How to use the new ShareFinder 5 Professional

By Richard Cluver

Two requirements define a successful long-term share market investment strategy. The first is to draw up a list of JSE-listed companies that offer superior performance and secondly, to determine as accurately as possible the optimum timing of your purchases.

So how can programme-users make optimum use of the latest ShareFinder Professional to achieve these objectives? Well let’s start from the beginning, reviewing how the system functions? We start with the Quality List within which shares are ranked in quality groupings starting with the safest of all: the Grand Old Favourites, big cap companies that are distinguished by their ability to deliver rising profits, dividends and share prices year after year after year over very long periods of time..

From the long-term investor’s point of view, the most important feature of an investment grade share is its ability to deliver steady dividend growth and, as a consequence of this growth, steady capital growth which are together customarily expressed as the “Total Return”; that is the sum of the latest dividend yield and the compound annual average share price growth. Accordingly, at the head of each of these share groupings, a series of averages are offered and, working from the left, if you compare these you will see that as you move down through the groupings from the ultra-safe Grand Old Favourites to the risky but usually fast-growing Rising Stars, you will note that the average “Total Return” increases and so does the degree of risk.

If you believe you cannot afford to take any risk at all, you should be encouraged to choose shares only from the top “Grand Old Favourites” category. Conversely, those who because of their youth or comparative wealth believe they can afford a higher degree of risk in return for more rapid portfolio value growth, should choose from categories like the “Medium-Term Market Leaders”. Note also that in every sector, above-average figures are coloured green and below average red. (Note, ShareFinder’s Portfolio Builder facility will aid you to make appropriate share choices depending upon your age and ability to cope with risk)

Within all quality sectors, the most important derived quality statistics are displayed on the left of the spread sheet. Starting from the left we display the “Quality Grading” of each company, the Total Return average over the past five years (this is the 5-year price growth average plus the current dividend yield) a Risk Rating which compares the price volatility of a share with that of a benchmark gilt and a Bias measurement which compares the average rate of share price growth with its dividend growth rate, a calculation of the extent to which a share is either under-priced or overpriced relative to its balance sheet fundamentals. In addition we list the latest Dividend Yield, Earnings Yield and Price Earnings Ratio. Then to the right are listed a mass of balance sheet fundamentals of which the most important are dividend and earnings growth rates over various periods, the return on capital employed, return on shareholders’ equity, average traded volume and so forth: some 50 different statistical measurements which are scored relative to their own averages and then totalled in order to determine the Grade of each share: our “at a glance” measure of quality that makes share selection very simple.

If you are starting out building your first portfolio, you can if you wish simply ask the Portfolio Builder to do the job for you. You can call it by left-clicking on the icon at the head of the ShareFinder display which looks like this :

The window that opens looks like this: note the buttons on the right. Let us start by asking the Portfolio Builder to “Set Objectives”. The purpose of this option is to assist you to calculate how much income you will need when you retire and how rapidly you will need to grow your present capital in order to achieve your desired objective.

It will start by inviting you to examine the value and projected growth rates of your existing investments and to also take a guess at what the average inflation rate will be in the years ahead. From the answers you supply it will then help you to decide on your risk category and suggest what share groupings should be concentrated in your portfolio. In this example we have assumed that the programme-user has R1-million available for investment and is able to save R12 000 a year to add to this sum. Recognising too that the average share dividend yield at the time of writing was around 5%, we have assumed that this will be the average when our programme user retires. We have also assumed that this person’s investments would grow in round terms at 10% a year and that in terms of the buying power of today’s money he will need R120 000 a year to live on at retirement.

When you have filled in all this data, left-click on the “Analyse” button at the bottom: The chilling conclusion of this analysis can be read in the bottom left-hand of the example. It is that our programme-user will need to either save considerably more each month or achieve a far higher average portfolio growth rate. If he fails to achieve either of these objectives, he will run out of money during his tenth year of retirement.

On the right of the display we have a pen picture of the ShareFinder user as well as his risk profile and a recommendation of the kind of portfolio he should be attempting to build for himself.

If you now click the “OK” button, ShareFinder will invite you to specify your investment objectives; i.e. to either grow your investment income or your capital as quickly as possible with the caveats that you can either afford no risk or lots of risk in return for an exceptional return. Note also that you are required to fill in the total sum of your investment capital at present. If you then left-click on the “OK” button, ShareFinder will generate a portfolio designed to match your age, circumstances and risk profile. It would look like the example on the right:

Note that the analysis at the top of the display suggests that the programme user would be wise to confine his investments to the top four categories of the Quality List. Next note that although the analysis suggests that the risk in the portfolio should be kept below 6.67%, the summary at the bottom of the portfolio discloses that the selected shares have an aggregate risk rating over three times that. However the aggregate historic price growth figure is four times what our investor originally assumed he was achieving with his previous spread of investments.

Clearly this portfolio will give him the growth he needs to live in comfort in his old age. However, if this degree of risk bothers him, he can cut and paste in other shares until he achieves a portfolio that better suits his personal attitude to risk. We will deal with this feature shortly. Meanwhile, do note the “Projected Growth” panel below the portfolio, recognising that the figures contained in it assume that the average growth figures of the past five years will continue in future. As new data comes in each week from the RCIS Supplemental Data service, these figures will be updated and the projections will change, so regular examination of these projections is highly recommended.

Now let us save what we have done so that we do not lose it. To do this you can simply left click on the last icon on the right of the tool bar which looks like this:

Alternatively, when you close this feature of ShareFinder, you will in both instances be presented with an action box that looks like this:

Type in a suitable name and it will be saved under the portfolio list for future recall. You can then re-call it as often as you like either by using the “Portfolio Builder” icon which looks like this:

Alternatively you can list all your stored portfolios by left-clicking on the Portfolio icon on the tool bar that looks like this:

GETTING TO GRIPS WITH COMPANY FUNDAMENTALS

So far we have examined how to use the Portfolio Builder to automatically create a portfolio specifically tailored to your particular needs. Now it is important to note that while the ShareFinder Portfolio Builder is designed to select shares on the basis of both their underlying quality and historic performance, nothing can ever replace personal research if only to ensure that the automatic selections are the best options available to you. Programme users are according encouraged to make maximum use of the resources available within the ShareFinder Professional in order to either add to or subtract from the Portfolio Builder’s selections so as to come up with a final list of potential buys.

One of the most frequently-asked questions is “How much money do I need to start a share portfolio?” And while it would always be nice to start off with a big lump sum, few of us are ever so fortunate. So there is nothing wrong with buying just one share at a time. But whether you start off small or with a large sum of money, the rules are the same and the first rule is that there is safety in numbers.

The wise long-term investor will always spread his investment capital over at least ten different shares and to that end the Portfolio Builder facility in the ShareFinder Professional programme will usually choose a minimum of ten different shares. The reason for such a spread is easy to understand: In a worst case scenario an individual share might lose 50 percent of its value if things turn bad for the company concerned. If you had invested all your money in just that one share, it follows that you would have lost 50 percent of your money if it were adversely affected by circumstances. However it is so rare as to be dismissed entirely that ten different share market companies might be so adversely affected that each will lose 50%.

Now if the affected share was only one of ten, then even in a worst case situation of a 50% loss, your portfolio as a whole would only suffer a 5% loss. In response to this argument, some critics will point to the periodic market collapses that are a regular phenomenon of the share market; the great share market crash of 2007 to 2009 was the most recent example during which the average blue chip share lost 35% of its value. While this is an investment phenomenon which affects all shares to a greater or lesser extent, there are other strategies to deal with market cycles and we will deal with those in due course. For the purposes of portfolio building, however, it is sufficient to recognise that you should aim for a list of about ten different share market companies and, in order to decide which shares to include in your ten-share portfolio, you should start with a short-list of about 15.

