The Johannesburg Stock Exchange (JSE) is the ultimate home of more than half the total investments in South Africa. An individual may invest in shares in different ways. In fact, ownership of an insurance policy or units in a unit trust fund, relates to ownership in shares on the JSE. This is because most insurance companies invest a large portion of their policy-holders’ money in shares on the JSE.
An investor may invest in a portfolio through a stockbroker, or visit a bank and invest through an investment consultant. An investor may manage the portfolio personally by dictating to the stockbroker what shares to buy and sell. The stockbroker will buy the shares on the investor’s behalf. A stockbroker then charges a negotiable brokerage fee plus VAT and duties. The JSE offers protection to the investor against possible fraud by stockbrokers through their guarantee fund of approximately R80m in assets to which an investor may apply for compensation.
It is also now possible for investors to open an account with a stockbroker via the internet. This account would be password protected. Buying and selling instructions are given by e-mail to the stockbroker who buys and sells the shares on the investor’s behalf. The investor pays by bank transfer to the stockbroker’s account. An investor may invest in a managed portfolio through a stockbroker, a bank, a trust company or a portfolio manager. There would be an agreed fee for the management of the portfolio and a portfolio management contract would be signed. Portfolios must be classified as discretionary or non-discretionary. In the latter case clients must be contacted before the managers buy or sell. The method of fee taking must be disclosed and varies between institutions. Fees usually include 1% of the portfolio’s value taken annually plus a percentage of profits earned.
While most stockbrokers insist on minimum investment amounts, some do specialise in smaller accounts and theoretically one can own shares with very little outlay. In order to spread risk, the investors must have at least four or five different shares. Also, one should never purchase less than 100 shares in a company (this is referred to as an odd-lot in the industry) as these can often be difficult to re-sell.