There is much to analyse in the JSE, so much that you need to know before you start making your investments in shares. When you start analysing the stock market and the shares available it can be very helpful to find out which companies hold the most popularity among the trading professionals. Those shares that are held by a large number of trust managers can usually give you a good indication of which shares you should buy. But there is more to it than that. Simply because the company is very popular, does not mean that their shares are very valuable and worth buying. Sometimes a popular share that might seem like the right investment might actually end up being the wrong one for you.
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What is an important deciding factor when buying shares is that the company has a generally positive feel to it and that the consensus surrounding it, is that the company is going places and worth making that investment in. When you start buying shares, one of the better places to start is with these companies.
In the mid-cap, you will find companies that have a positive consensus surrounding them, and which have far better growth prospects than companies in the large cap. You want to find the company that is going to grow and grow at a steady pace so that your shares gain value steadily.
Defining Mid Cap
All shares listed on the JSE are categorised depending on their market capitalisation or market cap. The market cap is determined by looking at the complete value of the company listed on the JSE, by multiplying the number of shares with the current share price. Once this is determined the company can be placed in one of three categories; small cap, medium cap or large cap.
On the local market, companies that are placed in the mid cap index are those with stocks ranked between 41 and 100; and these make up what is called the medium cap category. There is a far more simple way to determine which category a company will fall into:
- Small Cap: Market cap is below R 1 Billion.
- Medium Cap: Market cap of between R 1 Billion and R 10 Billion.
- Large Cap: Market cap above R 10 Billion.
Mid cap shares are ideal for the long term investor who is happy to wait and watch their investment grow over time.
Those companies that are listed as mid cap companies are mostly listed there for a specific reason and that reason is capital. A company that is just starting out, and is enjoying relatively good growth, but is in need of capital to assist them to the next step, can choose to sell shares as a way to raise capital without making debt. The option of equity can be far safer for companies in the long term, as it is not something that will need to be paid back.
- Mid cap shares on the Johannesburg Stock Exchange have an interesting and successful performance history. Many professional investors will tell you that having a diverse portfolio of stocks is the safer route to go. This means that your portfolio would do well to have large cap, mid cap and small cap stock. When purchasing shares from a company, knowing the history of the company and doing your research about the company are exceptionally important before you buy shares.
- If you are looking at a mid cap company, there are a few benefits that buying their shares will offer you. Mid cap shares have shown to have a more financially viable and financially beneficial history than your other indexes. In short, they tend to provide far better returns than your other shares. When buying stocks from the mid cap index, you are buying from what can be considered a medium sized company and this means that the overall risk of investment is far lower than those companies in the large cap and small cap.
- They are the underdogs. The companies listed on the mid cap index are not as popular as the up and coming start-ups in the small cap and they haven’t grown out of their popularity as many of their counterparts in the large cap The forecast in the price of shares in the mid cap might be overlooked by others which makes it a good choice for those looking for a long term investment.
- Investing in mid cap shares can be the safer option for both first time investors and seasoned professionals. Today, mid cap shares have gained more attention than they have in the past and some of that is due to their safety. Mid cap is the happy safe place between the often volatile small cap shares and large cap Stability and growth are the most important considerations when it comes to stock, and that is exactly what you will get with your mid cap investment.
- Companies in the mid cap are still growing, so over time their value increases and people find that they are making more from their investments when they have mid cap companies in their share portfolio.
- By their nature, companies trading in the mid cap are proven to be exceptionally successful. Most mid cap shares come from companies that have grown out of the small cap and have the kind of staying power that you want in your investment. Unlike other companies, those in this cap tend to maintain their growth and become a far safer investment option.
- Finally, companies that are in the mid cap tend to have a better established management team which means that they are known to make better decisions that contribute to the financial stability of the company. This is another reason why investing in their stock is the far safer option to go with.
Medium cap companies have a number of other benefits that sway in their favour and which helps investors to make better investment decisions such as; having a more developed intellectual property and IT systems, having more established financial systems in place, having more exposure than small cap companies while also being more versatile than large cap companies, and they have a better established sales system in place.
