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. Private investors 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 for portfolio managers and private traders alike.
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 or your clients 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 to 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 opportunities. 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 be offering 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 because 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.
It can be difficult for investors to successfully navigate market volatility In times of market instability, clients need your reassurance. By offering a portfolio management service, you can give your clients the comfort of knowing that their hard-earned savings can be entrusted to professional management. If you follow a consistent strategy, it should create a diversified portfolio of quality stocks positioned for long-term growth. Over time, markets recover from the volatility caused by short-term events.
SECOND QUARTER 2016