Taking stock of future growth

It’s 8.30am on a damp, Saturday winter morning in Cape Town, but still the lecture room at Share Direct — a national investment focus company — is full. The people in the audience don’t look like stockbrokers in suits and ties. They’re ordinary people — a teacher, a travel agent, a construction worker. What they all have in common, though, is the realisation that each will need to get the most out of their current income if they are to enjoy financial freedom in the years that lie ahead. They’re here to learn the basics of how to make money from buying and selling shares on the Johannesburg Stock Exchange (JSE).

Gary Garbutt, owner of the Cape Town franchise, opens the one-day seminar with figures that make potential investors sit up and pay attention. On a fixed deposit at a bank, investors would get a return of 7,5%; on an endowment policy, 8%. If they’d invested this same capital in shares, they could have realistically realised a return of 20%.

Or their return could be much, much better. If, for example, R1 000 was invested in Liberty Life when the shares first became available, these shares could be worth as much as R5-million today.

The word ‘could” is the important here — returns on shares aren’t guaranteed. As Garbutt says: ‘No risk — no growth”.

Share Direct is one of a number of companies aiming to demystify the stock market for ordinary folk. But South Africans have been slow to follow an international trend towards private investment in the stock market.

Alec Hogg on Moneyweb, a website offering investment analysis, contrasts the South African experience with the Australians’. Almost 40% of Australian adults own shares and 75% of them do so by investing directly in the stock exchange. The Australian Stock Exchange (ASX) invests in teaching citizens about shares. Its website’s motto is ‘Wealth begins with better knowledge”, and it provides accessible information on trading concepts such as listed managed investments, dividends and options. Free online courses are available 24-hours a day and ASX share-market games simulate real share-market conditions as players buy and sell shares online.

Lorinda Ellis of PSG Online is passionate about the need to educate South Africans about savings and investments. Ellis points out that age is a critical factor with regard to product consumption. The age group most likely to buy into the concept of private investment on the stock exchange are the Generation X-ers. Born after 1970, they’ve grown up with computers and everyday activities such as banking and shopping online. Taking direct control of their investments through online trading is therefore an attractive option.

Ellis stresses the importance of applied learning. ‘Knowing the theory behind new topic jargon doesn’t empower you to apply it. Information is freely available to anyone with access to the Internet.” The advantage of investment focus companies is that they offer clients key fundamental data and technical analysis, as well as the opportunity to trade in a simulated environment, before venturing on to the market with their hard-earned cash.

But companies such as PSG and Share Direct are commercial ventures and access to their expertise does not come cheaply. They provide a service that may work well in a country like Australia with 100% literacy and a high degree of Internet access — but the situation in South Africa is very different.

Abie Mokobane, representative of the JSE, outlines what the exchange is doing to reach ordinary people. One initiative is the JSE/Liberty Life Investment Challenge, which offers school teams the opportunity to learn about investment through managing a virtual share portfolio of R1 000 000. Teams have a choice of managing one of three portfolios, ranging from a low-volatility income portfolio to a higher-risk speculator portfolio, which includes derivatives, warranties, futures and options.

The Regulators team from St Stithians Boys College in Johannesburg took top honours in the high stakes speculator category, with growth of 55,34%. The Hottentots Money Makers team from Hottentots Holland High School in the Cape displayed excellent initiative in the equity growth category with a 36,63% growth, while Herzlia High School’s Investock team generated an income of R80 185,51 winning the income category. Students sounded older than their years as they talked about the effect of the Absa takeover on the share price and the need to diversify into gold as a result of the London bombings.

Mokabane says the response to investor education has been ‘phenomenal”. Universities and technikons have also been targeted and roadshows have been well attended.

Despite this, it remains hard fact that the majority of South Africans have never heard of online trading. A lot remains to be done before an investment ethic, sorely needed in our economy, really takes root.

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