Step-by-Step Guide: How to Buy Shares on the JSE

  • The Johannesburg Stock Exchange (JSE) is renowned as the best stock market in Africa, delivering exceptional returns for investors and traders. However, for people looking to enter the exciting world of trading and investing in shares, knowing how to buy JSE shares can be a daunting prospect. If you’re one of these people, follow this step-by-step guide to investing in the JSE for beginners.

Step 1: Finding the right shares

  • Buying shares isn’t simply a random process. You’ll have to do some solid research to determine which are the best JSE shares to buy at the specific time you’re looking to enter into the stock market. Take note that you can’t independently buy shares – you have to find a registered stockbroker who will purchase them on your behalf. But before you get to that stage, it’s essential to gain an understanding of the workings of the stock market and the process of buying shares on the JSE. The JSE website has a comprehensive set of free training materials which covers all the jargon associated with JSE stock exchange shares and how to buy JSE shares, so it’s recommended that you go through these.

  • But how do you go about selecting the best JSE shares to buy? This largely depends on how much risk you’re willing to take, as well as your budget. There are plenty of JSE shares under R10 in price, and these are a good start for new investors looking to invest a relatively small amount. You could also decide to invest in penny stocks, which include JSE shares under R1.  Unfortunately, if you only have around R1000 to invest, then buying even the cheapest stocks won’t be worth it, due to the 10% average cost of brokerage, which will cancel out any profits. Realistically, you’ll need to start with around R5000 to make the effort worthwhile.

  • The next logical question is, what are your investment options on the JSE today? Ordinary Shares are the most common type of shares traded on the stock market. These give you full voting rights at AGMs, as well as dividends, while allowing you to benefit from capital growth if the company is doing well. If you choose wisely, by reading through company annual reports, keeping track of market-related news and staying abreast of current affairs, you stand a good chance of gaining inflation-beating returns from ordinary shares.

  • For the more inexperienced investor, exchange-traded funds (ETFs) are also a good option, giving you exposure to a basket of top performing shares for sale on the JSE. These save you time and money by enabling investment in a variety of asset classes through a single listed investment product. Diversification means that the risk of losing money is less, but the rewards are less too.

  • For the more inexperienced investor, exchange-traded funds (ETFs) are also a good option, giving you exposure to a basket of top performing shares for sale on the JSE. These save you time and money by enabling investment in a variety of asset classes through a single listed investment product. Diversification means that the risk of losing money is less, but the rewards are less too.

Step 2: Find a broker

  • As mentioned previously, you’ll need to go through a stockbroker if you want to buy shares on the JSE. There are a number of member firms to choose from, and a full list can be viewed on the JSE website. When deciding on a broker, you’ll want to consider the associated charges, the way you want to trade and what you want to invest in.

    Different firms often have different specialities, so make sure that you choose one with good experience in the specific sector you’re thinking of investing in. You’ll also want to take into account whether you want your stockbroker to take on a full-service role which includes offering advice and managing your portfolio, or whether you simply want an ‘execution-only’ broker who never suggests what to buy or sell, and only acts on your instructions. The first option is obviously far more costly, but advisory brokers can offer some solid insight into the best JSE shares to buy and how long to hold onto your shares before selling. With the latter option, you’ll generally be able to buy shares online quickly, using the first stockbroker available through your chosen member firm.

  • Go carefully through the JSE stockbroker list and compile a list of three. You can give them each a call if you want to get a general feel for the customer service they offer. At the end of the day, you can have more than one broker and can decide to change brokers if you feel like you’re not getting what you need. Of the many stockbrokers trading on the JSE, around a dozen offer online trading for individual investors, which clients pressed for time will find convenient.

  • Once you’ve chosen a broker, you’ll be required to fill out some paperwork and sign off on some terms and conditions. Most stockbrokers offer individual investors a logical, easy way to fill out application forms online. You’ll be asked for general client information and residency status, as well as Financial Intelligence Centre Act (FICA) documents including:

    • Copy of South African ID, or a Passport if you’re a foreign national.
    • Proof of residence less than three months old, can be a utility bill from where you live. (Alternatively you can provide declaration by a third party confirming you share an address with them).
    • Copy of a South African Revenue Service (SARS) document confirming income tax number.
    • Copy of a bank statement (less than three months old) in order to confirm banking details.

Step 3: Setting up your personal account

  • It’s almost time to start trading! After you’ve submitted all the required paperwork, your stockbroker will call you to officially open your account. This generally requires the lump sum you wish to invest, which will be kept in an account called the JSE Trust Account. This account ensures that your money is protected if anything happens to your broker. Some brokers will offer you the choice between discretionary and non-discretionary accounts.

