Focus on the stock market- Learn how to play the JSE and make cash.
South Africans aren't big on buying shares - at least as individuals. In SA, the share market is dominated by institutional shareholders - financial institutions such as insurance companies and asset management companies. Most people just don't know much about investing; many think that buying shares directly is hugely expensive, or they are afraid of spending money on the Johannesburg Stock Exchange (JSE).
Smaller investors tend to invest using indirect methods such as unit trusts, where decisions about where to place money are made by investment professionals.
But savvy private investors can participate directly in the share market if they're willing to do some research.
There are many ways of investing on the JSE and it's not necessarily expensive, nor is it difficult to understand. But it does come with a health warning - by investing directly, the risk is borne entirely by the investor. If the investment goes sour, there is no one to blame. On the positive side, all the profits - less any taxes payable - are enjoyed by the investor without being absorbed by often superfluous layers of 'advisers'.
Plenty of information exists on share prices and the companies listed on the JSE. It can be found in publications such as the Financial Mail and Business Day, or on websites like Moneyweb.
Analysing companies - using publicly available information - can be interesting and even exciting. Annual reports are available from a company's offices or its website. Using relatively simple techniques like examining price:earnings ratios (PEs), one can quickly get an idea which companies offer value and which are over-priced.
When you've done your homework on a company, and decided that buying its shares would be a good investment, the next step is buying the shares.
First, you've got to get 'FICA'd'. FICA is the Financial Intelligence Centre Act and was established to combat money-laundering. All financial transactions in SA require clients to give information to their banks, stockbrokers, estate agents and so on, before any transaction can be done. This means completing forms with your ID number, proof of residence, tax reference numbers and other information.
The quickest, easiest and cheapest way to buy shares on the JSE is via what are called Exchange Traded Funds (ETFs). These aren't individual shares - they are 'baskets' of shares, constructed to replicate an index, which is traded on the JSE (or sometimes further afield).
The Satrix suite of products is a typical local ETF. Satrix products are ideal for smaller investors, as they allow you to build a very diverse share portfolio at a low cost. Satrix products are easy to buy, either in lump sums or on a regular monthly basis. They can be bought on the Satrix website (ww.satrix.co.za), or through stockbrokers.
A close sibling of Satrix - called Itrix - allows investors to buy UK and European portfolios as well.
Buying actual shares directly is slightly more complicated, as it involves dealing through an authorised member of the JSE - either a stockbroking firm or a bank. Many stockbrokers insist on a minimum portfolio size of at least R100 000, which deters small investors.
But technology has come to the rescue for small investors. Many stockbroking firms offer their clients online dealing, so they can buy and sell from their own computer at any time.
The cost of this service is relatively low, ranging from around R50 to R100 a month, plus any brokerage costs.
Usually, there is no lower limit of portfolio size for this service. Some firms even refund the brokerage fee if you trade frequently.
There are all kinds of stockbroking firms out there, and you shouldn't assume that the rules for one are the same as for another. It's worth shopping around to see which firms offer the best deal, as fees and levels of service can differ considerably. A list of all stockbroking firms can be found on the JSE's website (www.jse.co.za). Some firms, like Legae Securities, have no lower limit for share dealing and encourage smaller investors. They don't, however, offer Internet trading, preferring the personal approach.
If you want to try your hand at investing, but don't have a spare rand to put in, try virtual investing. The JSE organises a game called the JSE/Liberty Life Investment Challenge, where you can learn about investing, and make decisions about real stocks - without actually spending any money. If you invest your virtual money wisely, however, and play better than the other student competitors, you can win real Satrix securities. You've got to register now to get into this year's game. See http://university.jse.co.za for more information.
This article was originally published in FM Campus. It is reprinted in FirstStep, courtesy of FM Campus. For more FM Campus articles and information, visit www.fm.co.za/campus