‘I want a new pair of shoes’, she said.
‘Well, why don’t you buy some then?’ I replied.
‘It would be unwise. I’ve already spent so much.’ Now, my friend on the other side of the FaceTime call is a sensible woman. She’s not one for shopping sprees or superfluous spending. In fact, she’s the opposite.
The spending she was referring to were necessities – medical aid, car payment and insurance. ‘I just don’t think I should. I haven’t put away enough this month. It would be unwise for me to buy myself shoes.’
Now, if she had bought herself a pair of designer sneakers every month for the past year, I’d be inclined to agree. But she hadn’t. However, she was feeling guilty over not saving enough money this month.
It’s a feeling I’m sure you can relate to – especially if you’re in your mid-twenties. We put so much pressure on ourselves to reach certain ‘life goals’ by a particular age. Sometimes, they’re unrealistic. While saving for the future is important, we mustn’t forget to enjoy our lives too. Yes, my friend felt that she hadn’t put enough away this month – but at least she put something away.
To her, I say: Get the shoes. The personal finance and investing journey isn’t a sprint. It’s a marathon. You may as well wear a nice pair of shoes as you progress.
Just a day later, I found myself displaying the very opposite of what I talk about above.
I logged onto my EasyEquities account to find something rather exciting had developed. My Sanlam and PurpleGroup shares were on the up and up. The joy I found in my appreciating shares suddenly turned to regret. Why didn’t I buy more?
Kicking myself in regret, I typed up a rapid WhatsApp message and sent it to a friend who works in finance.
‘I’m so annoyed that I didn’t put more money into Sanlam.’
Ever the voice of reason, he replied, ‘That’s just how it works. No point in looking back.’
I suppose this week’s lesson is that patience is an essential key to successful investing. Patience and going easy on yourself.
Last week, I asked you to send me your finance and investment queries. Here, Johan Steyn, CFA* of Stellenbosch University shares his expert advice by providing answers to your questions.
Shelton Muzanya asked,
What are your thoughts on EasyEquities potentially turning into Robinhood, where the app has become gamified to encourage more transactions. This has led to increased gambling addiction in the US. By oversimplifying stock investing, do think EasyEquities runs that risk?
The advantage of EasyEquities is that it helps people to take control of their finances. Those benefits outweigh the potential – which I think is a low probability – of feeding a gambling addiction. Are they to blame if that happens? Is Robinhood to blame for all the sports bettors who are already gambling?
Asanda Gxamza asked,
What’s the best way to look at share investing? As a beginner how diverse should you go? 2-3 companies or more? Or do you just pick one?
Before selecting shares – especially if you have a smaller amount of capital to invest – consider investing in ETFs, which are like shares but more diversified. The problem with investing in one or two shares is that you take on a lot of stock-specific risk. There is a lot of uncertainty that goes along with investing in shares. One way to manage that risk is to diversify your portfolio. That’s difficult to do if you’re starting off with a small amount. Say you have R1,000 to invest. You need to invest it in one or two shares to get some proper exposure. It’s difficult for you to spread that out over 30 shares. So, it’s much easier to buy one or two ETFs which are already diversified and give broader exposure.
This also ties into personal finance. If you are looking to start investing in shares, have you covered the basics? Have you got an RA or tax-free savings account set-up? Is this share account something you’re doing with money you can afford to lose, in order to start learning? If so, start by looking at a handful of companies. Read up about them and make investment decisions. You will learn more if you go with that approach, but make sure you’ve thought about it in the broader context. You’re taking on a lot of specific risk, but it is for a reason. It’s not only to make a profit, but to learn.
Andrew Lake asked,
Could you explain what a share buyback is? What would happen if you refuse to sell your shares back – is that possible?
A share buyback is when a company buys its own shares back. Those shares then return as treasury shares. The company then owns them and they can be cancelled. This reduces the number of shares that are actually issued. When the profits are divided at the end of the day, they company has fewer shares to pay out which increases your earnings per share. It’s a way for the company to boost their earnings per share profile. This can increase the share price, because they are dividing the same profits with fewer shares. Typically, a company asks their shareholders for approval. If they approve that, they just buy those shares in the market. Remember, there are always willing buyers and sellers. There is a willing seller that is selling to the company. You choose if you want to participate. If you don’t want to, just keep your shares.
*Johan Steyn, CFA is a lecturer in investment management at Stellenbosch University. He holds a Masters in investment management and has a background in fund management.
Have a question about share investing? Write to me at [email protected]