Download - JSE My Share Day

MY BROKER MY BUDDY Brokers and what they can offer me

Mark Weetman Vunani Private Clients

My broker my buddy!

Why are you here?

You have been told!

Is he really my buddy?

What do you expect:

SA‟s Top Stockbroker

Types of brokers

Cost

Instruments

Trading Tools (EATT)

Research

Education & resources

Why are you here?

“The stock market is, without doubt, one of the greatest tools ever invented for

building wealth”

“What was once the domain of the rich” or the investment professional “has now

turned into the vehicle of choice for everyone to grown their personal wealth.”

“.. So that nearly anybody can own stocks.”

“when you start on your road to financial freedom, you need to have a solid

understanding of stocks (financial instruments) and how they trade on the stock

(financial) market.”

Trading does not need to be complicated. However the more complex the

investment decision, the more information is required and the greater the

understanding of the risk involved in making that decision.

“… They have all the tools at their finger-tips, all the connectivity, all the charting packages … they know more about what’s going on than most stockbrokers one talks to. … through the internet, through social media are finding out about events as quickly as any fund manager.” Brett Duncan - Head: Retail equities, Standard Bank. “… What does it mean? It means that the retail investor today has access to incredible amounts of information, sophisticated technology platforms and news engines … but it also means that you at the end of the day have to be able to make that investment decision, and that can be a difficult space to be in … “ Brett McLaren – Co-CEO, Saxo Capital Markets.

You have been told! Streetdogs, Businessday 10th October 2012

• professional stock traders actually outperform diagnosed psychopaths when it comes to competitive and risk-taking behaviour.

• traders showed a higher degree of competitiveness than the psychopaths • willing to cause harm to their competitors if they thought it would bring them an advantage • In 2005, a study found that traders who are unable to fully feel their emotions due to brain damage end up

performing better on the market -- possibly because they experience less anxiety about risky trades. • Another research project that concluded in 1996 found that some percentage of both stockbrokers and

politicians display many traits characteristic of psychopathic personality, including a willingness to take risks and an interest in wielding power

• In 2001, a study found that many young Wall Street stockbrokers got little sleep, often reported for work even when suffering from the flu or a virus, and were much more likely to experience symptoms of depression than average Americans.

• In fact, the study found a 23% rate of major depression within the group of young male stockbrokers

Is he really my Buddy!

“Stockbrokers more competitive, Willing to take more risks than psychopaths" University of St. Gallen, Switzerland

http://brokers.africancmi.com/category/peoples-choice-award/

Reference: http://topbrokers.co.za/

Historically, there are two different types of brokers:

Traditional (also known as "full service")

• work one-on-one with a personal stock broker

• offer investment ideas/ideas

• Analyse your portfolio,

• Typically a significantly higher commission

Discount brokers (On-line brokers)

• geared toward the do-it-yourself investor

• generally, they will not offer investment advice

• simply execute orders once you've decided to buy or sell

• Instead of working with the same stock broker, you will do most of your trading online, or if

you decide to call in your order, with the first available broker.

• investors will be charged a significantly lower commission.

However we have seen convergence of the two models

All brokers are not made equal!

• Sliding scale vs flat fee – VPC we charge a flat 0.5%

• Typically On-line deals are usually cheaper than telephonic trades

• Remember that you‟ll pay for both buying and selling

• How often you will trade – negotiate your rate!

• Watch out for things like „inactivity fees‟/hidden fees.

• Also look out for management charges/advisory charges/monthly fees. These are usually based on a

percentage of the value of your investments.

• And watch out for any „exit‟ fees. You may wish to change brokers if you find that the service doesn‟t

suit you any more, and it‟s worth knowing if this will end up costing you.

How much will it cost you to trade

TOTAL COSTS =

[BROKERAGE (COSTS) + SPREAD] X CHURN

COSTS FUNCTION OF:

1. TRADE SIZE

2. SHARE PRICE

3. VOLUMES TRADED

4. FREQUENCY OF TRADES

Mind the Gap!

SMALL CAP

MID CAP

LARGE CAP

“Spread” is defined as the difference between the best bid and the best offer for a share at a point in time, this is also often called the share’s “double”.

