How to start trading on the JSE

If you want to start trading shares on the Johanneburg Stock Exchange 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.

Graph on computer screenIdentify 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.

By purchasing your ETFs through a good broker and having access to the 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, 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, PicknPay, 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 R5 000 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 its 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 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:

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 onto 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 around 0.7% this is one of the most cost-effective ways to access exchange traded funds.

There are minimum costs to trade and this can affect the relative percentage cost if you are trading smaller amounts. Find out what the minimum brokerage fee is as well as the monthly administration fees. For online brokerages, the minimum brokerage fee is generally between R75 and R100 with a monthly administration fee of R50-R100. Some brokerages waive the administration fee if a certain value is traded, or a minimum number of trades is made. This can significantly reduce costs.

Share Saver combines the RMB Top40 (the 40 largest shares on the JSE) and the RMB MidCap (the next 60 largest companies on the JSE), giving investors direct access to the top 100 JSE-listed companies in South Africa. 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.

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 portfolio, 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 Online 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 around R25, which works out to 5% on a R500 investment. This means that the share price must first increase by 5% before you are making 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.

PSG Online:

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 bi-monthly newsletter called The Investor, in which they highlight one share with its pros and cons.

They provide bi-monthly 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 Johannesburg, Pretoria and Cape Town.

Sanlam i-Trade:

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 macro economy 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 intra-day tables with graphs of indicators like JSE Indices, Global Indices, Currencies and Commodities.


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