Summary INVESTMENT: IEB-Ready Business Studies Notes

Chapter‌‌8‌-‌‌‌Investment‌ ‌‌

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- Criteria‌‌used‌‌to‌‌determine‌‌the‌‌most‌‌suitable‌‌investment‌‌option,‌‌used‌‌to‌‌evaluate‌‌each‌‌of‌‌
the‌‌options:‌ ‌
- Risk‌ ‌
- Return‌‌on‌‌investment‌ ‌
- Time‌‌frames‌ ‌
‌
A. Risk‌ ‌
- High‌‌i‌nvestment‌‌to‌‌deliver‌‌a‌‌higher‌‌ROI‌I‌F‌‌t‌he‌‌investment‌‌succeeds.‌ ‌
- Could‌‌result‌‌in‌‌a‌‌bug‌‌loss‌‌if‌‌the‌‌investment‌‌fails‌ ‌
- Concept‌‌of‌‌diversification‌‌is‌‌important‌ ‌
- Not‌‌ONE‌‌of‌‌the‌‌investment‌‌options‌‌should‌‌be‌‌used‌‌to‌‌hold‌‌all‌‌reserves,‌‌but‌‌rather‌‌
a‌‌COMBINATION‌‌of‌‌the‌‌investment‌‌options‌‌to‌‌spread‌‌the‌‌risk‌‌over‌‌different‌‌
assets‌ ‌
B. ROI‌‌(Return‌‌on‌‌Investment)‌ ‌
- Tool‌‌to‌‌measure‌‌the‌‌efficiency‌‌of‌‌the‌‌investment‌ ‌
- Indicator‌‌of‌‌what‌‌the‌‌investor‌‌will‌‌get‌‌back‌‌over‌‌and‌‌above‌‌the‌‌original‌‌investment‌‌
made‌ ‌
C. Timeframe‌‌(period‌‌of‌‌investment)‌ ‌
- Longer‌‌period‌‌of‌‌investment‌‌available‌‌to‌‌the‌‌investor,‌‌the‌‌greater‌‌the‌‌risks‌‌the‌‌
investor‌‌can‌‌afford‌‌to‌‌take‌ ‌
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- Different‌‌investment‌‌strategies‌‌include:‌ ‌




‌

, ‌
Investment‌‌options‌‌/‌‌instruments‌ ‌
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1. Equities‌‌/‌‌shares‌ ‌
Descriptions:‌ ‌
- Equities‌‌are‌‌known‌‌as‌‌shares‌‌in‌‌a‌‌company‌‌ ‌
- Some‌‌companies‌‌listed‌‌on‌‌the‌‌JSE‌‌and‌‌some‌‌are‌‌not‌‌ ‌
- Companies‌‌that‌‌are‌‌listed,‌‌shares’‌‌performance‌‌is‌‌regularly‌‌available‌‌ ‌
- If‌‌unlisted‌‌the‌‌information‌‌is‌‌only‌‌available‌‌to‌‌shareholders,‌‌banks,‌‌creditors‌‌and‌‌
SARS‌ ‌
- Without‌‌this‌‌information‌‌it‌‌is‌‌impossible‌‌to‌‌evaluate‌‌whether‌‌the‌‌investment‌‌has‌‌
delivered‌‌acceptable‌‌returns‌‌ ‌
- Owners‌‌of‌‌shares‌‌(equities)‌‌each‌‌own‌‌a‌‌portion‌‌of‌‌the‌‌business‌‌and‌‌there‌‌are‌‌two‌‌ways‌‌
to‌‌become‌‌a‌‌shareholder:‌ ‌
- Shares‌‌bought‌‌from‌‌the‌‌company‌‌when‌‌issues‌‌the‌‌first‌‌time‌‌‌and‌‌the‌‌person‌‌
who‌‌bought‌‌shares‌‌contributes‌‌to‌‌the‌‌capital‌‌of‌‌the‌‌business‌ ‌
- Shares‌‌bought‌‌on‌‌the‌‌JSE‌‌from‌‌a‌‌previous‌‌shareholder‌‌‌where‌‌the‌‌money‌‌
paid‌‌for‌‌the‌‌share‌‌doesn’t‌‌go‌‌to‌‌the‌‌business‌‌but‌‌to‌‌the‌‌person‌‌who‌‌sold‌‌their‌‌
shares‌ ‌
- Shares‌‌bought‌‌and‌‌sold‌‌on‌‌the‌‌JSE‌‌have‌‌no‌‌impact‌‌on‌‌the‌‌capital‌‌
available‌‌to‌‌the‌‌business‌ ‌
Risk:‌ ‌
- JSE‌‌has‌‌strict‌‌rules‌‌for‌‌companies‌‌to‌‌list‌‌on‌‌the‌‌stock‌‌exchange‌‌to‌‌protect‌‌investors‌‌and‌‌
decrease‌‌the‌‌risk‌‌of‌‌investing‌‌into‌‌JSE-listed‌‌companies‌ ‌
- Blue-chip‌‌shares:‌‌‌are‌‌shares‌‌in‌‌high-end‌‌companies‌‌on‌‌the‌‌stock‌‌exchange‌‌and‌‌the‌‌
risk‌‌of‌‌acquiring‌‌shares‌‌are‌‌smaller‌‌than‌‌having‌‌shares‌‌in‌‌another‌‌company‌‌ ‌
- ROI‌‌in‌‌these‌‌blue-chip‌‌companies‌‌is‌‌usually‌‌higher‌‌than‌‌in‌‌other‌‌companies‌‌ ‌
- Investors‌‌usually‌‌take‌‌smaller‌‌risks‌‌than‌‌people‌‌speculating‌‌with‌‌shares‌ ‌
ROI:‌
- When‌‌evaluating‌‌the‌‌ROI‌‌of‌‌shares‌‌bought‌‌in‌‌a‌‌listed‌‌company,‌‌there‌‌are‌‌two‌‌factors‌‌
that‌‌contribute:‌ ‌
- Increase‌‌in‌‌share‌‌price‌ ‌
- Dividends‌‌ ‌
- Shareholders‌‌buy‌‌shares‌‌with‌‌an‌‌expectation‌‌that:‌ ‌
- Share‌‌price‌‌will‌‌increase‌‌over‌‌time‌‌(capital‌‌growth)‌ ‌
- Good‌‌dividends‌‌will‌‌be‌‌generated‌‌ ‌
- Profits‌‌of‌‌the‌‌company‌‌that‌‌are‌‌divided‌‌among‌‌the‌‌shareholders‌‌(not‌‌
taxed‌‌in‌‌the‌‌hands‌‌of‌‌shareholders)‌ ‌
- A‌‌combination‌‌of‌‌the‌‌above‌‌occurs‌‌usually‌‌helps‌‌outperform‌‌inflation‌‌ ‌
- What‌‌determines‌‌the‌‌price‌‌of‌‌a‌‌share‌‌on‌‌the‌‌stock‌‌market?‌ ‌
- Market‌‌forces‌‌(supply‌‌and‌‌demand)‌ ‌
- Price‌‌is‌‌determined‌‌by‌‌how‌‌many‌‌people‌‌want‌‌the‌‌product‌‌(demand)‌‌and‌‌
how‌‌much‌‌of‌‌the‌‌product‌‌is‌‌available‌‌(supply)‌ ‌
- What‌‌determines‌‌supply‌‌and‌‌demand?‌ ‌