Step 1

First, understand your investment requirements and limitations. Your requirements should take into account the present as well as the future.

The same applies to your limitations. For example, you just got a job and earn Rands 20,000 a month. Your limitation could be that you need to set aside at least Rands 10,000 for installment payments for your car, and another Rands 5,000 for your monthly expenses.

This leaves aside only Rands 5,000 for investment purposes. Now, if you are a risk-averse investor, you may prefer to invest a larger portion of this amount in low-risk options like bonds and fixed deposits. This means, you have only a small portion left for stock market investing – Rands 1,000. Further, take into consideration your tax liabilities.

Remember, making profits on short-term buying and selling of shares incurs capital gains tax. This is not applicable if you sell your shares after a year.

So, ensure that your cash needs don’t force you to sell your shares on short-term unnecessarily. Better to take a wise well-thought decision, than attract unnecessary costs in the future.

Step 2

Once you understand your investment profile, analyse the stock market and decide your investment strategy. Find out which stocks suit your profile. If we continue the above example, with a budget of Rands 1,000, you can either choose to buy one large-cap stock or multiple small-cap stocks. If you need an additional source of income, opt for high-dividend stocks.

If not, opt for growth stocks which are likely to appreciate the most in the future. Deciding the kind of stocks you wish to collect is part of your investment strategy.

Step 3

Wait for the right time. Have you ever seen a cheetah or tiger hunt? They lie low for a while waiting for their prey, and then they pounce. Exactly the same way, time is of utmost importance in the stock market. Merely getting the stock right is not enough. Your profits will be maximised only if you buy at the lowest level possible. The same applies if you are selling your shares. This needs time. Do not be impulsive.

Step 4

Conduct your trade either online or on the phone through your broker. Ensure that your broker confirms the trade and gets all the details right. Recheck the trade confirmation to avoid errors

Step 5

Monitor your portfolio regularly. The stock market is dynamic. Companies may seem profitable one moment, and not-so profitable the next due to some unforeseen factor. Ensure you regularly read about the companies you have invested in. In the case of some unfortunate situation, this will help you minimize your losses before it is too late.

However, this does not mean you panic every time the stock falls. A stock’s price will fall at some point in time, because there will be some investor in the market with a shorter investment horizon than you. So, he will sell his stock and pocket whatever profits possible in that shorter time. Patience is a key virtue in the markets.