Overview
Not too long ago, if you wanted to invest in stocks and shares, you would have needed a personal invitation to meet with a professional in the city who would have placed trades on your behalf.
However, as result of rapid technological advancements, the internet swept all these conventional dealings away, replacing it with a comprehensive, sophisticated, yet simple system that allows any investor, whether they invest R50 or less, or millions and more, to invest in shares of major companies.
Anyone who has access to a computer and the internet, and some spare cash, can now invest in their favourite company. While you can make significant profits from investing in shares, it is crucial to know that you can lose money just as easily.
For this reason, the following few sections provide newbie investors with a comprehensive beginner’s guide into buying shares with R100. While this is not a significant amount, it provides investors with a foundation into the process and components involved with investment, especially if they consider investing larger amounts of capital later.
A quick overview of the best shares to buy for R100
- ✔️What are Shares?
- ✔️What are the different types of Shares?
- ✔️Cumulative Preference Share
- How are shares priced?
- Why should you consider buying/selling shares?
- Risks involved with buying/selling shares
- How to buy shares of R100 in South Africa
- FAQ
What are Shares?
The capital of every company on earth is divided into several small units, each referred to as a share. A share in a company is therefore one units into which the total capital is divided, providing a shareholder with a small bit of ownership in a company which shares they have purchased.
Shares are also known as stocks or equities, and they are bought and sold on stock markets. When you own a share, you automatically become a shareholder, or stockholder, and this often provides you with several advantages, depending on the type of share that you purchase.
What are the different types of Shares?
There are several types of shares, with each explained and discussed in the sections below:
- Equity or ordinary shares
- Preference shares – with preference shares being subdivided into:
- Cumulative preference shares
- Non-cumulative preference shares
- Convertible preference shares
- Deferred shares
Equity or Ordinary Shares
Ordinary shares are also typically referred to as equity shares and those who hold these types of shares are the real owners of a company. The ordinary shareholders of a company have voting rights when there are meetings held and they are also provided with dividends, as are declared by the board of directors.
Investors who by ordinary shares must note that equity share capital cannot be redeemed during the lifetime of the company.
Advantages of Ordinary Shares or Equity Shares
The advantages of holding ordinary or equity shares include:
- Venture capital as ordinary shares are the most important and popular type shares, therefore referred to as a venture capital of the company.
- These shares are no burden on the resources of a company as the dividends which are paid out, come from the profits made and therefore they do not place a burden on company resources.
- They provide long-term finance to the company.
- There is no charge on the assets as result of the ordinary shares. The company can also raise additional funds through mortgages of property or other assets.
- Equity shareholders are paid profits after all other claims have been met by the company.
- The rate of dividend on ordinary shares will depend on the profits of the company.
Preference Shares
As the name suggests, preference shares are associated with certain preferences, especially when compared to other share types. The main preferences that these shareholders have over others, are as follows:
- The first relates to the payment of dividends when the company distributes profits. Dividends are first paid to those who hold preference shares before other shareholders receive dividends.
- Where the winding up of the company is concerned, preference shareholders have a prior right with regards to the repayment of capital.
Cumulative Preference Shares
These share types have the right to claim dividends for years where there were no profits generated by the company. When the company declares profits, cumulative preference shares re-paid dividend for the previous years in which dividends could not be declared.
Non-Cumulative Preference Shares
These types of shareholders do not have a claim for arrears where dividends are concerned, and they are paid the dividend according to profits made by the company.
Convertible Preference Shares
These shares are those where shareholders can convert their preference shares into equity shares at a specified period. The right conversion must be authorised by the Articles of Association of the company.
Deferred Shares
These are also known as founders share and they used to be issued to the company promoter. The dividend on deferred shares was paid once claims of all other shareholders were met, including equity shareholders.
Deferred shareholders only had one vote and these shares enabled promoters to control the working of the company with a slight investment.
How are shares priced?
The prices of shares are set by the sellers and buyers in the stock market, depending on supply and demand. For this reason, share prices can fluctuate significantly daily and even hourly.
When there are more sellers than there are buyers, shares decline in value. Vice versa, if the number of buyers exceed that of sellers, the prices will increase.
Many factors will affect the decision of investors to either buy or sell shares, including the news, earnings report of a company, and several others, even just a series of ‘tweets’ or social media posts by a high-profile personality can influence the way investors feel about a certain investment.
Why should you consider buying/selling shares?
There may be many reasons why each individual investor decides to start investing in shares. However, in the end, making a profit is the main reason why people are drawn to share investment.
Where shares are concerned, there are two typical ways through which you can earn a profit. The first is to buy when the price of a share is low and to sell it once the price is high, with the difference between these two points indicating your profits.
The second is that your shares can pay you an income, or dividends. However, companies do not have a legal obligation to pay dividends to shareholders and there is always a risk that a company will reduce dividends or stop to pay them altogether.
Another reason why you should consider it, is that buying shares can be a great way for your money to work harder. Interest rates are at historic lows, and this means that your savings may not be growing as much as you would like them to.
