Investing on the JSE

2011-02-05 12:40

When people talk about investing on the ­Johannesburg Stock Exchange (JSE), they mean having shares in companies that are listed on the JSE. People refer to this type of investment as shares or equities.When a company wants to raise ­money to expand and grow, it can ask investors to invest money and have a share (or equity stake) in the business. In return the investor receives a ­dividend payment, usually twice a year.

This dividend is a portion of the ­annual earnings (income) of the ­company. The investor benefits if the company grows and increases in value because then the share of the company the ­investor owns follows suit.

What is the stock market?
The stock market is simply a public platform that helps companies raise money (capital) and facilitates their investment on behalf of investors.

Investors buy shares on the JSE in the hope they will increase in value and also to receive an income from the shares in the form of a dividend.

What are shares?
When a company lists on the JSE, the public can buy shares in that company.
The value of the company is divided by the number of shares issued and an investor can buy as many shares as they want. For example: If a company is worth R100 million (this is called the company’s ‘market capitalisation’) and it issues 50 million shares, then each share is worth R2. If an investor invests R10 000, they would get 5 000 shares.

What are capital gains?
If, two years later, the company’s share price has increased to R3, the investor could sell their shares through the JSE and make a profit. In this case the R10 000 investment would have grown to R15 000 (R3 x 5 000 shares).

What is a dividend?
If a company, during its first year, pays out R5 million of its profits as a dividend, this would be divided by the number of shares (50 million) and each share would receive a dividend of 10c.
So an investor with 5 000 shares would receive R500 from dividends.

What is a stock broker?
In order to invest directly into shares on the JSE you have to open an account with a stock broker. You do not buy shares through the company that you want to invest in.

What is indirect investing?
If you have a pension fund, unit trusts or even an endowment policy, you are already invested on the JSE. The money you invest in the fund is in turn invested by a fund manager. If you want to have exposure to shares (equities) but do not want to make the investment decisions, then investing in a unit trust or exchange traded fund would be a good vehicle.

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