About the Johannesburg Stock Exchange
The Johannesburg Stock Exchange, better known as JSE, is Africa’s oldest stock exchange. It is the place that companies turn to when they are looking to grow their business, and it is also the destination for those looking to grow their investments. The stock exchange is for private investors, institutional investors and the listed companies. Just about anyone can buy shares on the stock exchange, and companies earning a certain about of money can list their shares.
The JSE’s history goes back to the Gold Rush. The exchange was founded in 1887 and has since boasted a proud performance with the JSE joining the World Federation of Exchanges in 1963.
In South Africa, the markets are mature and not only do they serve the South African economy, but they also serve the African continent. The Johannesburg Stock Exchange is one of the world’s 20 largest exchanges based on market capitalisation and lists shares for sale from a wide variety of companies spanning just about every industry. One of the primary goals of the JSE is to provide secure and efficient primary and secondary capital markets, ensuring that the services offered are cost effective.
There are almost 400 companies listed on the JSE today, and while a large portion of the stock market is held by the bigger companies, there is still enough of a variety for investors to purchase shares from. This is part of what helps to make the equity market appealing to companies looking to list as well as to potential investors.
The JSE is the regulator for the exchange and it is responsible for setting the rules and requirements for membership and listings. The JSE is also responsible for making sure that the rules are correctly enforced so that the exchange continues to run smoothly. The JSE is supervised by the Financial Services Board which ensures that the JSE is regulating the exchange correctly. A new system for regulation is certainly on the horizon and under the new system, the South African Reserve Bank will be given the role of supervising the JSE and ensuring the exchange continues to adhere to regulations.
The Johannesburg Stock Exchange is currently ranked number 1 in the world for its regulations in terms of ensuring the security of the exchanges, an honour bestowed on behalf of the World Economic Forum’s Global Competitiveness Survey.
Quick Advice about buying stock
When you are first setting out to buy shares in a company, having some information at hand is the only way to go. Money can easily be lost when you are not investing it in the right places. You are already making a smart choice by investing in mid cap listings but there are a few other things that you can do to ensure that the stock you are investing in grows rather than flounders.
Tips for buying stock:
- Buy from an industry or a company that you are familiar with. Think of your favourite brands and successful franchises. These are established companies that are doing well for a reason. Instead of buying into a hype, or buying from a company that might be a part of a trend with an expiry date, purchase shares from the places you know. In short, stick to the tried and tested and avoid the hype.
- Take the price of the stock into consideration. If you want your portfolio to be a success, you need to make the right investments at the right prices. Some investment specialists are known to go for the stock which is cheaper. When they do this it becomes a long term profit. Think about it. When you are investing by buying stock from an established company, you are not helping them to raise the capital that will go towards funding their growth. Instead, you are investing in a company that is already established and therefore does not need a massive injection of capital so their shares are a lot cheaper. Do keep in mind that while this is the rule of thumb for many investors, it is not always the way things go. This is why you need to make sure that you research the company as sometimes cheap stock could be the result of a slow growing company.
- Do a considerable amount of research about the financial wellbeing of the company you are looking to buy shares in. If a company is listed then it has to release financial statements and these statements will be of critical importance in your decision making. Find out how much debt the company has and also be sure to find out more about the dividend pay-outs. If the dividends consist of regular pay-outs it is a good indication that the company is doing well financially and that your money will be safe.
Finally, there are a few don’ts that you need to know before you buy shares in a company.
- Don’t rely on price alone to make your investment decisions.
- Don’t put too much value in what analysts have to say.
- Don’t forget to sell your stock when the time is right.
Mid cap shares are the safer, sweet spot of the stock exchange. And if you are careful with the decisions you make, the chances are you will soon reap worthy profits from your choices. If you are not sure of your decision, the best thing to do is to educate yourself as much as possible, not only about the ups and downs of the JSE but also about the listed company that you are considering.
Need to talk to a broker? We are here to help. Our comprehensive website will give you everything you need to know before you make your investment. Talk to us, we are ready to help you.