smaller companies in your portfolio. Smaller companies tend to be the most risky because they can still suffer growing pains, however this is where the real money can also be made.
In 2002 if you had invested R5000 in Capitec on the day it listed in at R1.80 a share, that investment would be worth nearly R520 000 today. It is these kind of success stories that attract people to the stock market.
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 the company because they understood it and believed in management would have held onto 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 you have to 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 that is that it should not make up more than 10% to 15% of your total investment.
The best online brokerages for beginners
Online trading is an inexpensive way to start trading and it also caters for investors with smaller capital to invest. These online stock brokers are ideal for new investors and offer entry products as well as educational material:
•Sanlam i-Trade:
•www.sanlamitrade.co.za
•Absa Stockbrokers
•www.absastockbrokers.co.za
•Standard Bank’s Online Share Trading:
•www.standardbank.co.za/ost
•PSG Online:
•www.psgonline.co.za
•FNB online trading:
•www.fnb.co.za/share-investing
