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JSE Direct with Simon Brown

Weekly podcast hosted by Simon Brown covering the JSE and listed companies.
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Now displaying: May, 2018
May 30, 2018

How to choose a stock broker

First off understand the difference between a stock broker and an FSP. The former is an exchange member and gets protection and regulations from the exchange. An FSP is regulated by the FSCA (formerly the FSB) interview with Charles Savage on how this works

It is very important that they are registered with a regulatory body. Even an offshore regulatory body is fine, but only if it is in a country in which you trust the laws. Avoid fly-by-nights registered in some second rate dodge country.

Also understand potential fees.

  • Brokerage. What you pay when you transact, also check if there is a minimum brokerage rate.
  • Admin fee charged monthly, quarterly or annually. Some brokers will waive this fee if certain number or value of trades is meet.
  • Live prices / charts. Some brokers give limited live prices and above that you'll pay.
  • Charting package. Many will have a 'lite' version included in admin fee with more advanced at additional cost.

Then what services do you want from your broker (using broker as generic term)?

  • No or very few frills. Just buying and selling functionality. No; stop loss facility, live prices, data, detailed research etc. Should be cheapest.
  • Frills for which you will incur higher fees (transaction and admin). Here's you'll likely get limited live prices, limit and @market orders, online charting, event invites, research and share data. This is the space most online brokers sit and the range of fees is wide so shop around.
  • Trading broker. Offering derivatives (CFD, futures & FX), live charts (at an extra fee). These are often stand along brokers but in some cases coupled with traditional online brokers.
  • Full service. This will include 'help' from the broker as to what you're buying selling. Here they'll usually want a large portfolio to make it worth their time.
  • Managed portfolio which the broker manages your portfolio within the mandate you set for them. They have full discretion as to what to buy or sell and again they'll want a large portfolio to make it worth their time.
  • Collective investment such as ETF or unit trust. You buy into the fund and they manage the money within the mandate, active (with different methodologies) or passive (again with different methodologies).

Do your research. Google the broker for reviews, check online forums and social media for complaints or praise. Ask others who they use and what they like / dislike about the broker. Take a trail to check out the user interface (if offered).

And before you all ask me, I use Standard OST and have done for almost 15 years. Not the cheapest but they meet all my needs.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

May 23, 2018
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Simon Shares

Make trading asymmetrical

I have spoken often before about how one of the huge benefits of investing is that a diversified portfolio is asymmetrical. You may have held some horrid share and lost 100% of its value. But 100% is the most you can lose and your winners can exceed 100%. In fact a true long-term portfolio will most definitely have many +100% winners so if you do get caught in a 100% loser - you're fine. The important point is that you need to be diverse and have more than one share and ideally a core of ETFs surrounded by a selection of 10-12 quality shares.

Now as a trader of leveraged products such as FX, CFDs or futures your potential loss in any trade can exceed 100%. The warning that loses can exceed your deposits is absolutely true and as such trading is symmetrical. Your winners can be offset by losers and you can end up going nowhere, or truthfully you end up losing money.

But a trading portfolio can be asymmetrical, if we have a strict stop loss we adhere to every time. EVERY time. Couple that with the 2% risk rule (never lose more than 2% of your capital in any one trade) and bingo - you have asymmetry in your trading portfolio as well.

This is the whole point of trading. We'll have a random dispersement of small losers and winners. A lot of break even trades with the occasional large winner but also the occasional large loser. Without the silent killers of; spread, slippage and costs, that portfolio would go sideways. All we have to do is ensure we NEVER have a large loser and boom, we're making money.

This points to the tree critical aspects of trading. Position size (2% rule), stop loss and capital.

Capital is important because if you have only a few thousand rands to trade with you cannot do proper position size hence ensuring you'll go broke.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

May 16, 2018

Would you buy it again?

Would you buy that share today if you didn't already own it?

If not, why not?

I'm talking about those dog shares again because we all have them. This week I pose a simple question to solve the problem.


Sometimes tech fails. This was one of those weeks, so a short show.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

 

May 9, 2018

Simon Shares

  • So a friend has a business that has been beset by fraud and is now bankrupt and is trying to find some new investors. They have no financial statements to show you and no real idea how bankrupt the company is or how bad the fraud was. Do you invest? So why scramble for busted JSE stocks?
    • Thanks to Kristia van Heerden for the analogy.
  • Libstar (JSE code: LBR) has listed on the JSE. The listing price was right at the bottom of the range at 1250c and opening trade was around 1200c and expensive. Historic PE is apparently around 26x and sub 20x is the maximum to pay, so 900c - 950c. Personally I am not looking to buy.
  • Long4Life* (JSE code: L4L) publish their first results and pay a dividend. The dividend is odd as they on a buying spree so why pay out cash? R1,7bn cash = about third market cap, HEPS 30c so on non cash market cap = PE of some 12x which is fair (compared to some it frankly deeply cheap).
  • Decent Santova* (JSE code: SNV) trading update, especially considering stronger Rand hurting with majority of earnings from offshore.
  • Back in March Naspers (JSE code NPN) sold US$9.8billion worth on Tencent shares and has now sold its Flipcart stake for US$2.2billion. That's a US$12billion (R150billion) pile of cash. Trader1137 on Twitter suggests maybe they'll use it to buy back some shares, would be about 10% of market cap.
  • The Berkshire Hathaway AGM was on Saturday and the audio is here
  • Upcoming events;

* I hold ungeared positions.

