Things to Consider When Investing​

Overview

How do you know which company or which shares are the best to invest in? ​
There are two main paths that investors can follow in deciding on which shares to select. ​
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This is the question that this module essentially seeks to answer. There are a few basics that can assist an investor in determining the best place to put their money. You have probably worked hard to make the money you are investing and you will want to be wise in where you put it.​
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It is wise to know and understand which shares you have bought, what they are worth and why you are holding them.

Analysing a Company

There are two paths you can take to determine the performance of a company or share which will then assist you in deciding on which shares to invest in.​
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Technical Analysis​
This is when you look at the price history of a company by analysing charts and graphs. You can hand-draw these charts or put them together on a computer. It is important to note that you don't have to buy software in order to do technical analysis. You can use free charts that are on the internet or that you can get from brokers.​
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Fundamental Analysis​
This is when you look at the company's cashflow statement, balance sheet, and the value of the shares amongst other ratios. You can also engage the management of the company as well as company news to gain a clearer picture of its performance.​
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As an investor, you will need to decide whether you will make use of either or both analytical techniques in order to determine the value of the company you want to invest in. Alternatively, you can decide to buy a basket of shares and not engage in these analyses. ​
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In this module, we will consider the fundamental analysis approach.

Fundamental Analysis: Research the Company

Good investors search for all material information about a company to assist them in deciding on whether to invest in their shares. Gathering company information is like turning over all the pieces of a jigsaw puzzle before starting to hunt for matching pieces. ​
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This may seem to be a boring task, but you are able to make better decisions with all the facts before you. It is advisable to start with an industry or a company that you know or that you think is a good or popular one, and that you believe provides great services or products to the public or community at large.​
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A company to own, after all, is one that you believe in.
 

1. Basic Company Information

An investor needs to begin by searching for basic information about the company they are considering to invest in.​

This includes the industry the company operates in and the actual business they are engaged in. It is also useful to find out about the company’s management, their vision and strategy for the firm, and the company’s competitors. Engaging in this research will help you decide on the legitimacy and health of the company and their business, and whether this is a suitable place to put your hard-earned money.
 

2. Company News

It is helpful to get information about how the company performs outside of what the company itself says. This would mean reading the newspaper and financial magazines to get insight into external views about your business of interest.​

Companies also commonly give non-earnings-related press releases on business developments throughout the year. These cover anything and everything. ​

Companies must report measurable business developments to the public as events arise. So every new business contract, acquisition, change in management or anything else, is released to the public at random via press release.
 

Fundamental Analysis: Where to Find Information

a.  Company Website - A great place to start is by going to the company’s official website where you should be able to begin your journey of understanding the company. This should include their corporate profile, the product and services they offer and so much more.​

b.  Brokers – When you invest through your broker, you will have access to your own professional market analyst. Brokers spend hours putting information together and researching market insight from the different business sectors. Remember, though, that advice received from your broker to buy a share is just that, advice. The final decision must lie with you.​

c.  Financial/Business Newspapers – These will keep you in touch with the economic environment, which is important to the performance of any company but it also provides you with the key information to help you understand the company’s performance better. Newspapers will also provide you with information about the industry that your potential company operates in.​

d.  Google – You can find almost anything online these days which means that you can search for information you would like to understand about a company or share. Remember to make use of reliable sources though.​

e.  Financial Portals – There are many good financial websites on the internet that have valuable information on companies, such as the JSE. 

Technical Analysis

Technical Analysis is based on the use of charts that provide investors with the price history of a company, which helps to get an idea of the performance of that company. The tools that are available to you to engage in technical analysis include:​

• ​Brokers and financial websites that offer you access to technical charts for free. There is charting software that is sold but you do not need to buy this software as brokers and the financial websites provide free charts. ​
• Conducting the technical analysis yourself. Companies do offer charting software in order for you to analyse companies. This is software that you can purchase, however, it is not imperative to have this software in order to be able to conduct your own technical analysis.​
• Using data to draw charts by hand by reading the newspapers and getting the company's closing price, and plotting this price each day on graph paper. There are different charts that you can draw using the data you gather including line charts, bar charts, and scatter plot charts among others. The most common one is a line chart which basically joins the price from one to the next and creates a picture of the direction that the share is going.