Investment:
“Evaluate investment option”
Risk:
- High investment= high return or high loss
- Diversification= all eggs not kept in one basket
- Strategies to limit loss: rebalancing= adjust your portfolio to get back to the point where your
portfolio diversifies.
Return on investment:
- Measures efficiency of investment= what the investor will get back over and above the
original investment made.
Timeline: (period of investment)
- Longer= greater risk can be taken
Investment strategies:
Investment options:
1. Equity (shares)- owned capital
- Listed on the JSE Ltd= information on the shares’ performance available for investors
- If company is unlisted= company makes financial info available to shareholders, banks,
creditors and SARS
Types of shares:
- Ordinary: voting rights
- Preference: only get dividends (no voting rights)
, Risk:
- High
- JSE = Strict rules to protect investors and to decrease the risk of investing in listed companies.
- Blue-chip shares = high ended companies: ROI is normally higher
ROI:
Factors that contribute to ROI…
- Increase in share price
- dividends
Expectations of shareholders when buying shares…
- Share price increase = capital growth
- Dividends will be generated (Company pays 20% on dividends= shareholder does NOT pay tax.)
- Combination
Factors that determine the price/demand for shares on the stock market: (ROI continued)
- The level of confidence in the state of the economy: Bull (strong)/Bear (weak)
- Government policies or new legislation: E.g nationalisation
- Industry performance: strikes?
- Financial Performance of the business: Sales, profits, financial ratios, solvency, liquidity, ROI,
dividends declared
- Management and the public’s confidence
- Social issues surrounding the company eg eco or window dressing
- Legal issues, pending lawsuits or allegations eg price fixing or not paying company tax
- Media coverage increased public awareness
Time frame:
- Long term (blue chip)
- Speculators (short term)- quick and significant increase at the opportunity for increased
shares price. Not really concerned with dividends
Stock market terminology:
- Bull market: believes share price will go up
- Bear marker: believes share price will go down
- Spread: difference between asking and bid price
- Market capitalisation: share price x number of shared in issue
- Rights offer: existing shareholders have rue first option to buy new shares
2. Debentures: (bonds)- borrowed capital
- A letter of credit = to raise borrowed capital
- Not usually secured by specific assets: if company cannot repay the debt= liquidated-
debenture holder have no claim to assets.
- Debenture holder = receives interest
- Debenture holder can sell debentures on the JSE
Types of debentures:
1. Redeemable debenture: Repayable on predetermined date.
2. Irredeemable debenture: Never paid back= indefinitely getting interest.
3. Convertible debenture: Debenture converted into shares at a predetermined date.
“Evaluate investment option”
Risk:
- High investment= high return or high loss
- Diversification= all eggs not kept in one basket
- Strategies to limit loss: rebalancing= adjust your portfolio to get back to the point where your
portfolio diversifies.
Return on investment:
- Measures efficiency of investment= what the investor will get back over and above the
original investment made.
Timeline: (period of investment)
- Longer= greater risk can be taken
Investment strategies:
Investment options:
1. Equity (shares)- owned capital
- Listed on the JSE Ltd= information on the shares’ performance available for investors
- If company is unlisted= company makes financial info available to shareholders, banks,
creditors and SARS
Types of shares:
- Ordinary: voting rights
- Preference: only get dividends (no voting rights)
, Risk:
- High
- JSE = Strict rules to protect investors and to decrease the risk of investing in listed companies.
- Blue-chip shares = high ended companies: ROI is normally higher
ROI:
Factors that contribute to ROI…
- Increase in share price
- dividends
Expectations of shareholders when buying shares…
- Share price increase = capital growth
- Dividends will be generated (Company pays 20% on dividends= shareholder does NOT pay tax.)
- Combination
Factors that determine the price/demand for shares on the stock market: (ROI continued)
- The level of confidence in the state of the economy: Bull (strong)/Bear (weak)
- Government policies or new legislation: E.g nationalisation
- Industry performance: strikes?
- Financial Performance of the business: Sales, profits, financial ratios, solvency, liquidity, ROI,
dividends declared
- Management and the public’s confidence
- Social issues surrounding the company eg eco or window dressing
- Legal issues, pending lawsuits or allegations eg price fixing or not paying company tax
- Media coverage increased public awareness
Time frame:
- Long term (blue chip)
- Speculators (short term)- quick and significant increase at the opportunity for increased
shares price. Not really concerned with dividends
Stock market terminology:
- Bull market: believes share price will go up
- Bear marker: believes share price will go down
- Spread: difference between asking and bid price
- Market capitalisation: share price x number of shared in issue
- Rights offer: existing shareholders have rue first option to buy new shares
2. Debentures: (bonds)- borrowed capital
- A letter of credit = to raise borrowed capital
- Not usually secured by specific assets: if company cannot repay the debt= liquidated-
debenture holder have no claim to assets.
- Debenture holder = receives interest
- Debenture holder can sell debentures on the JSE
Types of debentures:
1. Redeemable debenture: Repayable on predetermined date.
2. Irredeemable debenture: Never paid back= indefinitely getting interest.
3. Convertible debenture: Debenture converted into shares at a predetermined date.
