Investing in the Stock Market

Ever wondered, while watching the news, what the whole fuss around shares is, and what economists and investors mean when they talk about equity, headline earnings per share and other confusing financial jargon that is used in connection with all that the Johannesburg Stock Exchange (JSE) represents? Quite simply the JSE is a market for the buying and selling of shares, very similar to a Saturday fruit market only more complex, because it involves large sums of money and great expectations. So in essence the JSE is a regulated market, where listed public companies raise capital for expansion, by selling shares to the public. The reason people are willing to invest in the stock market, is because they know that the JSE sets strict listing requirements for companies, this ensures the investor that there will be a market should they wish to sell the shares at a later date.

There are about 700 companies listed on the JSE, but one can’t just wake up today and go to the JSE building in Sandton and request to buy shares. A person wanting to invest in shares must open an account with a stock broking firm; many of the mainstream banks have capital divisions that also offer brokerage services as well. Orders to buy or sell are then placed with the stockbroker, who will then place the order on behalf of the investor, it is here that the laws of supply and demand govern the market, because if in a certain sector, a company has a great deal of market share, meaning it accumulates more share capital than its competitors in the same sector, it has greater opportunities for expansion and forays into emerging and first world markets, this is why we find companies like Anglo American listed on stock exchanges in London and New York.  Greater expansion and exposure in foreign markets as well, will always boost the profit margin, and this offers the company a greater opportunity to offer dividends to their shareholders, dividends are amounts of money from the profits that are appropriated to shareholders on a yearly, half-yearly or quarterly basis, at the discretion of the company directors.  There are certain things that we need to take into account before we invest, firstly we need to clearly understand that most deals are made in bundles of hundred shares, so shares like Anglo American cant be bought with the average students pocket money (Anglo shares go for about R300 per share, so a standard deal of 100 shares would cost the investor R30 000), so if you intend to spend R10 000 on shares, Anglo American is out of the question. Secondly one needs to look at the past financials, to see whether the company one wants to invest in, has been making a profit over the past few years, and whether or not they tend to declare dividends to their shareholders. For example, if you intend to invest short-term, then you wouldn’t necessarily prefer a share that hasn’t been declaring a dividend regularly, because you would favour a share that gives some sort of income on a yearly basis, it stands to reason that long term investments would be different as is the case with retirement investments.

So, if you are a young person, interested in investing in the JSE, contact your nearest broker, or the capital division of your favourite bank for advice. Upon buying a certain share, a share certificate is issued, and it serves as a proof of ownership, and it is therefore transferred, should you wish to sell the share. Ownership of shares in a listed company allows you to attend the annual general meetings of that company, where as an investor one can question certain decisions made by the directors and so hold them accountable. One last tip, if one has enough money to have a “proper” portfolio, we would advise one to diversify their risk, meaning it would be advisable to not only invest in resource shares, or industrials, but one should spread their risk across the board. We certainly hope, that when you now read the business section of your favourite newspaper, that the section with share prices and movements in share prices will be of particular interest .