If you are a typical visitor to our site you've been reading our research, gaining a better understanding of the JSE and noticing from the SCOREBOARD menu how the various portfolios over time keep outperforming the ALSH index. Some of these strategies are blowing you away with their performance. So you decide to take the plunge. If you are a "newbie" to Strategy Indexing and Market Timing (the stuff we do) or investing in the JSE we urge you to read the following guidelines or best practices. Our strategies, coupled with these best practices will virtually eliminate your chances of making a loss on the JSE. Note that these are by no means an exhaustive list, just some things to get you on the right track:

If you do not already have investing software, we strongly urge you to get some. All of us at PowerStocks started out with and still extensively use, ShareMagicPro from ProfileMedia. In fact the bulk of our research and backtests are conducted with this software. Not only does it provide you with powerful charting essentials, it gives you a superb fundamental data query engine to further inspect your shares after looking at our mechanical screens. This is an important 2nd step many people fail to take. Whilst our strategy screens identify opportunity and reduce much of the risks associated with share selection, they do not eliminate them, and you are advised to check a shares fundamentals before committing your hard earned cash to the markets. Thirdly, this package has the most powerful portfolio management tools in the business - all our own investment portfolios and all the model portfolios on this website are run with the ShareMagic Pro portfolio module.

We have spent over R43,000 and tried all the available software in SA and can stick our necks out and say this is the best and first investment software you can get for your Rands. You can purchase from them direct at http://www.profile.co.za or you can acquire through us (we are an authorised agent) An advantage of purchasing through us is you will get some of our custom exploration modules such as the complex Piotroksi screen and the popular Magic Formula screens together with your copy to allow you to run your scans in your own time and frequency instead of having to wait for our monthly web site updates (only if you are a PowerStocks subscriber.)

  1. Never invest with borrowed money
  2. Never invest with money you cannot afford to lose
  3. Never invest with money you might need within 6-12 months
  4. If you owe on your credit card/bond/car stick your spare cash in there rather.
  5. Never invest more than 5% of your investment capital in any one share unless its a ETF like Satrix. With Satrix this limit can go up to 20%. 
  6. Balance your investments with at least one strategy with high Sharpe's or an ETF such as a SATRIX40 or our favourite, the SATRIX-RAFI. Even better, as your first portfolio, try a SATRIX product with our Market Timing Strategy as one of the "safe" portfolios in your investment strategy.
  7. Never invest more than 50% of your capital if you are new to investing.
  8. With each interest rate drop, move more from cash into shares
  9. With each interest rate rise, move more share capital into cash
  10. Try not to buy on peaks, buy into weakness or the inevitable consolidations that occur in a bull run.
  11. Regarding (9), be happy with 5-10% retracements as these are opportunities to load up.
  12. Check the timing of your purchase with some basic charting or against classic chart patterns to confirm your share is a safe buy at the moment from a price action perspective
  13. Stay out the market when it is dropping sharply, better to get in a bit later after the turnaround than try and time the bottom before it occurs (don't catch falling knives)
  14. Realise that the current state of the economy at any point in time has nothing to do with the stock markets. Stock markets look forward by 6-12 months. They fall before the economy does and they pick-up before the economy does. Use our Econometric Model to time entries and exits into the stock market using economic indicators rather.
  15. Set a stop-loss on your share purchases! Check the chart of the share you are buying to see how volatile it is and set your stop-loss accordingly (you don't want to be thrown out prematurely if a stock fluctuates regularly by 10% and you set your stop loss to 10%)
  16. When a share drops, NEVER buy more to try make up for your losses. If you are stopped out then STAY out that share and move onto the next one.
  17. Never spend your profits on the stock market unless you have actually sold the shares to realise the profit and are using THAT money. Spending paper profits can make you a pauper!
  18. NEVER think you will make a killing overnight in the market. Unless you have a medium to long term plan, at least greater than 12 months then you are SPECULATING. Rather go to the Casino.
  19. Never invest in "Tips" from your friends around the braai or from your hairdresser. When you start noticing that your hairdresser, gardener, dentist, doctor etc. all start giving you share tips and talking about how much money they make on the stock markets, go home, login to your on-line brokerage account and GET OUT THE MARKET completely.
  20. When you feel smug and pat yourself on the back for outsmarting the stock market and having made a bundle, SELL EVERYTHING
  21. Read at least one investment book per year.
  22. By the time you read something in the newspapers, its already priced into the stock market.
  23. Stay OUT OF THE STOCK MARKET when our SUPERModel is showing a signal less than zero.
  24. Finally, if your portfolio is slightly down and you lie awake at night worrying about the stock market and feel compelled to watch the share prices in your portfolio on a daily basis after 3 months then rather GET OUT the game
  25. Read this page at least once a month!