    Discretionary accounts allow brokers to make trades without the consent of the account holder, based on his belief on the best way to achieve investment returns within acceptable levels of risk specified by you. This is a good option for the beginner investors with money to spend and without much inclination to do their own investment research. Non-discretionary accounts have smaller brokerage fees, and with thorough research you’ll generally be able to identify some of the best JSE shares to buy.

  • It’s usually free to set up an account, and only a monthly administration fee of between around R15 and R100 is paid to your broker. A common misperception is that stock-monitoring or trading software is required to invest or trade on the JSE. This is incorrect, and the JSE does not endorse, sell or authorise any such software. Marketing campaigns often say that these programmes allow for ‘direct trade’ on the JSE, but this is also false: you can only invest on the JSE by opening an account with a broker. Most brokers stipulate a minimum amount in your trading accounts when you start out – differing from broker to broker. Remember the R5000 rule if you want to have a realistic chance of receiving returns.

    Once the money to open your account is cleared, you can begin investing in your first shares.  

  • Once you’ve chosen a broker, you’ll be required to fill out some paperwork and sign off on some terms and conditions. Most stockbrokers offer individual investors a logical, easy way to fill out application forms online. You’ll be asked for general client information and residency status, as well as Financial Intelligence Centre Act (FICA) documents including:

    • Copy of South African ID, or a Passport if you’re a foreign national.
    • Proof of residence less than three months old, can be a utility bill from where you live. (Alternatively you can provide declaration by a third party confirming you share an address with them).
    • Copy of a South African Revenue Service (SARS) document confirming income tax number.
    • Copy of a bank statement (less than three months old) in order to confirm banking details.

Step 4: Making your first share purchases

  • Discretionary brokers have a good knowledge of how to buy shares, and their financial wellbeing is at stake too, so you can usually be assured of some savvy purchases (along with higher commission fees). If you’re taking the non-discretionary route, then as a beginner it’s recommended that you identify between 4 and 5 different shares to purchase, as this will offer some diversification – important for shielding you from significant dips in any particular market.

    This is where the true value of ETFs lies. You’re able to set a monthly debit order to purchase these ETFs. By buying EFTs through a good broker, having access to brokers’ daily reports and taking advantage of the free training courses and educational material offered by most, you’ll be able to build up extra knowledge of the stock market until you feel you’re ready to venture into the world of ordinary shares.

  • Some questions you’ll want to ask when deciding on the best South African shares to buy now:

    • Do I want to trade or do I want to invest? There’s a difference between trading and investing. Trading generally means that you’re looking to buy and sell shares on a regular basis, which is generally a high risk, high reward tactic. If you’re looking for long-term growth, rather invest in a larger company with a consistent record of steady growth.
    • Is the share in a high growth sector?
    • Is the share well priced? The much used adage of ‘buy low, sell high’ applies here. Cheap isn’t always good however, as this could mean that the company is at the start of a long decline. Be sure to do your research.
    • Is the company’s management stable?
  • The value of research cannot be understated. Some indicators to pay attention to:

    • Price to Earnings Ratio (P/E). P/E measures how much investors are paying for each rand the company earns. This can be calculated by dividing the company share price by net income. Seasoned investors generally look for undervalued stocks, which have a P/E ratio of around 15 or lower.
    • Go through the company’s quarterly and annual financial reports. Look for a sound history of revenue growth, a solid profit margin and the ability of a company to pay dividends, all of which point to sound financial standing. The share price is likely to be more volatile if the company has a lot of debt.
    • Be wary of rave reviews. If a wide cross-section of analysts are punting, for example, the best JSE shares to buy in 2017, this likely means that a number of investors will be jumping to buy the stocks, which could over-inflate the price and become difficult to sustain. You could be left with little potential for upside growth in share price.
    • Expect some volatility. Individual shares are always more volatile than ETFs, so you can expect some swings in share price. It’s worthwhile to study full year highs and lows for stocks you’re considering to get an idea of how much the prices can swing.

Conclusion

We hope that this article has provided you with a better idea of how to buy shares on the JSE. The JSE is an exciting place to invest. However, don’t be fooled into thinking it’s easy. It’s vital to have a good grasp of the workings of the stock market and the economy as a whole, as well as the health of the particular markets you’re deciding to invest in. With a proper investment plan, and a portfolio which includes a good mix between established, large companies and growing businesses with high potential, you’ll find the best JSE shares to buy right now.  

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