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