Managing information overload. Many private investors feel overwhelmed by an information overload, as it is almost impos
INVESTING AND TRADING Successful trading: putting the basics in place Shaun van den Berg Head of Client Education PSG Wealth
The advent of the internet in the late 1980s levelled the playing field between private and institutional investors. As a private investor you can now access a company’s financial statements and detailed operational information on its website – a far simpler and faster way of conducting research than ordering financial reports by post. Technical analysis software also helps you to identify market trends and scan the market for buying and selling opportunities. Freely available information and research functionality offers significant benefits.
Managing information overload Many private investors feel overwhelmed by an information overload, as it is almost impossible to keep up to date with all the news being generated by the market daily. Many stockbroking platforms (such as the PSG Wealth trading platform) therefore make additional research tools available to help you filter out stocks that meet certain fundamental criteria. This is a big time saver, as you can create smaller and more manageable lists of shares to investigate further. Depending on your investment strategy, it can also help you focus on undervalued, quality or growth stocks. A focused watch list of prospective winners also allows you to collate all relevant share information into a single page. This includes related Stock Exchange News Service (SENS) announcements, for which you can set up SMS and/or email alerts.
Determining your investment style and strategy Contrarian investing When the market sells off heavily, contrarian investors see opportunity. They use an investment strategy that is based on the principle of rationality: they recognise that markets may overreact to negative news with distrust and fear, and be overly optimistic when news is good. When everyone is selling, the contrarian investor is buying – and vice versa. At the top of the market cycle, a rational, contrarian investor would use fundamental analysis to find those shares that still present good growth prospects and retain healthy balance sheets. They also incorporate technical analysis or charts to establish trends and time their buying decisions correctly. Bargain hunting Another name for a bargain hunter is a value investor. A value investor searches for shares that they believe the market has sold off far enough to put them into undervalued territory, based on certain financial ratios. They believe that the price movements
of such shares do not correspond with the related companies’ long-term fundamentals, and use these opportunities to lock in future growth opportunities. At the same time, they avoid shares that they feel are overpriced compared to their assessments of value. Currently, the FTSE/JSE All Share Index is still considered to offer fair value, as it is trading on a price-earnings (P/E) ratio of about 21 times. However, there are many overvalued shares included in the index, especially amongst heavyweight industrial rand hedge shares such as British American Tobacco, SABMiller and Richemont. With the exception of Richemont, these shares have experienced a good run, as investors have taken advantage of rand weakness. In contrast, the list of undervalued shares is rather limited, and consists mostly of mid-cap and small-cap shares.
Surprise! Surprise! Managing market volatility Private investors generally hate uncertainty, as they do not know in which direction the market is expected to move. Uncertainty leads to panic, which ultimately results in volatility and greater risk. A recent example is the unexpected vote by the British to leave the European Union and British Prime Minister David Cameron’s subsequent resignation.
Consider getting professional advice and expertise It can be difficult to navigate market volatility on your own. Unless you are a seasoned investor who outperforms the markets consistently, it may be worth considering appointing a qualified financial adviser to help you make investment decisions. Their expertise can give you the peace of mind of knowing that your hard-earned savings are in capable hands.
SECOND QUARTER 2016
