Getting Started in Shares
Brought to you by:
JSE Limited &
Online Share Trading
Why are we providing free education?
2
• A study found that people do not invest in shares when
they do not understand them.
• An educated investor is more likely to be a successful
investor and hence a long term investor.
• We want our clients to be successful so that they
continue to invest with us.
• If you lose money you stop investing and we lose you
as a client!
• The more people invest with us the lower the fees can
be
– Our brokerage fees have fallen over the last 4 years
Saving vs. investing
3
• Saving is putting your money in the bank and receiving
interest.
– The capital is not going to grow and the rate of return is
modest and largely predictable
– Storing money safely, such as in a bank or money market
account, for short-term needs such as upcoming expenses or
emergencies.
• Investing is putting your money to work for you
– This offers capital growth (with risk of capital loss) and a share
of the profit in the form of dividends
– Is taking a risk with a portion of your savings such as by
buying stocks in hopes of realizing higher long-term returns.
4
Assets Classes
How risky is each asset class?
5
Shares
Reward
Property
Cash
Fixed
Investment
How risky is each asset class?
Reward
6
Blue Chip
e.g. Anglo
American
Mid Cap
e.g. SPAR
Small cap
e.g. City
Lodge
Derivatives
e.g.
Warrants,
instalments
and Futures
7
Why the share
market?
Why the share market?
8
• Wealth creation
• Long term financial planning
• Retirement planning
• Children's education
Why the share market?
9
• Different types of return:
– Growth (reinvests profits to grow the business)
– Income (distributes most of profits as dividends)
• Liquidity
– Ease, speed and cost of buying/selling
• Accessibility
– 24/7 Online access
• Transparent pricing
– You know exactly what the costs will be
Why the share market?
10
20-Year average return 1988-2007
25
20.1
18.9
20
17.3
16.3
15
11.9
10.2
10
8.4
5
0
Equties
Source: JPMorgan
Own
mortage
Property unit
trusts
Bonds
Inflation
Fixed
deposit
Krugerrands
Why the share market?
11
• An investment of R5000 in Standard Bank in 1990 when
the share price was R1.77 is now worth R305, 000 now at
a share price of R108.00, a return of over 6,000%
excluding dividends (386c in 2007 financial year).
• Merafe; 131c in March 2007 to 319c in April 2008
• Note that one can also experience extreme losses e.g.
– Didata (lost 90% from the highs of 2000)
– Nasdaq
Managing risk
12
+
BIG
PROFIT
Small
Profit
Break
Even
0
Small
Loss
Cut
Your
losses
early
Make sure you do not lose money and you
are half way there!
BIG
LOSS
13
Develop an
investment strategy
Develop an investment strategy
14
• What stage of life are you at?
– Single
– Married with children
– Retirement
• What knowledge stage are you at?
• Know your risk profile and risk tolerance
– Being able to master risk is being able to master the markets.
• What is your investment time frame?
• Success depends on ensuring that your investment strategy fits
your personal characteristics and goals.
15
Understanding the
Share Market
What is a share?
16
• A share gives you a ‘share’ of the assets and profits of
a company. e.g. with Pick ’n Pay you own a small part
of every store.
• If a company does well (is growing its profits) then its
share price should rise.
• Likewise if a company is not doing well (is making
losses) then its share price should fall.
• Owning a share means that you can profit from share
price movements and share income (dividends).
• You get to vote at the AGM
What is a share market?
17
• Like any other market.
• Requires buyers and sellers.
• Stock is bought or sold when buyers and sellers agree
on a price.
• Companies gather to issue shares in return for cash in
order to expand and grow their business (e.g. Pick ’n
Pay may issue shares to grow the number of
supermarkets it has).
What are share indices?
18
• “The market performed well today” – what do they mean when they refer
to the “market”?
• An index is a way of measuring the performance of a selection of shares
across the market.
• When an index is up it means that on balance the share price of most of
the shares in that index have increased that day. If the index is down then
on balance most share prices of the shares on the market have
decreased that day.
• Indices can be used as market barometers for the market as a whole.