On average the width of the double decreases with an increase in the price of the share. It is also normally the case that the spread narrows when the liquidity of the stock increases. Effects both legs of the trade (the buy and sell).

Penny stocks will experience spreads of 5% of more.

Larger cap stocks, like those included in the FINI15, RESI20 and ALSI40, you will only have to cross a spread of less than 0.5%, for example AGL at 0.1% at 0.28%, ASA at 0.18% and STX40 0.28%.

Sometimes bigger is better!

Costs depend on the size of the trade that you enter.

R500 trade is going to set you back almost 18% of your funds

At an investment of R10, 000 your trading costs have dropped to almost 2% (which is cheaper than you would pay to buy most South African unit trusts!

More and more investors are waking up to the fact that investing is not just about shares, or

about investing in companies listed on the JSE. So when choosing a broking account, make

sure your provider can offer what you want to buy.

What do you want to invest in?

Cash/Corporate Cash Management Commodity Derivatives

- Benefit from money-market linked interest rates - Soft Commodities Corn, Wheat

- Hard Commodities Gold, Silver, Platinum, Copper

Exchange Traded Funds (ETFs)

& Exchange Traded Notes (ETNs)

- Track either an Index or refernce commodity Currency Futures

Shares (Equities) Bond Futures (YieldX)

Equity Derivatives IDX

- Single Stock Futures (SSFs) & Options

- Index Futures & Options (have a look at the ALMI) Offshore Trading

- Warrants - 28 exchanges, 8,000 instruments

- Share Installments

- Contracts for Difference (CFDs)

Risk/Reward relationship

Risk and return have a direct relationship. Generally, the greater the level of risk, the greater the expected return. However,

higher risk may also lead to greater losses, so as an investor, you need to determine your own level of risk tolerance.

• Evaluate • Research, Price action, Charts

• Act • Place orders

• Track Progress • View, amend and cancel orders, track positions

• Track End Goal • Portfolio value

Trading tools (EATT)

Evaluate

Research, Price action, Charts

Act

Place Orders

Track Progress

• View, amend and cancel orders, track positions

Track End Goal

Portfolio Value

Research

“No guts No glory!” Sir Francis Drake

Trades are fairly short-term (S) in duration (2 days – 6 weeks)

Signals are mainly technical in nature (T)

Look for a 3 –5 % move on underlying (U)

So depending on gearing we hope to achieve a 30% - 60% move on geared position (G)

Look for at least a 2:1 return/risk pay-out (preferably a 2.5:1) (R)

Exit (E), we always set take-profit and stop-loss levels. Usually dictated by technical levels I.e.

previous support/resistance levels

Sometimes use (A) trailing stop. Once we are in the trade we may take profit early if market

conditions or the share’s price action dictates

Prefer the liquid (L) stocks, unless we have a very strong signal

Research

Free resources!

Investment Style

• Active vs Passive Investment

Time frame

• How much time do you want to spend on investing?

• How active do you want to be?

• When do you need your invested monies?

Risk tolerance

• Various instruments have different degrees of risk

• Are you comfortable with short term decreases in investment value

Reasons for becoming a trader

• Results-orientated trader vs ego-driven trader

What kind of Investor are you?

Pitfall 1: Not having an exit plan before buying

Pitfall 2: Portfolio imbalances

They purchase entirely too large a position in a single stock.

They do it all at once.

Pitfall 3: Failing to cut losses

Pitfall 4: Selling too soon

Pitfall 5: Buying shares that continue to fall

The slide will end. A surprising few number of shares never do until they become worthless.

Timing of when and at what price the share’s slide will end.

Pitfall 6: Adding additional loosing shares to your portfolio

Pitfall 7: Emotional attachment to a share

Once you have sold a stock, forget it, whether it was sold for a profit or a loss.

Trading Pitfalls!

The Traders Creed!

You and you alone are responsible for:

all your actions.

all trades that you make.

doing your own research, due diligence and analysis of trends,

markets and specific shares.

Mark Weetman

Vunani Private Clients

[email protected]

011 384 2920/30