29 April 2014
“I knew very little about online share trading when I started out – initially it was an attempt to supplement my retirement income,” says Willie Grobbelaar of Waterkloof, Pretoria. “But through trial and error, and not being afraid to take some risk, I have realised returns which far outstrip inflation. And if I can do it, anyone can,” he says.
Here are Grobbelaar’s top 10 tips for first-time online traders:
It is important to decide whether you have the skill and personality for being:
“I decided to split my portfolio into long-term shares (around 90%) and speculative shares (around 10%). Whatever profits I make from the speculative portion gets re-invested into the long-term portion. Personally, I don’t have the stomach for day trading, but others may be willing to give this a try,” says Grobbelaar.
“Try not to get emotional about daily share-price fluctuations. I lost quite a bit of money by selling and buying too quickly in the first few months of trading.”
“This is the common sense one – you have to invest in several stocks (and types of stocks) to spread your risk. I tend not to be invested in more than 10 stocks at a time – this is the maximum number I can follow on a daily basis with ease,” Grobbelaar advises.
These are mainly the JSE Ltd’s Top 40 shares, but could be extended to the Top 100. Profile’s Stock Exchange Handbook, published four times a year, provides a good overview of the quality of companies listed on the JSE Ltd.
“I always look at price-earnings (PE) ratio – I like to buy stocks with a PE ratio of between 10 and 20. Anything with a PE ratio of below 5 is too risky, and above 30 is too high for my liking.”
As a long-term investor, Grobbelaar watches price movements of shares over periods of 13 weeks. He has written his own spreadsheet checking the daily rate of climb of stocks he is interested in. “I do this because my funds are limited, and it is no use having a good stock with a slow growth rate. By looking at my spreadsheet, I can move investments from slow to fast climbers.”
“You need to have some available money – if all your money is tied up in investments, you won’t be able to capitalise on opportunities when they arise,” he says.
The two main indicators Grobbelaar watches are:
Long-term investors should not watch their portfolios more than once every three months, but beginners should do so on a daily basis, Grobbelaar advises. “I keep a daily log on a spreadsheet, which I update at the end of each day to track the movements of my investments. You must watch your log every day while you are still learning the ropes.”
. “At the end of the day, you must do your own thing and learn from your own mistakes.”
Lastly, Grobbelaar advises using a reputable online trading platform such as Sanlam iTrade. “It is a solid, stable platform with almost no downtime. All my queries are solved to my satisfaction. The system is bug free, and it is simple to use with very useful graphics, such as annualised returns graphs (with dividends reinvested) per company, and report cards for growth investors. Overall, it is an easy-to use platform both for those starting out in the world of online share trading and those who have been in the game for a longer period of time,” he concludes.