01 October 2021

Trading JSE CFDs in Turbulent Times

Chart Image Credit: PPC Cement Daily Chart View by TradingView (Standard Online IRESS ViewPoint Software)
“Trading doesn't just reveal your character, it also builds it if you stay in the game long enough.” ― Yvan Byeajee

I've been a stock market investor and share trader on the Johannesburg Stock Exchange (JSE) for the past 30 years. I became interested in share trading as a junior lecturer in Economics and Business Economics during the early 1990's. The first JSE listed company I invested in was Rainbow Chicken.

This was just before electronic share trading became available to individual investors / traders and for a while I still had to phone through my orders and drive to the broker with a cheque to settle my share transactions. 

When online trading became mainstream I could access, purchase and sell shares directly via the Standard Bank Online Share Trading website. I increased the frequency of buying and selling of shares and steadily developed my JSE share portfolio (and my knowledge). My trading objectives at that stage was not long-term investment and / or a growth portfolio, but rather the buying and selling of shares for cash flow and for learning stock market fundamentals, applications and associated risks.

Through the Standard Bank trading platform I quickly became aware of a range of financial derivates offered to their online share trading clients. For a few years I mainly traded a selection of shares from the JSE-listed Top 40 Companies and financial instruments such as Single Stock Futures (SSFs) and Contract For Difference (CFDs) derivatives. Over the last five years I've only traded CFDs due to my trading / cash flow objectives, associated leverage and a more in-depth understanding of CFD trading risks.

JSE Shares / Derivatives  (SFFs and CFDs) / ETFs Traded up to 2019
Absa / Advtech / Afrox / Anglo American / Aspen / BHP Billiton / Capitec / City Lodge Hotels / Clicks / Dis-Chem / Distillers / Gold Fields / Harmony Gold / MTN Group / MR Price / Merafe / MultiChoice Group / Naspers / Old Mutual / PPC Cement / Pick & Pay / Purple Group / Rainbow Chicken / Remgro / Richemont / Sasol / SA Breweries / Sappi / Sanlam / Spar / Sun International / Sygnia / Standard Bank / Spur Holdings / Vodacom / Woolworths / Currency Futures / Satrix ETFs (various) / Standard Bank Copper ETF / Standard Bank Platinum ETF / Sygnia ETFs (various)

Off and Back on the JSE
In late 2019 I took a break from my Standard Bank Online Share Trading due to other business and personal commitments. This was a time with no daily trading stress and it provided an opportunity for reflecting on my share trading system, trading strategies and for possible re-entering the stock market at a later stage.

When COVID-19 arrived in South Africa (April / May 2020) and we were forced into Lockdown 5 I suddenly found myself without any income. My photography training and my accommodation renting business dried up immediately and I had to make a sustainable plan for generating income and cash flow for these uncertain times. I immediately turned my attention (and time) to the JSE and started my market and company research for purchasing CFDs.

With the sudden drop in global commodity and oil prices Sasol's (JSE Code: SOL) share price was hard hit and dropped significantly in a very short period it definitely peaked my interest. I started buying SOL CFDs at +- R30 per share (currently trading at +- R250 per share - Sept 2021) and very quickly with the upward bounce started buying additional SOL CFDs and slowly but surely developed a CFD portfolio as I gained more market knowledge of the COVID pandemic impact (as a possible Black Swan event) on the local and global financial markets. 

Vernon Chalmers 2020 / 2021 CFD Portfolio : Acquisition Date May 2020
Over the next few months I generated substantial income and cash flow from the SOL CFDs and added many other JSE CFDs to my portfolio (with local and global market exposure). Through meticulous Fundamental and Technical Analysis during 2020 / 2021 I developed a diversified CFD portfolio from 16 JSE Sectors with at least one company in each Sector (with JSE Share Code):  
  • Apparel Retailers: Mr Price (MRP)
  • Asset Managers and Custodians: Zeder (ZED)
  • Banks: Capitec (CPI) / FirstRand (FSR)
  • Cement: PPC (PPC)
  • Chemicals Diversified: Sasol (SOL)
  • Consumer Digital Services: Naspers (NPN) / Prosus (PRX)
  • Diversified Financial Services: Remgro (REM)
  • Drug Retailers: Dis-Chem (DCP)
  • Food Retailers and Wholesalers: Spar (SPP)
  • General Mining: Anglo American (AGL)
  • Hotels and Motels: City Lodge (CLH)
  • Luxury Items: Richemont (CFR)
  • Pharmaceuticals: Aspen (APN)
  • Real Estate Holding and Development: Rand Merchant Holdings (RMH)
  • Telecommunications Services: MTN Holdings (MTN) / Vodacom (VOD)
  • Transportation Services: Grindrod (GND)

13 of the above CFDs (the listed companies) are constituents of the SATRIX TOP 40 ETF (which tracks the performance of the FTSE/JSE Top 40 Index).

Please Note: The listing of above Companies / CFDs are not recommendations to purchase and / or to hold in any CFD or Share Trading portfolio. This selection is based on my own research (fundamental and technical analysis) for my own (current) individual purpose and may change on short notice. See below section on CFD Trading Risk.


That first share... Rainbow Chicken
I still hold Rainbow Chicken indirectly in my portfolio. Today they are incorporated into JSE-listed RCL Foods. Although I don't own shares in RCL Foods, I trade and own CFDs in Remgro. As one of South Africa's top Diversified Financial Services companies, Remgro owns 77% of RCL Foods.

CFD Trading Risk
Contract For Difference (CFD) trading is a high risk derivative trading decision and / or strategy. CFDs are geared financial instruments that could have a significant profit and / or loss impact on a daily basis. Anyone trading CFDs (or any shares / derivatives) should have substantial stock market / stock trading knowledge and experience with preferably an in-depth understanding of the impact of daily price fluctuations and any volatility affecting the share / sector / economy / global markets. It is extremely high risk trading and it not uncommon for an entire CFD portfolio to be wiped out within a couple of days. 

Developing an Investment / Trading System
As long as I have been investing and trading I've been developing and fine-tuning a system in which I am comfortable with the individual shares, derivatives, leverage, margins and risks. I've learned not just to look at the overall portfolio, but also to each and every share / derivative in my portfolio. Proper analysis, research and decision-making is time-consuming, but its important to assess various criteria via both fundamental and technical analysis. Having an in-depth understanding of the trading / investment platform (in my case - Standard Bank Online Share Trading) is paramount for a successful strategy, operational efficiency and risk management practices.
 
Although I have a much larger portfolio currently, I'm trading more risk-averse than 30 years ago - mainly due to more trading experience, improved risk management skills, patience, availability of more real-time data and an overall better understanding / interpretation of specific market and economic conditions. Over the years I also traded towards a larger JSE-sector diversification (with global exposure) and selecting companies with relatively large market capitalisations that should provide improved balance, leverage and return on trading capital to my CFD portfolio(s).

JSE CFD Trading Disclaimer
I only manage my own JSE CFD / Global Share / Unit Trust Portfolios and under no circumstances make recommendations on the Purchase / Selling of any JSE / Global Shares / CFDs / Other Derivatives to anyone.

Chart Image Credit: PPC Cement Daily Chart View by TradingView (Standard Online IRESS ViewPoint Software)
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