Why 15 different companies when all you need if ten? Well it is one thing to decide which companies you want to buy, it is quite another to be able to buy all ten at optimum prices within a short space of time. I have sometimes stalked companies for as long as five years before they have fallen in price sufficiently to be really attractive to me: so look for a short list of 15 and count yourself lucky if you manage to buy ten at really good prices in your first year of portfolio building.

Once you have created your short list of 15 shares, you should make it a daily habit to scan the Financial Press for articles affecting any of your chosen companies. Make it your business to know everything it is possible to know about your chosen companies so that with time and familiarity you will never be caught off guard if the trading circumstances of any of your shares should change in any way.

Your research is made very easy by two features of the ShareFinder Professional. The most important of these is the Quality List which ranks companies in descending order of investment quality starting with the Grand Old Favourites; big cap companies that have outstanding records of steady earnings and dividend growth for a minimum of ten years. The second is the Professional’s “Share Synopsis” feature which records all major announcements made by the company over recent years.

Turning first to the ShareFinder Professional’s Fundamental List there are 50 columns of information relating to each share which fulfils the basic ShareFinder quality test of having enjoyed a minimum of five years of steadily-rising dividends. The topmost four categories of shares; the Grand Old Favourites, Mid Cap Companies, Tightly-Held Mid Caps and The Blue Chips have all delivered not less than 10 years of constantly-rising earnings and dividends.

In addition to satisfying these most important of all qualities, the Grand Old Favourites enjoy a market capitalisation of greater than R10-billion, the Mid-Caps enjoy a market capitalisation of greater than R1-billion while the Tightly-Held-Mid-Caps are the same as the former save that very few shares are in public hands resulting in restricted trading numbers. Shares listed in the Blue Chip category similarly enjoy the same characteristics as the above three save that they have lesser market capitalisations.

Companies which have delivered steadily-rising dividends for a minimum of five years but less than 10, are divided into three categories the Medium-term Market Leaders which are companies which have achieved outstandingly-high exponentially-rising compound annual average dividend and earnings growth. The Rising Stars also enjoy exponential dividend and earnings growth but at a considerably lower rate than the Medium-Term-Market-Leaders.

Finally there is a category we have labelled the Maverick Market Leaders; companies which, without identifiable fundamental characteristics, have nevertheless achieved exceptionally high compound annual average share price growth over the past decade, a growth rate which moreover has accelerated further in the most recent five years. For a detailed explanation of the development and use of the ShareFinder calculations, you should read Richard Cluver’s books ”Investment Without Tears”, “Footsteps to Fortune” “The Philosophy of Wealth” and “The Simple Secrets of Stock Exchange Success”.

So every company in the list is worthy of consideration. But which are the best of the best? And which of them are standing at the most attractive price currently? The Professional provides a plethora of data to help you find them. But which of the 50 columns are the most important? Let us consider those below which I consider to be the most important for everyday purposes:


By hovering your curser over individual column headings you may read an expanded explanation. Noting that you can move these columns around to suit yourself simply by left-clicking on a column heading and dragging it to the left or right, the display above shows how I prefer to display those that I consider the most important for my own decision-making. Given that the companies are already grouped into categories ranging down from the Grand Old Favourites which collectively carry the lowest investment risk, my first criterion is to determine that I always have around two thirds of my investments in the top three categories. This proportion will, of course vary depending upon individual circumstances which is why we have developed a risk self-assessment system within the ShareFinder Professional’s Portfolio Builder. You should routinely re-visit this assessment process at least once a year or more frequently if your financial status changes significantly at any stage.

Let me explain what each of these columns mean:

Close

With the exception of the share name itself, the first column on the left represents the overnight closing price of the share. If you wish in addition to view the previous day’s opening price high, low and traded volume, you may do so by activating the Share icon (forth from the left on the tool bar) which looks like this:

A panel that looks like the one on the right will then appear and by activating the “List” button and typing in the first three letters of the name of the share you are interested in, you will be provided with the information you seek:

The next column offers ShareFinder’s quality grading of each share in the list. Given the large number of balance sheet statistics-derived data to be found in the ShareFinder Professional Quality List, it is extremely difficult for the average investor to work through the lot in order to determine which shares represent the best long-term investment prospects. We have accordingly developed a colour grading system which, in each data column, awards 2 points to the very best statistics which are coloured bright green in the tabulation. The least attractive statistics are coloured bright red and score minus 2 points. Black represents an average situation with light green and light red representing +1 and -1 scores. To the sum of these numbers we then add the statistics which have been shown to be the most important of all; the percentage growth rates of dividends over ten, five and one year. The result of this calculation is displayed in the Grade column in the example below.

Thus, for example, the best-rated company in the Grand Old Favourites category at the time of writing was Shoprite with a score of 1646.9 followed by Truworths with 978.5.

Total Return

Data in these columns is presented by convention in descending order of the Total Return offered by an investment. Total Return is defined as the sum of the five-year compound annual average share price growth rate and its latest dividend yield. Obviously then in circumstances where the risk of an investment is constant what most investors are looking to buy are shares whose overall attraction is the highest investment grade quality combined with the highest Total Return in the marketplace. Obviously, however, risk is not uniform. Indeed it is generally true that the higher the return, the greater the risk. But the marketplace is NOT always as efficient as investors expect it to be. Accordingly, the best investment is the one which offers the highest possible return for the lowest possible perceived risk. Thus, knowing that the Grand Old Favourites are on average the safest category to invest in, in the example above the best choices for a safe long-term investment would also be Shoprite because it combines a very high Total Return with extremely low Risk numbers. But note the relatively high risk rating of Truworths which combines a Total Return of only half that of Shoprite combined with a Risk rating three times greater.

Risk

Within the ShareFinder Professional, a share’s Risk Rating is calculated by expressing the price volatility of a share in a ratio with the average price volatility of the safest category of shares, the Grand Old Favourites. Therefore the lower this ratio the safer the share. However it should be recognised that there is a price to pay for low volatility and that is the fact that in bull markets, low volatility shares tend to under-perform with regard to share price growth

Bias

Very important to me is whether or not a share is a short-term “Market Darling” in which case the share price will be rising faster than is warranted by the underlying growth of dividends and earnings. This is measured by the column headed Bias which offers the relationship between dividend growth and share price growth with a high figure indicating that investor appetite for this share is exceeding the company’s ability to grow its profits. In the short to medium-term in a strongly-rising bull market a higher than average number in this column is attractive for it indicates that rapid share price growth can be anticipated. However, in the event of the company releasing some bad news at a time when the share market as a whole is looking weak, you do not want to own a high-bias share. Again the Professional applies a colour coding about the most desirable number which is 1. Thus from 0.75 to 1.25 is coloured green. From 1.25 to 1.5 and from 0.5 to 0.75 is black. Above 1.5 and below 0.5 is coloured red.

Fundamental Under/Over-pricing

Timing your share purchases is arguably as important as determining the inherent quality of the company you are buying into. Of course you can to some extent determine whether a share is either cheap or expensive by considering a price graph, but this can be a misleading approach. Should a company’s earnings per share and dividend payouts have risen constantly as is usually the case with blue chip shares, it could be a mistake to sit back watching the graphs in the expectation that the next cyclic downturn will take the share price back to the same sort of low point as it reached a year or two ago. It might, of course, but in that case it would represent and exceptional bargain.