If your goal with savings is to achieve long-term growth, share investment may be a viable and sustainable option. Many analysts have proven that holding shares may leave investors with higher returns than keeping funds in saving accounts.
A lesser-known reason why people should consider buying shares, is that it can have a positive impact on society. By investing in the shares of small companies, it can help them grow and innovate, which can have a positive and lasting impact on the lives of people.
When the shares of a company increase in value, it means that there is an increase in potential employment opportunities created in addition with ground-breaking innovations in key sectors in South Africa, which subsequently helps to strengthen and develop our economy.
Risks involved with buying/selling shares
A beginner’s guide to buying shares in South Africa will not be complete without discussing the risks involved in share investment. This is an integral part that beginners must take note of early on to avoid mistakes that can cost them a large chunk of their capital, if not all of it.
The Risks of shares
Investors must ensure that they are aware of the risk and reward relationship associated with any type of investment. To receive a return on money that you invest, you must be prepared to place your capital ‘at risk’. Typically, the greater the risk associated with an investment, the greater the rate of return will be.
When starting to invest in shares, beginners must ensure that they understand these ratios and that they do not risk more than they can afford to lose.
The Risks of Capital Loss
Investments made in the stock market never guarantees a return on that investment. Investors can redeem the value of their share investment by trading those shares in the stock market. When companies perform poorly, it may be difficult to sell your shares at a price which will allow you to make a profit.
If you invest in a company that goes out of business in a few years, those shares will no longer be tradable on the stock market, meaning that you may lose your entire investment.
If the company in which you own shares is delisted from the Johannesburg Stock Exchange (JSE), the only way you can claim back your money, is if a liquidator has been appointed and all shareholders receive a portion of capital from the sale of the company’s assets.
Where assets are liquidated, shareholders are last in line where the list of creditors are concerned. As a result, shareholders may only receive a fraction of their original investment amount.
Volatility Risk
Share prices can increase and decrease rapidly, and this means that investors must accept the fact that the value of their investment can fluctuate by as much as 50%, or more, within a year.
There is also a typical market risk which can relate to certain sector, for example, mining shares are often more volatile than industrial shares, such as bank shares. There is also specific risk which can relate to the performance of individual shares.
Legislative Risk
The investment strategies and even individual investments made may be susceptible to changes to current laws. Investors are urged to ensure that they stay updated with financial regulations and laws by making use of the FSCA, and other relevant, websites.
Currency Risk
Overseas investments may be affected by adverse moves in the currency and these factors must be considered, especially when converting profits from a foreign currency to ZAR.
How to buy shares of R100 in South Africa
Step 1 – Finding the right shares
Share investment is not something that can be done at random. It requires thorough research to determine the best shares offered on the JSE along with determining the timing into the market.
You cannot buy shares independently and you must do it through a registered stockbroker who will purchase these shares on your behalf. The easiest way to buy shares is to follow the guide provided by the JSE on finding the right broker, registering for the option to buy shares through your bank, or by applying for an account with SA Shares.
The next step is to make sure that you have the necessary information and training to understand the stock market and the process involved with buying shares.
Once you are ready, you can start evaluating the shares of companies listed on the JSE to see which shares you would like to buy for R100, and less.
Step 2 – Finding the right broker
There are hundreds of brokers that allow you to buy shares and finding the right one may seem like a tedious task. When you buy shares through your bank, you are automatically assigned with a trusted, regulated stockbroker and you need not have any contact with them, everything is done through your bank.
If you want to choose your own broker, however, there are some things you must consider:
- Only use a broker that has the necessary regulation with FSCA.
- Know your own needs and objectives and look for a broker that is aligned with that.
- Consider the costs involved and measure it against what you can afford.
- Ensure that you thoroughly evaluate the broker with regards to trading platforms, costs, fees, deposit, and withdrawal methods, and so on.
Step 3 – Set up your account
Once you have decided on your broker, you can register an account with them and start trading your shares. At this point, you will understand the costs and fees involved and how much capital you need to start trading.
Make sure that you evaluate your trading plan with what your broker offers to ensure that you can achieve your objectives.
FAQ
What are shares?
They are a unit of ownership in a company.
Can you make money in buying/selling shares?
Yes, you can make profits by buying shares when the price is low and selling them when the price is high. You can also make long-term profits by holding shares, allowing them to appreciate and increase in value over time.
Where do you buy shares in South Africa?
You can invest in companies that are listed on the Johannesburg Stock Exchange (JSE).
Which are the best shares to buy for R100 in South Africa?
Some of the best shares to by include Woolworths, Pepkor, Sibanye Stillwater Limited, Glencore, and several others.
Can I get rich trading shares?
This will depend on your unique investment strategy, the size of your investment, and the company in which you buy shares. Share investment is not a get-rich-quick scheme.
Can I start trading shares as a beginner investor?
Yes, you can start trading shares as a beginner by making small investments.
Can I use a broker to buy shares?
Yes, you can use a broker which is regulated by the FSCA to invest in companies listed on the JSE.
Top 4 Brokers