Examples of well know indices are:
All Share
30 323
+87.1
Nikkei
12 433
+387.7
Dow Jones
12 100
+25.9
5 693
+56.5
FTSE-100
How to make money in the stock market
19
You can make money with shares in two ways:
1. Buying a share at a low price and selling that share at
a higher price at a future date. This is referred to as
capital growth
– e.g. buying Sanlam on 02 Jan 2007 for R19.00 per share and
selling on 02 Jan 2008 for R22.81. A profit of R3.81 per share
or a return of 20% over that period of time.
2. Receiving dividends from owning a share. This is
referred to as income.
– e.g. Sanlam paid a dividend of 77c in 2007, which is a 4% tax
free yield
What is a dividend?
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• Dividends can be seen like tax free interest earned.
• Dividends are distributions of a companies’ earnings to
shareholders. The dividend earned on shares depends
on the profits earned by the company and payment is
decided by the company.
• The return that you receive from dividends can be
expressed as % and is referred to as the dividend yield
(like interest).
• e.g. if you purchased Sanlam on 02 Jan 2007 you would
have received a divided payment of R0.77 per share. This is
a return of 4% per share. (R0.77 / R19.00 = 4%)
• Income stocks DY 3-8, growth stocks DY less then 3
Dividends returns
21
1992 - 2008
Cumulative
Bi-Annual payments
In 1990 Standard Bank was trading at R1.77
08
20
07
20
06
20
05
20
04
20
20
20
20
20
19
19
19
19
19
19
19
03
Bi-Annual
R 0.00
02
R 0.00
01
R 0.50
00
R 5.00
99
R 1.00
98
R 10.00
97
R 1.50
96
R 15.00
95
R 2.00
94
R 20.00
93
R 2.50
92
R 25.00
19
Cumulative
Standard Bank Dividend History
22
Choosing companies
to invest in
Choosing companies to invest in
Technical Analysis
Fundamental Analysis
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• “The story”- what the company does & what its outlook is (e.g.
Pick ’n Pay is a supermarket chain. The outlook could be good for
the economy and hence for personal spending could lead to more
purchases at Pick ’n Pay hence the profits could be up and hence
the share price could go up as well)
• “The numbers” – review the financial statements of the company
to see how healthy it is. (Look at the income statement to see the
profitability of Pick ’n Pay . Look at the balance sheet to see how
financially secure it is). Look at the Price Earnings (PE) Ratio.
• “The picture” – look at the history of the companies share price
in a price chart (e.g. look at the past performance to see if the
share is rising or falling, what is its trend?)
The story (e.g. Pick ’n Pay)
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From the Standard
Online Share
Trading Website
The numbers (e.g. Pick ’n Pay)
25
From the Standard
Online Share Trading
Website
The Picture (e.g. Pick ’n Pay)
26
From the Standard Online Share
Trading Website
The website (e.g. Pick ’n Pay)
27
We help you by
providing a
research report
that covers:
• the numbers
• the story
• the picture.
From the
Standard Online
Share Trading
Website
From the Standard Bank
Online Share Trading Website
The website (research)
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We help you by
providing a range
of research reports
that covers:
• Fundamentals
• Stocks
• Technical's
• Currencies
• Economics
From the Standard Online
Share Trading Website
The Website (Profile consensus forecast)
29
From the Standard Online
Share Trading Website
Share filter (searching for income)
30
From the Standard Online
Share Trading Website
Share filter results (results for income)
31
From the Standard Online
Share Trading Website
32
How do you buy
shares?
How do you buy shares?
33
• Shares are purchased and sold through a Stockbroker
• There are two types of brokers, online (discount) and full service
brokers:
– Full Service stockbrokers:
• Give advice and trade over the phone
• Have high fees and minimum investment amounts (e.g.1.3%-1.75% and
R300K- R1m)
– Online Stockbrokers:
• Trade via a website (like internet banking)
• Provide telephonic support
• Give buy and sell recommendations online
• Have low fees (0.6%) and no minimum investment amounts.
• Have many tools that help you to manage your share portfolio
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Costs
Online Share Trading Costs
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• Brokerage is charged at 0.6% of the trade with a minimum fee of R70 plus
statutory taxes (detailed below).
• Monthly fees of R50.00 (incl VAT). This fee waived if you trade 3 or more times in a
month.