The ShareFinder method of determining whether a share is Under or Over-priced is achieved by comparing a share’s Fundamental Index of Value (which as described above is derived by a composite of fundamental values) with its Dividend Yield (which is the market’s valuation of the share and is derived by expressing the annual dividend as a percentage of the ruling share price. This relationship is compared with the average Fundamental Index of Value of all investment grade shares and with the average Dividend Yield. A minus quantity in this column indicates under-pricing and a positive value indicates that the share is over-priced relative to its peers.

Allied with this are the Dividend Yield, Earnings Yield and Price earnings Ratio, all the most commonly used tests of whether or not a share is cheap or expensive. In these latter instances the trick is to compare each of these with the sector average which appears at the head of the column. Logically the most sought-after shares — usually those that are rising fastest in price — have the lowest Dividend Yields, lowest Earnings Yields and the highest PE Ratios. Underpriced shares are coded green since they represent a buying opportunity and overpriced shares are coloured red. High dividend and earnings yields are coloured green since these shares are cheap and low yields are coloured red since these are expensive. In between we have gradings of light green, black and light red.

Total Accuracy High

Following computer optimization tests of the forecast accuracy of the ShareFinder Professional’s three most important technical analysis prediction tools, Fourier Cycle Analysis, the Mass Indicator of price volume accumulation, and the Velocity Indicator which measures the acceleration and deceleration rates of daily share price changes, average accuracy rates of around 80 percent are the norm. Measuring from the peak of a wave cycle, the object of this study was to determine how often such an indicator peak was followed by a share price peak within a predictable average period. If all three indicators were 100 percent accurate in their forecasts, the accuracy rate would be the sum of these numbers, namely 300%.

Being able to very accurately time your selling decisions is clearly a highly desirable fact when you are considering which shares you will include in a portfolio.

Total Accuracy Low

Like the Total Accuracy High measure, this figure represents the sum of the accuracy rates of the three principal ShareFinder indicators when measured from their lowest graph turning points.

Dividend Yield

To most seasoned investors, the dividend yield of a share is the quick rule of thumb guide as to whether it is fairly priced, cheap or expensive. It is calculated by expressing the sum of the dividends of the past 12 months as a percentage of the current share price. In the ShareFinder display you are able to form a better assessment of this value by comparing the current dividend yield with the average yield for each quality sector and the overall average of all investment grade shares.

Earnings Yield

When corporate earnings are divided by the number of shares in issue we derive the earnings per share which are in turn expressed as a percentage of the share price or Earnings Yield which, by comparison with either the quality sector earnings yield or the average yield of all investment grade shares, provides a means of gauging whether a share is under or over priced.

PE Ratio

This is the ratio of the share price to the earnings per share or, to put it another way, if all corporate earnings were employed to buy back the issued share capital of the company, this number then expresses how many years it would take to complete the transaction. A high PE is thus often a means of identifying the costliest and, usually by definition, the most sought-after shares in the marketplace.

Relative Strength 5

Price strength relative to the JSE All Share Index. It is calculated by dividing the current share price by that of the JSE All Share Index. The fastest growing shares of the past five years months are coloured green to denote the fact that their price performance is above average.

Relative Strength 3

Price strength relative to the JSE All Share Index. It is calculated by dividing the current share price by that of the JSE All Share Index. The fastest growing shares of the past three months are coloured green to denote the fact that their price performance is above average.

This is a quick (but not absolute) guide to selecting the shares which offer the best total return in return for the lowest risk. It is determined by dividing the Risk by 5 and subtracting the result from the Total Return. It is intended to highlight particular investment situations. You

should not, however, act on this signal alone.

Real Value %

The benchmark investment return of a country is the interest rate paid by its long-dated gilt- edged securities. To place a valuation upon a share one thus needs to compare the total return it offers, i.e. the sum of its compound annual average price growth and its dividend yield, with the yield on a long-dated gilt. Since dividends in South Africa are not taxed and neither is the growth in value over time of a share investment until such time as it is sold (when capital gains tax is applied), we compare the sum of the former with the taxed current yield on a suitable long bond to determine its value. The figure in the Real Value% column is the extent to which the current share price compares with this derived real value.

Price Rating

ShareFinder also offers a quick price comparison with its Price Rating column which compares the current share price with its long-term Least Squares Fit trend line. So, for example, in the illustration below the line is generated on a ten-year Shoprit price graph. When from mid- 2002 to the latest position on the graph, the share price began falling below the LSF line, it obviously was moving from being “Fairly priced” when it was intersecting the line, to “Cheap” and finally “Very Cheap” before it turned upwards once more in May 2003 climbing up from “Very Cheap” to “Cheap”. It hovered around “Fairly Priced” during the early months of 2007 before rising to “Costly” when it was well above its average upper limit to “Very Costly” at the time this graph was constructed.

Growth Outlook

ShareFinder similarly compares the compound annual average five-year dividend growth rate with the average for all investment grade shares to determine whether a share offers investors a “Very High Growth” option, a “High Growth” option, an “Average Growth” option, a “Low Growth” option or a “Very Low Growth” option.

Dividend Growth Rate (Long, Medium & Short)

When making my own investment selections, I am primarily concerned that dividend growth rates have been high for an extended period and, most importantly, that they have long been rising exponentially, a situation that is typified in the Fundamental List by the Long-term dividend growth figure being exceeded by the medium term figure with that in turn exceeded by the latest dividend growth figure. Here, obviously, the higher this percentage trend the better. If this exponential gain is occurring, the Professional colours all three columns in green as can be seen in the example above.

Dividend Growth Trend

Next, as a double check on this ten, five one ratio mentioned above, I like to see that the trend of the past three years of dividends is continuing to rise. Here the trend growth rate is compared with the average rate for all investment grade shares and coloured accordingly. Here the actual number listed in the column is less important than the fact that it is coloured green. Here one should note that while a latest-year dividend growth slowdown is a serious warning of possible trouble ahead, in the case of a highly-rated quality share it will only become a major concern if this decline becomes an established trend. So it is obviously more important that this rate is higher than the compound five year dividend growth rate that that the latest increase rate is higher.

5-Year Earnings Growth Rate

Next, I look for situations where the five-year earnings growth figure exceeds the five-year dividend growth average. Where this is so, the Professional colours both numbers green. Where earnings exceed dividend growth, the implication is that the company is setting aside money to fund internal growth and, importantly in my view, these funds will ensure that in lean years the dividend trend will be continued.

Earnings Growth Trend

It is also important to know that, in the current financial year, corporate profitability is on track so the next item I check is whether the Five-Year earnings per share are greater or less than the Ten-Year earnings growth rate and where the latest One Year rate is greater or less than the Five Year earnings growth average …and, more importantly, whether the percentage comparison between this year’s interim earnings and last year’s interim is better or worse than the comparison between this and last year’s final earnings per share. Again in both these instances, the Professional colours these numbers green.

15Year Growth/5Year Growth

A classic test of long-term investment quality is how favourably investors have regarded a company over very many years. Thus I look for shares which have enjoyed the highest compound annual average price growth rate over 15 years. Those with above average overall growth are coloured green and those where the rate is very much above average are coloured dark green. Where the rate is close to average it is coloured black, below average light red and significantly below average dark red. Most desirable of all, when the five-year compound annual average price growth rate exceeds the 15-year growth rate, the same range of colour gradings apply with dark green representing the greatest improvement and dark red the greatest slow-down in growth.

