I wrote this piece for Biznews back in 2014. Biznews is the online news publication founded by Alec Hogg. The purpose then, which still applies today, was to encourage young people to consider investing in the stock market and also show how accessible the market is. I am republishing it here as there has been a lot of readership interest on the subject of investing, especially in the stock market.

 

What I know about investing is what I read in newspapers, financial magazines and investment books. I haven’t had the luxury of others in the family that came before me who could share their investment knowledge. I have always been loathe to pay someone a fee to manage my investments. After reading “Rich Dad Poor Dad” a second time in December 2007, I realised that a salary alone wasn’t going to get me to financial independence. So things had to change. I was 25 at the time.

I had the advantage that, through my work as an article clerk, I was exposed to some of the JSE-listed companies. There were companies whose names I merely recognised without knowing what they do, but Google simplified this.

Reading the business paper daily and weekly publications like Finweek and the Financial Mail helped de-mystify the companies I read about and the people running them. I then did some research on stock brokers until I eventually settled for Absa for the mere reason that its annual fee was waived once you traded more than three times in a year.

TWP was the first company I put my money into at R24 per share. However I lost 50% of my investment following on the financial crisis in 2008 and the subsequent acquisition of this company by Basil Read (JSE: BSR). Luckily it was only R3K. After this came Aspen, which I traded in and out of several times until I realised the only person I was benefiting was the South African Revenue Service and the stockbroker.

To put things in perspective, I started investing in the stock market at the beginning of 2008, just before the financial crisis. For most of that year my portfolio was in the red. I was most grateful that I was young and could afford to lose some money as I had no immediate need for the cash I had invested. But it was still painful to watch. At this stage I was checking my trading account daily and panicking. It was also painful to not have people close to me and in my age group to share this with. However I was persistent in this path and the more I read, the more interested I became in bettering my skill.

One thing I was clear on from the start was that I would not use any fancy software to trade. I like keeping things simple. I would look at a company and consider what they sell and how their product was affected by changes in the market.  I became conscious of them even when shopping. I would reason to myself, for example, that baby formula would remain in demand for as long people were having babies and that people fall sick regardless of what season it is. So I bought Aspen (JSE: APN). Whenever I would get a prescription for medication I would check the manufacturer and would be happy if it is Aspen. I knew I was supporting “my company”.

That became how I selected companies to invest in. Their business had to make sense. Since we were in a recession, I reasoned that people would trade down, and not buy expensive items. I figured I couldn’t go wrong with Mr Price (JSE: MPC). Then Woollies (JSE: WHL) for the mere fact that people aspired to move upwards in society.

Most entities were benefiting from the black middle class and the retail boom so why couldn’t I? I put my money in Resilient Property Fund (JSE: RES) as a result. I also bought into Life Healthcare (JSE: LHC) simply because people get sick regardless of what is happening in the economy.

I also lost money in the process mainly because I didn’t have a strategy from the onset. I later learnt the value of doing your homework and determining how long you want to be invested in a share.

This led me to evaluate my portfolio performance and dispose shares like Protech Khuthele, which I bought in the hope of making a quick buck because it was cheap. This share taught me about the risk in buying small caps, mainly the difficulty in exiting due to illiquidity.

It became harder to sell after the world cup and, despite the share price falling, I remained hopeful that it would recover. I later realised that I was being emotional and eventually I sold at a loss. And when they filed for business rescue this year, I was very happy that I had at least salvaged 40% of my money.

I have since trimmed my portfolio to just four shares. The profits I have made in Woollies, Mr Price and Aspen keep me going and have made me realise the value in starting young and in taking risks.

There is lots that I have learnt which would have remained a mystery had I simply given my money to a fund manager. I also learnt that you shouldn’t play with money you cannot risk losing. I once put money that was meant to cover the deposit for a property my husband and I were buying in Vodacom (JSE: VOD) shares, hoping to make a quick profit. Things didn’t turn out the way I had planned and I lost some money. And needless to say, when I was waiting and hoping for the share to recover the transferring attorneys called for the deposit. I had to buy time…and come clean to my husband.