Q. I keep hearing news about how the stock market in the US keeps rallying and want to know if there’s any way I could get involved in shares?

A. Whether investing locally or abroad, if you are new to stock market investing, choosing shares can be a complicated process. It may be a better idea to seek advice (from a stockbroker) until you know enough to comfortably make your own choices.
If you are a beginner you could invest in either an equity unit trust fund or an exchange traded fund (such as the Satrix40) that tracks an index such as the JSE Top 40 index. They are safer (comprising bundled company shares) and thus minimises the risk of you making a loss. They are also a lot cheaper to invest in — so a sure bet for student investors.

Ideally what you really need is solid, reliable information. If you’re brave and choose to go it alone, you should choose a range of shares across different sectors to diversify your investment and reduce your risk as the tracker funds do. If one share performs badly, your exposure is not so high and other shares’ performance can offset your loss.

For more seasoned investors, getting exposure to offshore has been made easy through the introduction of tracking funds such as GinsGlobal Index Funds or Umbono Fund Managers – who provide access to overseas stocks. Again some careful research into the workings of ownership of overseas shares (tax, charges, brokerage fees etc.) will prevent you from getting any nasty surprises.
Here are some types of shares to know about when choosing the type that suits your risk-profile/investment needs. Once you’ve familiarised yourself with the basics you will find an array of share-investing tools and avenues.
TYPES OF LISTED SHARES
There are different types of shares in the stock market.
• Blue-chip shares: Derive their name from poker in which blue chips have the highest value. Typical blue-chip shares, such as SAB Miller and Tiger Brands, are large, solid companies that are usually among the stock market’s top 40. They tend to have a long history of returning solid profits.
• Empowerment shares: Also called black-chip shares, these can be picked up cheaply when large companies, such as Sasol, do empowerment deals. But be sure you understand the terms and conditions that go with these offers.
• Growth shares: These are shares in companies that have produced consistent above-average revenue and earnings growth, and are expected to continue to produce such results in the medium term.
• Value shares: The share price is usually below the perceived value of the company. This may be because the industry in which the company operates is not performing well or the market has taken a dim view of the prospects for that industry. You would invest in a value share because you expect the price to eventually return to a level that reflects its fair value.
• Income shares: These have a high dividend yield, meaning they pay good dividends. They are usually companies that have a high capacity to generate cash.
• Cyclical shares: Shares in companies, such as Truworths, whose operating and earnings performance is closely linked to the economic cycle.
• Non-cyclical shares: Shares in firms whose performance is largely unaffected by the economic cycle. An example is food producers. Even when the economy is going through a downturn, people will continue to buy food.
• Defensive shares: These are shares in companies that are essentially non-cyclical and can therefore withstand difficult economic conditions.
• Rand hedge shares: Companies (such as Richemont) that largely earn money in foreign currencies are considered rand hedges. They offer protection against rand weakness.
• Penny stocks: The smallest of small-cap shares, they usually have a price of less than R1. These stocks are generally considered to be highly speculative and high-risk because of their lack of liquidity and small capitalization.
Source: Personal Finance & Independent Online.
Once you have narrowed down your selection by deciding on the market sector, company size and type of shares you wish to buy, you have to understand the companies whose shares you’re considering and research their operations to make a more informed decision about investing in shares.
Visit FNB’s education centre at www.fnb.co.za/shareinvesting to learn more about investing on the JSE.

Other useful sites that provide online trading simulations include:

http://courses.standardbank.co.za or https://securities.standardbank.co.za/ost/nsp/help/introduction.asp (Standard Bank)

https://www.absastockbrokers.co.za/ (Absa Bank)

http://www.oldmutual.co.za/personal/online-share-trading.aspx (Old Mutual)

https://nedbankpbtradeonline.nedsecure.co.za/ (Nedbank)