Real Value

For visual display purposes the Real Value figure is separated from the Real Value % column. To reiterate its derivation; the benchmark investment return of a country is the interest rate paid by its long-dated gilt edged securities. To place a valuation upon a share one thus needs to compare the total return it offers, i.e. the sum of its compound annual average price growth and its dividend yield, with the yield on a long-dated gilt. Since dividends in South Africa are not taxed and neither is the growth in value over time of a share investment until such time as it is sold (when capital gains tax is applied), we compare the sum of the former with the taxed current yield on a suitable long bond to determine its value.

Gilt Relative Value

A more commonly used but, in our view, less accurate method of valuing a share is the one widely associated with US investment guru Warren Buffet. In this instance the earnings yield of a share is compared with the taxed current yield of long bond.

Gilt Relative Value %

The closing price of the share expressed as a percentage of the Warren Buffet Gilt Relative Value.

Intrinsic Value

This is the breakup value of the company after all loans and other financial commitments have been taken care of. If ever the share price falls below this figure you know you are buying value.

Intrinsic Value %

As with the Real Value % and Gilt Value%, ShareFinder also enables you to see the Intrinsic Value as a percentage of the closing price of the share.

OpportunityIndex

The “Opportunity Index” is another ShareFinder pricing guide to medium-term trading opportunities. The higher this figure above average the greater the opportunity. It is derived by multiplying the current dividend yield by the 5-year compound average dividend growth rate.

Index of Value

An early version of the Fundamental The Index of Value, this index is derived by a proprietary process which gives varying weightings to a number of the fundamental statistics in order to create a number. Essentially, the higher the Index of Value the more attractive is the share as an investment for the medium-term. This index is the only one of its kind available in the ShareFinder Royals & Trader module Fundamental List and has accordingly been retained for the sake of continuity.

Under/Over Priced

Calculated in the same way as the Fundamental The Index of Value Under/Overpriced measure of share value – i.e. by comparing the index of value of an individual share with the overall index and the dividend yield of the individual share with the overall average dividend yield, we can determine that having regard to the inherent investment grade of the share, whether it is current cheap or expensive.

Future Gain

Under optimum conditions, an underpriced share might be expected to correct to its true value. In addition it will rise in price commensurate with any percentage dividend increase announced during the coming year. This measure represents the sum of these two observed phenomena.

Fundamental Future Gain

Here, using the extent of under/overpricing determined by the Fundamental Under/Over Price calculation, a similar future gain potential is calculated.

Market Capitalization

Expressed in billions of Rands, the Market Capitalisation of a company is its total market value. It is derived by multiplying the current share price by the number of shares in issue. Big cap companies that achieve high dividend and earnings growth achieve higher share price growth than small cap companies and so the Professional colours this column green where the market capitalisation is above average within its grading sector and red when it is below average.

Volume

The average daily traded volume over the past 90 days.

As a general rule the market favours the shares of those companies which are traded in sufficient volume to facilitate an easy sale. Tradability expresses the daily average traded volume as a ratio of the traded volume of similar quality shares.

Probably the most important of these three volumetric columns is the percentage of issued shares that is traded on an average day over the past 90 trading days.

Retained Earnings %

Usually a proportion of annual corporate earnings is retained either to fund business expansion or simply to provide a contingency reserve. Accordingly it has become a convention to assume that any gain in company profits is attributable to the re-investment of these retained earnings and to express this gain as a ruturn on retained earnings. Obviously the higher this figure the better and again the Professional colours the above average companies in green.

Return of Capital Employed

One of the oldest fundamental analytical tests of corporate good health is the profit it makes as a percentage of the funds invested in the company. Obviously the most desirable investments are to be found in those companies which consistently achieve high returns on invested capital. Above average percentage returns are coloured green and below average returns red.

Capital Return Trend

The most desirable companies are those where the return on employed capital is trending stedily upwards. Here the same gradient in colour from dark green for the highest returns through light green, black, light red and dark red take us through the gradings towards the lowest returns.

Return on ShareHolders Equity

Astute investors, however, realise that the return achieved on the capital sum that is attributable to shareholders, is arguably the most important of all. Thus the higher the figure in the “EquRtn” column the more desirable the share. Again we grade from dark green to dark red.

Current Liabilities Trend

Rising current liabilities in an investment grade company is a sign that the company is employing the funds of its creditors, usually as a source of interest-free development capital. Where such increases are associated with steadily rising profits, this is a desirable attribute and so above average figures are coloured green and below average figures are coloured red.

Annual Average Price Volatility

The extent to which the price of a share oscillates about its long-term mean is the basis of investment risk calculation. The higher this figure the greater the risk associated with it. High volatility numbers are accordingly coloured red and low volatility numbers green. Note, however, High volatility means that I should be able to buy low and sell high within the annual price cycle.

Price Volatility Trend

A rising volatility trend other than in a medium-term market bull cycle, is not desirable and so ShareFinder punishes this phenomenon by scoring it red.

How to practically search for top quality shares

While the diligent investor will make the effort to examine every column of the Quality List statistics before opting to add a particular share to his portfolio shopping list, the short cut approach is to make use of the “Derived Values” that appear in the first 22 columns at the extreme right of the Quality List. As can be seen in the example below, in each case there is an overall average and a group average. Every Derived Fundamental Value is colour coded from bright green through light green to black (average) to light red and dark red. Bright green is the most desirable statistic. In the example below, Shoprit is graded the best of the Grand Old Favourites.

The next figure is the Total Return,that is the 5-year compound annual average price growth rate of the company together with the current dividend yield. Note that despite its very high fundamental grading, Naspers achieves a Total Return less than Shoprit in return for a comparatively high price volatility “Risk Ratio” Risk rating offers a comparatively low total return of 18.88% but its price volatility “Risk Ratio” of –28.11 makes it clear that this is one of the safest companies to invest in on the JSE. Note that Remgro’s extremely low “Bias” figure of 0.29 emphasises that the 5-year compound dividend growth rate of this company is considerably greater than its compound price growth, which reinforces the view that in the event of an overall market retracement, Remgro is unlikely to suffer as badly as the average company. Furthermore the “Fundamental Underprice/Overprice measure at –131.15% underscores the fact that the share is comparatively cheap. Yet a Dividend Yield of 2.5 against a group average of 2.7% belies this fact. Furthermore the “Growth outlook” suggests the share is “Costly”.

To understand this apparent paradox, it would pay at this stage to ask ShareFinder to construct a Least Squares Fit line on the Remgro price graph. Such a line is constructed by invoking the trend line icon that looks like this:


Next you left-click on a suitable point on the left of the graph and then while still holding down the left-hand mouse button, dragging the cursor to the right to a second point of choice. Once the trend line is drawn, hover your cursor over it and right-click to produce a dialogue box that looks like this:

Next left-click on the “Auto-Fit” label and the trend line will become a least squares fit line i.e. a line that intersects the greatest possible number of graph turning points.

The Remgro graph looked like this:

Now to re-cap, when one compared a Dividend Yield of 2.5 with the group average of 2.7% the implication was that the share was in fact not cheap as implied by the Underpriced/Overpriced figure. Furthermore the “Price outlook” suggested the share was “Costly”. To understand this apparent contradiction one must accordingly understand that notwithstanding its extremely low dividend yield, Remgro was nevertheless comparatively cheap because of its outstanding fundamental quality relative to most other shares on the JSE, However, relative to its own long-term average as illustrated by the least squares fit mean line, it was at that stage comparatively expensive. The conclusion is that a long-term investor would have been advised to hold off buying.

Next let us consider the “Price” and “Growth Outlook” messages which are intended as a quick guide for long term investors.