Fight the FOMO

Fear of missing out. Man this used to kill me when I started out in markets. It's a true killer as it makes us do irrational things. Pause for a moment, we have say 400 stocks listed on the JSE, your odds of picking the top performer over the next ten years is 0.25%. You're pretty much guaranteed to miss out. Globally 100,000 stocks so 0.001% chance.

Thing is hype and higher prices make us scared. Scared we picked the wrong stock. Scared we're missing out of becoming fabulously wealthy. We need the courage of our convictions and perhaps more importantly the courage to be wrong, often.

FOMO will make us do stupid things. We'll jump in with no real research. We'll jump in with no exit plan. We'll jump in at far to rich valuations.

Forgot about the flyers and focus on your plan. What are you investing for and how long is your investment horizon. Find quality stocks at good prices that meet your requirements. And if you find yourself suffering from FOMO remove yourself from the market (like over a weekend or on a internet free holiday) do solid research on the stock. Find the nay sayers and see what the counter argument is and try construct a real evidence based plan and a price you think is a fair one to pay.

There is another angle of FOMO I want to touch on as well. When you're in the stock (or crypto or whatever) and now feel you need to convince everybody else that they're missing out. Sure they may be, but truthfully they may have done their own research and decided it is not for them and you could both be right (different strokes for different folks). Not everything is for everybody. But more importantly is that assets need people to be missing out, that's how they go higher. For example Buffett was very late to Apple (Nasdaq code: AAPL) only building a stake in the last 18 months, a stake that is now over 5% of the company. If he'd bought back in say 2008 or 1998 he would not have been a large buyer over the last 18 months and make no mistake, his large buying, and the news of his stake, has sent the price higher. You need late comers. If everybody is in on day one then who pushes the price higher on day two?

Taking it a step further, the market needs disagreement otherwise nothing would happen. So don't hate on people who don't love your investments. See them as potential future price drivers.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

May 2, 2018

 

Simon Shares

  • Apple (Nasdaq code: AAPL) results show a maturing company as iPhone sales have decidedly slow. But they're far from down and out with app store sales, accessories etc. doing great and they still have a monster cash pile.
  • Rand under serious pressure trading out at R12.60/US$ after R11.50/US$ in late February. This is in large part due to US$ strength and it does not make me panic and change my long-term view of Rand strength.
  • Steinhoff (JSE code: SNH) below 200c.
  • In the 6 years to 2018, Barclays (LSE code: BARC) paid out £35.6billion for litigation, misconduct charges, bank levies, losses from asset sales etc. This is £1billion more than operating profit during the period!
  • Pembury (JSE code: PEM) has been suspended for late results as they struggle with some IFRS issues. I like the retirement idea, but the rush to list as a schools company was concerning and the share has been under pressure. Further the inability to publish what must be fairly simple results is more concern. Let them prove themselves before even bothering with the stock.
  • The Mouton family has just bought some R90million of PSG shares, I mentioned in my SA Inc video that they are the best indicator of value in the stock.
  • Six questions to ask before buying an ETF.
  • Foreign dividends.

Responsibility of knowledge

Knowledge is power but only if you share it.

Every year since 2007 I have been a speaker at the annual JSE Schools challenge prize giving in October and a key theme has always been - the responsibility of knowledge. This talk is aimed at school kids but it occurred to me that actually this part of the speech is actually relevant to everybody. Actually all the parts are but they're another podcast for another time.

As investors or traders or even if only a novice our knowledge on markets and investing is way more than the vast majority of people and that puts a responsibility on us - we need to share this knowledge.

This is less about hot tips, in fact leave the hot tips out of the equation. it is more about helping other people understand the market, ETFs and how it really can create wealth with no rocket science required.

Remember the average South African knows nothing about the market and is generally fearful of it and we can help change that and help create smarter and ultimately richer South Africans.

Tell them about tax-free. About ETFs, about fees killing returns. Tell them.

And even if you think you have no knowledge to share as you're still learning - wrong. You have way more than the average person. So get talking.


JSE – The JSE is a registered trademark of the JSE Limited.

JSEDirect is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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