Worked Example
Projected costs of shares
Uncertificated Securities Tax @ 0.25%
STRATE Fees
Investor Protection Levy
Brokerage
VAT on Charges
Total Trading Costs
Costs as a %
R 10,000.00
R
25.00
R
10.92
R
0.03
R
70.00
R
11.33
R
117.28
1.17%
R 15,000.00
R 37.50
R 10.92
R 0.03
R 90.00
R 14.13
R
152.58
1.02%
Exchange Traded Funds (ETF’s)
36
• SATRIX 40 is an example of an ETF: is a share that tracks the
performance of the top 40 shares listed on the JSE without
actually buying all 40 shares.
– Satrix40 purchased on 02 Jan 2007 for R22.80 could be sold on 02
Jan 2008 for R26.60. This is a capital return of 16.6%.
– You would have also received dividends of R0.5526 or a dividend
yield of 2.4% (paid quarterly).
• Good “starter” share as it gives you general exposure to the stock
market.
• Much like a unit trust but cheaper with better performance.
• Other ETF’s (db x-trackers, PropTrax and NewGold)
37
Why Standard Online
Share Trading ?
Why Standard Online Share Trading ?
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• Lowest minimum brokerage (0.6% with R70 min)
• The biggest online broker in South Africa
• Education is our differentiator
• Buy and sell recommendations and research.
• All the information needed to make your investment decisions
• High interest paid for any cash kept in the share account. As at Jan 2008 the
rate starts at an effective 9.83%. The money is available on demand.
• Lots of tools e.g. SMS / email share price alerts to keep you in touch with the
market.
• Online charts
• You do not need to have a Standard Bank account!
Educate yourself! Free courses
39
Name
Introduction to investing
Duration
5 hours
When
Saturday morning
How to use the website
2 hours
Mid-week evening
Technical analysis (Part 1)
5 hours
Saturday morning
Market truths and trading skills
1.5 hour
Mid-week evening
Investing using fundamentals
1.5 hours
Mid-week evening
Introduction to share installments
1 hour
Mid-week evening
Half day detailed warrants course
4 hours
Saturday morning
Technical analysis (Part 2)
5 hours
Saturday morning
1.5 hours
Mid-week evening
5 hours
Saturday morning
1.5 hours
Mid-week evening
Futures (single stock & currency)
Company announcements & fundamentals
JSE Investment outlook
These courses can easily cost around R10,000
Online courses
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• We also have online courses on our website:
– Basics of investing (80 page 5 unit PDF document)
– Technical analysis (the picture)
– Derivatives
• Warrants
• Share installments
• Single Stock Futures
• Currency futures
– Fortnightly educational newsletter
41
Next Steps?
Register Online at www.securities.co.za
42
Attend Free Introduction to
investing presentation
43
All courses can be booked
online
From the Standard Online
Share Trading Website
Free educational newsletter
44
7 Pages packed with;
– Articles on economics, markets, investing & trading.
– Reviews on books, websites & podcast.
– Up coming event reminder.
– And more, much more.
• Sent out fortnightly in PDF
• To subscribe send an email to
securities@standardbank.co.za with the subject
“subscribe educational newsletter”
Auto Share Invest (ASI)
45
• For Online Banking Clients
• Monthly purchase of shares
• R500 minimum per purchase
• Low cost structure
– R20 + 1% per transaction
• Pre-selected companies
– 27 well known companies
• Can sell once per week
• Can stop purchases at any stage
46
Advise vs. Research
Advise vs. research
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• Common sense
• Research is easier then you think
– It’s already part our regular life
• How much time is enough ?
– How much time did you spend when you bought your last
house or car ?
• Hot tips are not a strategy
– They tend to be a “self fulfilling prophecy”
Disclaimer
48
• The information and opinions stated in this document are of a general
nature, have been prepared solely for information purposes and do not
constitute any advice or recommendation to conclude any transaction or
enter into any agreement. It is strongly recommended that every recipient
seek appropriate professional advice before acting on any information
contained herein. Whilst every care has been taken in preparing this
document, no representation, warranty or undertaking, express or
implied, is given as to the accuracy or completeness of the information or
representations. All information contained herein is subject to change
after publication at any time without notice. The past performance of any
investment product is not an indication of future performance. Online
Share Trading is operated by Standard Financial Markets Proprietary
Limited Reg. No. 1972/008305/07, a subsidiary of the Standard Bank
Group Limited and authorised user of the JSE Limited. .