Ideally one would be searching for shares that are both cheap and offer very high growth. Provided they also offer the right Grade, Risk, Return and Bias qualities, one might next double left click on the share to view a technical analysis graph like that below as well as be guided by both the Medium-Term and Short-Term outlook messages in order to choose the best buying moment.

I shall deal at length in the section on Technical Analysis about the indicators used in the ShareFinder fixed window analysis. Meanwhile note in the message box at the head of the graph composite that ShareFinder was sensing that a buying point might be approaching.

Returning now to the ShareFinder Quality List, the next three columns allow the investor to see what dividend growth rate he might be able to expect from his investment. The columns headed Long, Medium and Short accordingly offer the compound annual average dividend growth rates over 10 years 5 years and the past year. Here one obviously seeks the highest rate and, better still, a situation where the latest rate is higher than the 5-year one and the 5-year rate is higher than the 10-year one: such is proof of management excellence.

The dividend growth trend should, moreover, be considered since this is a vital barometer of the future. Following a truly spectacular dividend increase in 2001, Remgro’s rate of increase had been progressively slowing. Accordingly the Remgro Dividend Trend figure of –31.8% is highlighted in red as a warning.

In the composite it can clearly be seen that although the Remgro share price had climbed fairly steadily for the past 9 years, relative to the JSE average it had been falling since late 2002. Furthermore the green trace in the third graph showed that the Final dividend growth rate had also been slowing since March 2002 accompanied by a decline in the earnings per share growth rate in the fourth graph.

At this stage the investor might be prompted to check ShareFinder’s long-term technical projection for Remgro and note the likelihood that the price growth rate might be moving into a sideways trend with possible downside potential early in the new year!

And, returning to Remgro’s fundamental statistics there is both good and bad as disclosed by the even spread or red and green figures. Note that both the 5-year compound and 1-year earnings growth rates are coloured red because they are lower than the respective dividend growth rates. Clearly dividends cannot for long outpace earnings. Something has to give!

There is no 15-year compound annual average price growth available, but the 5-year figure is coloured red because it is less than the dividend growth rate, a fact we have already observed when we noted the low Bias figure. ShareFinder accordingly rated Remgro as fifth out of eight in its “Buyers Guide” The closing price of Remgro shares was R126.95 on the day this snapshot was taken but, by comparing the Total Return of the share relative to the taxed total return of a long bond, ShareFinder determined that the shares had a “Real Value” of R522.05. They were, in other words standing at only 24.32% of their Real Value.

Many investors, however, prefer, the Warren Buffet “Gilt Relative” approach to valuation and so ShareFinder offers these figures as well, noting that this valuation set Remgro at R237.30 which meant it was then standing at 53.5% of its true value.

Another means of determining share value is the Intrinsic Value: this is the breakup value of the company after all loans and other financial commitments have been taken care of. If ever the share price falls below this figure you know you are buying value. ShareFinder also expresses the Intrinsic Value as a percentage of the closing price of the share.

Other important pricing guides are provided by the Earnings Yield and the Price/Earnings Ratio. A share is considered cheap if the dividend yield is higher than average or the PE lower than average

The “Opportunity Index” is another ShareFinder pricing guide to medium-term trading opportunities. The higher this figure above average the greater the opportunity. It is derived by multiplying the current dividend yield by the 5-year compound average dividend growth rate.

The “Index of Value” is an early version of the ShareFinder Professional’s Grading system which has been retained because it is still favoured by many programme-users as a medium-term value guide. The higher this figure the more attractive the share.

By comparing the Index of Value of a share with the overall average index and comparing the dividend yield of the share with the average dividend yield, ShareFinder calculates whether a share is either Underpriced of Overpriced: “Und/Ov” and hence calculates the likely future gain/loss in the forthcoming 12 months.

ShareFinder performs a similar calculation of “Fundamental Future Gain” using the “Grading” as a basis of the calculation.

The current “Market Capitalisation” of a company is determined by multiplying the share price by the number of shares in issue. The market tends to favour the “Big Cap” shares: those of companies with a Market Cap greater than R10-billion.

The market also favours shares that are freely traded. Accordingly the higher the “Tradability” of the share the better its price performance over time.

Of greater interest to fundamental analysts, however, is what percentage of the Issued Share Capital is traded. ShareFinder accordingly derives what percentage of the issued share capital is traded within a 90-day period. The higher this figure the better.

The extent to which corporate profitability is influenced by the use to which undistributed profits are put, is an important measure of how efficiently the company is run. Thus the higher the figure in the “RetEarn” column the more desirable the share.

One of the most important tests of corporate performance is the return achieved upon the capital invested in corporate productive capacity: the “Return on Capital Employed”. The higher this figure the better.

Of even greater importance, however, is whether the return on employed capital is rising or falling. The higher the figure in the “CapRtTr” column the better.

Astute investors, however, realise that the return achieved on the capital sum that is attributable to shareholders, is arguably the most important of all. Thus the higher the figure in the “EquRtn” column the more desirable the share.

An increase in Current liabilities can be worrying if a company is not trading profitably, but if it is a means towards generating interest-free working capital it obviously points towards smart management. Thus in investment-grade shares the higher this figure the more attractive the share.

Stable price growth rather than price Volatility is what the long-term investor seeks. Accordingly the lower the figure in the “Volatil” column the more attractive the share. Similarly a trend towards lower price volatility is preferable. Thus the most desirable figure in the “VolTr” is a low one.

In summation then, the most desirable choice in any category of the ShareFinder Quality Shares List is a series of numbers coloured green.

This is reflected in the ShareFinder Professional’s share grading system where the higher the number the more attractive is the share from the long-term investor’s point of view

There can be no substitute for working through all the fundamental tests, but if you are in a hurry, ShareFinder’s colour gradients and the grading system does all the work for you.

We have frequently observed that shares which have regularly headed the price growth lists in the past, tend to continue doing so in the future. Accordingly we have created a search engine to enable programme-users to search out these leaders. To access it, left-click on the “Analyse” heading on the tool bar and an activity box will open which allows you to access a number of the ShareFinder search engines.

Now left-click on the “Relative Share Strengths heading and a display like the following one will appear: You can also search on a Momentum basis over a number of different periods.

Note in the example above, by left-clicking on the column headings, you can search for the shares that lead the pack on price performance relative to the JSE All Share Index over a series of different periods. In practice this feature is usually of greatest use to short and medium-term traders.

Of more interest to long-term investors is whether the Relative Strength rankings that appear in the ShareFinder Quality List. Note in the example on the right that the shares with the highest relative strength performances are coloured green. Thus Shoprite which was leading the field on grade among the Grand Old Favourites at the time of writing was also the leader in Relative Strength terms over the previous five years and it was one of the leading performers over the previous three months as well

Searching for the top performers by market sector

ShareFinder offers a quick analysis of how individual market sectors are performing. To view this facility, left click on the icon that looks like this:

You will be offered a table which looks like the example on the right. The numeric score rates the Relative Strength performance of each market sector relative to the market average. In turn the Momentum column rates the performance of each sector relative to itself. The higher the score the better that sector is doing.

Now to see which shares are leading this sector upwards (or downwards) right click on any sector and you will be offered an action box like the example on the right:

Now, left-click on the heading “Open Base 100 Graph” and you will be offered a graph like the example on the right:

Just a brief explanation; each share is treated as if just R100 had been invested in it 12 months ago. Thus the daily percentage price movement of each share within the index is plotted on exactly the same scale allowing for a quick visual observation of which are the topmost performers.

In order that the graph not be so cluttered that visibility become impossible, only the top three price performing shares are thus depicted allowing one to see immediately that, in the example on the right, Distell and Cape Vin were the consistent leaders over SAB Miller.

