Podcast: How many shares to buy?

Simon Brown JSE Direct, Latest

Simon Shares

  • Kumba (JSE code: KIO) results saw production down, but with the average selling price up 57% at US$108 / tonne – they shot the lights out. But this is surely the top here? Rumours are that Vale has iron ore on the water heading for China and slower Chinese GDP may hit demand, sending iron ore back to a more sensible price around US$70 / tonne?
  • Platinum continues to edge higher.
  • Remember S12J? You could invest in a funds that invested into startups (within certain rules). Then whatever you invested would be deducted from your taxable income (on condition you held for 5 years) and tax would only be CGT, albeit on a zero cost basis. Government is now proposing a limit of R2.5million per person per year. Frankly for the vast majority, this is a non event as that’s serious money.
  • Alexander Boris de Pfeffel Johnson is the new Prime Minister of England. What one may think of him, markets don’t care and for traders / investors that’s what matters. That said, hard Brexit remains a stupid idea.
  • IMF cutting global GDP growth, including our own. Now they’re not always right, in terms of exact numbers they are seldom spot on. But the trend from the IMF has been edging lower for a while now, and on the trend they usually are right.
  • I have a new show on BusinessDay TV – The Small Cap Portfolio. Monday live at 6.30pm and repeated during the week or on YouTube. I get one guest and we talk about two stocks of their choosing. We’re not talking results, we’re talking the profit drivers, risks and so on.
  • Theo Botha points out on Twitter that; Pick ‘n Pay Lead independent non-executive director Hugh Herman (75). Appointed to the board in 1976. How can this director still maintain his independence after 43 years on the board?

How many shares to buy?

Two emails in the last week asked about how many shares to buy in any given stock. The problem is that this does not account for the cost of the shares. For example 10k shares in a R10 stock is very different from 10k shares in a R125 stock.

As an aside when I started trading warrants in the late 90’s this was exactly how I traded. I bought 50k warrants regardless the price. So some times was R10k other times closers to R50k and my risk was all over the place.

The answer of course is simple, invest based on ZAR amount, not quantity.

I structure my portfolio with the core satellite approach;

  • The core is around 55% in ETFs (tax-free maxed out every year)
  • 30% in ’til death do us part’ top quality stocks
  • 8% in second tier small and mid caps
  • 7% for trading ALSI futures and ETFs.

The til death do us part is some 10 stocks so when I am buying, I buy at around 3% of total portfolio. Of course as they moves the weightings get our of sync, I manage that by adding new money to other stocks or in some cases selling down when the weighting gets wildly out of sync.

But quantity of shares is not important.

A last point because I get this question all the time. People want a ‘penny’ stock below 100c because then it can double in price. Any stock, regardless of price can double in price and cheap does not make it easier.

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JSE Direct is an independent broadcast and is not endorsed or affiliated with, nor has it been authorised, or otherwise approved by JSE Limited. The views expressed in this programme are solely those of the presenter, and do not necessarily reflect the views of JSE Limited.

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