RULES SPECIFIC TO "STRATEGY INDEXING" (the stuff on this site)

  1. Make sure you have read the Welcome Page to figure out where all our information is posted, with what frequency etc.
  2. Read all the research to ensure you understand the strategy you want to use. Understand that some are more risky than others.
  3. If you have the cash, rather diversify across multiple strategies than throwing all your money behind one strategy.
  4. If you are stuck on one strategy then consider dollar-cost-averaging. Buy into the portfolio and then wait for the following month or quarter when a scan reveals another set of shares and then buy into a 2nd portfolio. This is diversifying even though its the same strategy and dollar cost averaging is excellent in the long run as you get to buy less when the market is expensive and more when its cheap.
  5. Your safest and cheapest way to implement a diversified mechanical strategy is to buy a ETF and use it in conjunction with our SuperModel Timing Strategy. Do not hold onto an ETF forever as we have shown through research that BUY-AND-HOLD is a LOSING strategy.
  6. Timing your SELLING is as important as your BUYING. Don't be scared to take profits. Set your profit target, WRITE it  down and STICK to it (for example "I will sell 25% when I have made 20% profit and a further 25% when I have made 30% profit etc.") Use our timing models to identify safe and risk periods to be in the JSE.
  7. Most of our research has shown that the strategies perform best when held for at least 12 months. When the 12 months is up, you may consider holding further until the first sign of weakness, then SELL. If ever the SUPERModel Timing signal reads minus 1 GET OUT THE MARKETS NO MATTER WHAT.
  8. If you sell before holding a share for 3 years you will incur income taxes. But don't EVER let tax considerations drive your decision how long you will hold a share or portfolio. After the 12 months is up, set a SELL target and if weakness gets to that SELL target then SELL!
  9. There are two approaches to Piotroski. The first, a PASSIVE approach is you buy the shares and set your holding period to 12 months. The second, an ACTIVE approach (like the one adopted by our model portfolio) buys and sells according to new results announcements every months. We have back-tested the PASSIVE strategy but not the ACTIVE one  (it would take for ever to back-test that!)
  10. Piotroski is for the enthusiast investor that wants to get active with some trading of 1-2 shares a month. But its Sharpe is less than 1 so you must live with volatility (it is more risky). Rather use a strategy with a Sharpe above 2.0 as your first strategy. After success you can try your hand at Piotroski.
  11. Don't panic if the portfolio takes 3-4 months to "settle in". Sometimes if you buy on a peak and there is some market weakness you will be in the RED. Unless you are in the red by 20% don't panic and liquidate. Even Powershares went down 20% in the beginning of some of its years, not because the shares were bad but because the markets were coming off peaks and the back-tested strategy just happened to start on a peak.
  12. Remember these are 12 month or more strategies. Its investing, not speculating.
  13. Double check the shares in your portfolio by scanning the press etc for any bad news. We do the screening but we DO NOT CHECK companies for scandals, corruptions, sound business practices, bankruptcies, fraud etc. Please read our Terms and Conditions and Disclaimers.
  14. The strategies on our site do not guarantee returns and do not guarantee no share will suffer a loss. They are designed to that some shares will suffer losses but will be more than compensated for by the other shares in the portfolios that rise.
  15. Because of (12) above, DO NOT pick individual shares from various portfolios. You destroy the portfolio dynamics and results will be completely unpredictable. Follow our guidelines on minimum number of shares. If you have the urge to "multi-pick" try our TurboShares Strategy rather. Just look at all the strategies we publish candidate lists for, throw all the shares in a spreadsheet and count how many times each share appears in a strategy. Then build a portfolio of 5 shares that appear the most in all the current candidate lists and  viola - you built your own TurboShares portfolio.
  16. Brokerage fees can harm your returns. The average brokerage fee is 0.6% per share (with R70 to R120 minimum). This implies a minimum of R12,000 per share to minimise the brokerage fees (But R10,000 is acceptable and is a nice round number). That means a 5-share portfolio will cost you R50,000 to R60,000. If you cant afford that start out with an ETF.
  17. If you only have less than R30,000 to spare we suggest you invest in a SATRIX40 ETF as brokerage will be minimal, especially if you purchase from them direct. If you still "yearn" to try your hand at "Strategy Indexing" then couple this purchase with one of our Timed Strategies - they work very well with an ETF such as SATRIX. That way you get the best of both worlds and minimise your risks and can still tell your friends you applied some skill to your investment!
  18. New stock market screens are run once a month. We normally complete the update of all the portfolio performances and publish all the new candidate lists by the 4th working day of the new month. Plan your stock market purchases around this date to ensure latest data is used in your investment decisions.
  19. Go to the STRATEGIES main menu and look for the GET CANDIDATE LISTS sub-menu to jump straight to the latest candidate lists of each strategy. Make sure the date on the candidate list is not too old otherwise chances are the shares have made a run already and you will buying them too expensive which defeats the object of value investing. Rather wait for a new candidate list or buy into weakness if any exists to claw back into the portfolio. 
  20. Don't blow all your money at once , we constantly launch new innovative strategies that can make investing fun and diversify your investments. 

    FINAL NOTE : We're Quants and not web site designers. We know the site is klunky but its the information that counts. Yes, we know our spelling is not great in some places and we are working on improving that, please be patient.

    NEXT SUGGESTED READING --> | Reducing your Risk |
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