Putting a fair price on a share

Returning to your experimental portfolio, ShareFiinder offers you a number of ways to research the value of the shares it has selected for you and to decide what its future price activity is likely to be. If you right-click on any share, you will be offered an activity box that looks like this:

Note that from this box you can adjust the number of the highlighted shares that have been selected; in this case the number of Mr Price shares or, as illustrated, you can open any one of five different fixed window graphs. The first three options are useful in deciding if now is the right time to buy any of them. We will choose a Projection Graph since this includes most of the features of all three:

Understanding the ShareFinder Fixed Window Projection Graph:

The latest version of the ShareFinder Professional fixed window projection graph contains a vast amount of information. First of all let us note that it contains five years of share price performance (four past years and one future-projected year) which appear in the upper graph in blue for the past four years and orange for how Fourier cycle analysis projects the past will replicate itself. Next note the smooth green line which smoothes out all the daily price oscillations and then projects in orange what the future trend will be. In this instance we see that both Fourier projections expect the share to fall in price for the whole of the following year. Moreover, I have on the right magnified ShareFinder’s short-term price projection which appears in red in my example. Whereas the projections that appear in orange in the Projection Graph represent a summation of the dominant sine waves which are to be found in the entire data history of this share that is available in the ShareFinder database, the red projection replicates only the price movements of the past three months. Whereas the blue/orange (medium-term) and the green/orange (long-term) projections both suggests that a price decline is likely over the next 12 months, the red (short-term) projection senses that an immediate decline is likely. Observation has shown that in the short-term this latter projection is the most accurate.

One last feature of the upper graph is the straight orange line rising from left to right. This line, drawn by the “least-squares-fit” technique represents the price mean trend of the past five years. If you care to hover your cursor over this line, a box will appear like the example on the right which will inform you that the mean of the past five years, or 1827 calendar days, has seen the share price rising at a compound annual average rate of 20 percent. Observation has shown that this latter trend usually bears a very close resemblance to the five-year compound annual average earnings per share rate of increase which can be read in the ShareFinder Quality List. Indeed the difference between the two is the figure which is known as “Bias” in the quality list with positive bias numbers informing the programme-user that the share price is outstripping share earnings growth and vice versa.

It is important to note that in the example the blue line of the share price trace has risen from a bear market low in mid-July 2008 to intersect this five-year trend line, implying that at the time of writing Mr Price shares were fully priced with the Bias number reading “0.7”


Projection accuracy ratings

The last feature to note in the upper panel of the fixed window graph is the Projection accuracy ratings which look like this:

Detailed computer studies of the Fourier projections going back through the entire price history of each share have been used to determine these accuracy ratings. In this example they indicate that on average, every time the green Fourier line has turned down it has in 60% of cases been followed down by the share price itself on average 55 days later. Similarly, whenever the long-term Fourier line has turned upwards it has been followed 90% of the time by the share price on average 108 days later. Similarly, when the orange, medium-term projection has turned down, it has 100% of the time been followed down by the price on average 128 days later. Since no percentages appear for the medium and short-term lower turning points, the implication here is that the accuracy rate in these cases has been less than 50%. Similarly under the Short-term heading, when this indicator has turned downwards it has with 100% accuracy been followed on average 4 days later by the share price. Similar accuracy ratings are provided in respect of both the Mass and Velocity indices which appear in the second and third graphs.

How were the accuracy ratings calculated?

Notice those 100 percent prediction accuracy rates on all three projections in the Sasol graph composite on the righty. These figures were calculated using computer optimisation which first sought out the most accurate parameters to employ with each indicator in respect of all the available trading data of every share listed in our database. Next it measured how often an indicator direction change was followed by a share price direction change and it calculated the average elapsed period.

Note in the graph below that the green line of the Fourier transform in this Sasol graph bottomed on March 13 2003 and that on August 15 the red line of a 10-day moving average turned upwards from its lowest point of the year. This happened repeatedly throughout the 22 years of trading data that we examined providing us with Sasol’s 100% prediction average an average of 140 days ahead

The tables below list those shares whose prediction accuracy rate has exceeded 80% over the past 22 years:

Fourier Projection Mass Velocity

Logically if you confine your investing to shares which have offered very high accuracy rates in respect of each of these three tests over many years in the past, there is a very high probability that you will continue to enjoy very accurate buying and selling decisions.

When are share prices likely to turn?

The accuracy studies we have been explaining, provide data on how accurate each ShareFinder indicator has proved to be in the past and by how many days a direction change in an indicator anticipated a direction change in the price of each share. ShareFinder will also advise its users on when those dates are likely to occur. These dates are calculated from the highest and lowest points achieved by the respective ShareFinder indicators during the past 12 months

If you want these projection dates worked out for you or if you would like to read recent reports put out by the company you are interested in, right-click on the graph and choose “Share Synopsis.

Often the long-range projected price turning points differ from one indicator to another, drawing closer together as the predicted event draws closer. However, ShareFinder will calculate the consequence of those projections and determine the “average”. This is how it appears:

Note as well, the Synopsis feature also enables you to read all past company reports; a very important feature when preparing your portfolio wish list.

Alternatively, if you hover your curser over any of the ShareFinder proprietory indicators, you will see a box appear that offers you the date position on the graph, the price of the share on that day and the projection date.

Thus in the example below of Woolworths shares, we can read in the accuracy box that Fourier Projection anticipated the lower turning point of the share price with 80% accuracy 161 days ahead of the event and the upper turning point with 60% accuracy 97 days ahead. In our example, the Fourier projection was seen peaking on February 26 2010 and, reading from the box attached to the cursor, we can see that 97 days later meant that the share price might be expected to peak on July 11 2010.

You can in the same way hover your cursor over any point in the Mass and Velocity indicators and read off the future date that these indicators anticipate.

The Accuracy Search Engine

For many investors, the ability to accurately predict when a share is likely to peak in price or reach its lowest cyclic point is almost as important as the ability to choose the best-performing or the safest shares. Now recognising that in respect of certain shares the ShareFinder proprietory indicators have regularly in the past offered nearly 100 percent prediction accuracy, we have created a search engine that allows one to search out which shares enjoy these extremely high prediction accuracy rates.The SF search engine allows you to sort the Indicator Accuracy lists by a large number or parameters. In this example we have called for all the shares with the greatest lower turning point accuracies

Calling the search engine

There is column heading at the top of the SF display headed Accuracy. Left clicking on the heading “Search Accuracy List” opens the search engine.

You can choose any one of 14 different search parameters in each of 14 selection boxes::

And you can select which group of shares within which to conduct your search: the entire Quality list or just those with 10-year rising dividend records or just those with more than five years of constantly rising dividends:

In this example we have searched for those shares with the highest dividend growth outlook:

And of those, we sought those with the highest fundamental quality grading:

Using ShareFinder’s technical analysis indicators to project the future

Returning to the Technical Analysis Fixed Window which predicts what is likely to happen to share prices in the future, let us discuss the special ShareFinder proprietary indicators:

The Mass Indicator which appears immediately below the price graph, is a proprietary development based on the well-known but relatively inaccurate “On Balance Volume” indicator. The Mass indicator has proved to be the most accurate of all prediction indicators within the ShareFinder system offering on average accuracy rates of 90 percent and above. It works by taking the logical assumption that if traded volumes increase above average they indicate that market sentiment is changing. Thus if prices are falling and volumes are increasing, it is taken as a sign that distribution selling is taking place and vice versa. In the Mr Price example, however, no accuracy boxes appear in respect of either the Mass or Velocity indicators which indicates that in the past these two have proved to be less than 50% accurate in respect of Mr Price shares and the message they offer should thus be treated with appropriate caution.

The Velocity Indicator which appears in the third graph window is another proprietary ShareFinder development. A derivative of the widely-used Momentum indicator, it recognises that if share prices are rising rapidly, they are likely to continue doing so for the foreseeable future and vice versa if they are falling steeply. The application of Fourier smoothing to this indicator allows us to forward-project the cycle trend of price velocity and hence predict the likely timing of the next price apex and in turn the next price bottom.

The Velocity Indicator is created by comparing the latest closing price of a share with the same figure a fixed period in the past. Thus, for example , a ten-day momentum indicator is calculated by dividing today’s share price with that of ten trading days previously. The following day the latest price is again divided by that of the ten trading days previous to it….and so on until a recognizable graph plot emerges. A rising indicator suggests that investors are becoming increasingly attracted to the security in question and so, logically, the price might be expected to keep on rising. Conversely, a falling indicator implies that investors’ appetite for the security in question is waning and that falling prices might be anticipated. Again here, as illustrated by the third graph in the composite on the previous page, our research showed that it was possible to improve upon the predictive accuracy of the standard momentum calculation by indexing the data and subjecting it to Fourier smoothing. In this example overleaf, with the indicator parameters set for long-range signaling, it can be seen that my Velocity indicator foretold the onset of the October 2007 bear market a full two years in advance.

In order to establish its forecasting accuracy, we first of all employed computer optimisation to determine the most effective parameters to employ with the indicator. Next we applied a moving average to the price data of every investment grade share; i.e. every share in respect of which consistently increased dividends had been paid for a minimum of five years. Finally, we measured how often an indicator peak or valley bottom was followed by a similar peak or valley of the moving average. A total of 133 shares qualified and the indicator proved 100 percent accurate in respect of 23 of these shares, 18 were 90 percent accurate, 22 were 80 percent accurate and 15 were 70 percent accurate. The Average of these indicated that the Velocity indicator was accurate 86.05 percent of the time, anticipating a market direction change 117 days in advance. Overall the indicator offered 70 percent accuracy, forecasting a market direction change 114 days in advance.

Note in the table on the right that, like the Fourier projection, this indicator is most accurate when 20 or more years of data are available for analysis.

The Volatility Indicator:

The third indicator in the ShareFinder fixed window analysis is the Volatility Indicator which measures the difference between the highest and lowest prices a share trades at each. Its value stems from the observation that when investors grow nervous about the price of a share there is a tendency for this difference to increase significantly as can be seen in the example above when, between June and October 2008 when a steep increase in price volatility provided an early warning of the onset of the sharp price decline that occurred during September and October of that year.

It is important to recognise that this phenomenon of increased price volatility occurs most often when prices are rising towards a peak but relatively seldom when shares are approaching a price low. Accordingly, while the Volatility Indicator tends to provide a fourth independently originated indicator of an impending share price direction change, observation suggests that it is relatively less reliable than the other three indicators provided in the ShareFinder fixed window analysis.

Using the ShareFinder fixed window analysis to plan your buying and selling strategy:

The example above represents a very good argument for using these four indicators together as confirming signals. Since each indicator is derived using quite different pieces of data; Fourier transforms seeking out recurrent price cycles, the Mass Indicator highlighting the effect of trading volumes, Velocity the rate of change of individual prices and Volatility the rise and fall in price volatility, if all four indicators are offering the same signals it must be obvious that the already extremely high individual prediction accuracy rates of each will mutually complement one another to offer something very close to a 100 percent accuracy rate. Indeed, these four indicators form the basis for Richard Cluver’s weekly share market predictions which, at the time of writing, had achieved an average accuracy rate of 80.62 percent over a period over the entire previous six years.

Practical decision-making…..or putting all this together

Assuming that you have already completed the process of deciding what degree of risk you are able to cope with and balanced that against what overall capital growth rate you are seeking to achieve, creating an investment portfolio involves, as I have explained in the foregoing discussion, two distinct steps: which shares should you invest in and, once you have made a selection, timing your purchases. Share selection can be done semi automatically by the ShareFinder Professional’s Portfolio Builder system which will offer you a number of portfolios tailored to your particular needs. Most investors usually prefer, however, to devote some time to expand upon the programme recommendations in order to make some personal selections as well.

Step One is to create a short-list of desirable shares.

Step Two is to use the valuation tools we have been discussing to single out which of your desired shares are standing at a significant discount to their real value.

Step Three is to use the timing tools we have just discussed to determine which of the Step Two shares are still falling in price and to try and establish when and at what price they are likely to reach a price bottom. Finally we need to establish which have bottomed out and can be bought now

Step Four is to set up a system of automatic alerts that will instruct ShareFinder to issue a warning when a chosen share is moving into your desired price range. Here I should warn you that if you set your alerts unrealistically low, your buying opportunity might come and go without your being alerted. Furthermore, when you are stalking a share, you really should devote a few minutes each day to look at the ShareFinder fixed window analysis in order to ensure that the price is continuing to move in the expected direction.

Once you have decided which shares you would like to buy and entered them all in your wish list portfolio, right-click on each share and choose “Edit Alerts” to be alerted whenever in future your shares move into your chosen price range.

Note that you can be asked to be alerted if the price either falls below or rises above chosen levels thus enabling you to operate stop losses

Particularly if you are funding your purchase with borrowed money, it is very important to know what dividends the shares have paid in the past. To view these, highlight any share in the portfolio and right-click to open an activity box that looks like this:

Now left-click on “Properties” and a panel like the example on the right will open:

Finally left-click on “Declarations” and a panel like this will open:

Note that you can read off details of all past Special, Interim and Final dividends as well as earnings per share statistics:

Once you have chosen the best shares to include in your portfolio, the most important task of all follows: maintaining it. In essence this is a regular at least weekly exercise aimed at ensuring that your portfolio continues growing in value and delivering a steadily-rising dividend income so as to ensure your future financial wellbeing.

With this objective in mind, we have created the ShareFinder Portfolio Analyser which will compare the individual performances of each constituent share with the performances of the Quality List averages and will alert you whenever any share you hold is lagging behind the rest. Even more importantly, it offers you suitable substitute shares which have been consistently outperforming the average. You can summon it by left-clicking on the Analyser icon which looks like this:

You will be presented with an activity window which looks like this:

Page down through the portfolios listed in your database to select the one you want analysed and then click OK. You will then be offered with an analysis which looks like the one below:

Note that most shares in this “safe capital growth” portfolio were underperforming the quality list averages on a five-year price growth basis but all were offering lower than average levels of risk. Similarly it was offering below average dividend growth. It might be that this portfolio was erring too much in favour of safety.

So let us consider what the Portfolio Analyser recommended should be considered as replacements :

Now the thing to take particular note of is that, having determined that certain shares in a portfolio might be underperforming the market averages, the Analyser then offers the self same shares in its list of possible replacements. This observation has been particularly evident at times when commodity shares have been leading the stock exchange in price performance and accordingly somewhat distorting the market indices.

Here it is important to recognise that shares selected for the ShareFinder Quality List are chosen because of their ability to deliver consistent long-term dividend and earnings growth. Commodity shares tend to enjoy a very seasonal earnings cycle which results in an erratic dividend performance. In the good years such shares might soar, making relatively spectacular capital gains for investors astute enough to anticipate the movement, and they can pay extremely good dividends during these periods. However, in the long run they tend not to be reliable dividend payers and this fact tends to impact upon their long-term price performance. In my graph composite I have contrasted the performance of Anglo Platinum shares with those of Standard Bank over the past quarter century. Note that Standard Bank delivered compound annual average price growth of 15.4% while Anglo Plats delivered only 12.9% price performance. Compare also the dramatic price volatility of Anglo Plats with that of Standard Bank during the 2005 to 2007 period and how steeply they fell in the subsequent bear market. Standard shares were obviously also affected by the 2008 bear market but, whereas Anglo Plats fell 75%, Standard merely lost 41.5%. That is why commodity shares are speculative trades by nature and banking shares are generally long-term investments.

Note, as illustrated below, that the Portfolio Analyser also provides a complete list of every share in the ShareFinder Quality List that at the time of writing was underperforming the averages so that you have an immediate check-list of shares to avoid.

The Portfolio Analyser also provides a complete list of every share in the ShareFinder Quality List that at the time of writing was underperforming the averages:

Probably the single most important question facing every investor is how his portfolio is performing relative to the rest of the market. ShareFinder provides a quick way of gauging this. You can access this feature by left-clicking on the 19th icon from the left at the top of the ShareFinder display. It looks like this:

When you click you will be offered a panel listing all the portfolios being maintained within ShareFinder’s database. Highlight the portfolio you wish to see graphed and left-click on the “OK” button.

You will next be offered an action box within which you will be offered a series of different comparison graphs.

If you left-click on the “Portfolio Graph” button, you will be offered a graph composite that looks like this:

Note that the daily capital value of the portfolio you are examining has been graphed and its trend measured by the superimposition of a least squares fit mean line whose slope has been measured. Thus in the example, ShareFinder has calculated that the compound annual average growth rate of this portfolio is 14.4 percent. Below this is displayed, for comparison purposes, a graph of the JSE All Share Index.

Note in its analysis, ShareFinder has calculated that during its duration, this portfolio has consistently outperformed the JSE All Share Index by compound 15.2% annually. It also notes, consider the short-term trend lines at the extreme right of the graph composite, that in the short-term the portfolio is doing 22.1% better than the JSE All Share Index.

Normally the entire price history of the portfolio is depicted, but you can zoom the image to view the latest performance by repeatedly depressing the + button on your keyboard.


The default display in this process makes a comparison between the portfolio and the JSE Overall Index which is the index most commonly-used by market commentators when seeking to describe the performance of the market. However, investors should note that the Overall Index is a very unsatisfactory indicator of the overall JSE average because it is calculated using a weighted average which selects shares for inclusion in its average in descending order of their market capitalisation: that is by multiplying the current price of a share by the number of such shares in issue in the marketplace. As a result it actually only tracks the movement of a small group of very dominant shares which happen in this case to be mostly mineral-mining companies. As such it is hardly a fair reflection of market behaviour.

As a consequence, ShareFinder also allows you to compare portfolios on a base 100 basis, that is by comparing the percentage daily movement of a portfolio with our own ShareFinder Investment Grade Index which is a far more representative index that is derived by taking an average of the daily price movements of all the shares which meet our own definition of an investment grade share; that is a category of shares which has, among a number of important quality tests, paid consistently-increasing dividends over a minimum of the past five years, which is frequently traded in the marketplace, has a satisfactory debt to equity ratio and so forth. You can read this definition in detail in the Fundamental Analysis section of this help file.

To view the Base 100 portfolio comparison with the ShareFinder Blue Chip Index, start again with the icon that looks like this:

Next select the portfolio you wish to view from the “Portfolio selection panel that looks like the example on the right:

When you click “OK” after highlighting your chosen portfolio, you will again be offered an action panel that looks like this:

We will for example left-click on the “Base 100 1 Year Graph” button which will generate a comparison graph which looks like the following:

It can be seen from the comparison graph in which both the index (in red) and the portfolio (in blue) commences on the far left at 100% on the first trading day 12 months previously, that the portfolio graph we have chosen more of less tracked the ShareFinder Investment Grade Index over the previous 12 months, initially underperforming it but in time beating it. As a matter of interest, this portfolio is one generated automatically by the ShareFinder Portfolio Builder in November 2008 when the market was first bottoming out after the 2007-08 market crash. It was generated by the process which sought an ultra-safe capital growth the portfolio.

How did individual shares perform?

You can also view a base 100 comparison of the price performance of each and every share in the portfolio in descending order of price performance. To do this, again select the portfolio you are interested in and then, when presented with the action panel that looks like the example below, left-click on the “Share Graph” button. You will be presented with a graph composite that looks like the example below:

Note that in order to avoid graph clutter, ShareFinder chooses to display the top five price performers on the portfolio. Thus in this portfolio the best performer was Mr Price which was colour-coded blue and, as you can read from the annotation, achieved 205.99 percent price growth in the previous 12 months of trading.

To view the relative price performance of the next five shares in the portfolio, left click on the second action button immediately above the annotations as illustrated on the right:

It is quite clear from this graphic analysis that City Lodge, Sasol and Adcorp have been grossly underperforming the portfolio during the period under review and the holder of such a portfolio might consequently need to give considerable thought as to whether it would be wise to continue these counters.

You can also choose to see the portfolio performance on a Base 100 basis. Here the option is to view the performance over a one-year or a five-year basis. We have opted for a 5-year display:

Coping with exponentiation

When viewing price movements over very long periods, exponentiation becomes a problem. Because investors tend to measure their buying and selling strategies in percentage terms, this thinking inevitably tends to influence the behaviour of markets with the result that in bull markets, prices tend to rise in an exponential fashion which is evident in an upward curvature of price graphs as is very evident in the example below of the price performance of the JSE Overall Index when viewed over the 25-year period from 1985 to 2010

To view this graph in a more easily understood manner, hover your cursor over the area surrounding the graph itself and right-click. An activity box like the example on the right will appear.

Next, hover your cursor over the words “Logarithmic Scale” and right-click

Now note how the same graph appears once it has been scaled logarithmically in order to remove the exponentiation effect:

In essence, logarithmic graphing displays price changes in percentage terms with the consequence that a much straighter graph appears as is emphasised by the red trend line which I have overlain it with.

Hover your curser over this line and you can read off the slope of it in percentage terms. In the example you can see that the JSE Overall Index rose at an average of 14.5% compound over the quarter century. Note, however, because of the technical complications that arise with logarithmic graphing, it is not possible to use the “Least Squares Fit” option to obtain the mean of this graph.

Comparing share performance

You have decided that a particular category of shares is likely to outperform all others in the immediate future. But you do not know how to choose the most representative share to invest your money in.

One way is to use the ShareFinder Quality List which provides a comprehensive comparison of all quality shares, summarising those findings in its of the most effective ways of comparing the past performance of a number of shares within its “Grade” column which can be seen on the extreme left of the example below.

The problem, however, is the Quality List only lists shares which have fulfilled sufficient fundamental criteria to qualify for long-term investment potential. So what would you do if you were looking to spice up your portfolio with, for example, some commodity shares which, although a bit risky in the long term because of their cyclic profit characteristics, appear likely to be leaders in the current market?

Observation has shown that shares which have led the market in the medium-term past—over the past 18 months of so—are likely to continue doing so; at least for the immediate future. So one of the best ways to identify such shares is by comparison graphing. Within the ShareFinder Professional the best way to make this comparison is to graph four or five shares which you believe to be top-performers on a base 100 basis. By this I mean compare their percentage price movements over time. So let us assume that you were undecided between the following five commodity shares: BHP Billiton, Anglos, Palamin, Assore and Kumba. We start by left-clicking on the third icon from the right in the ShareFinder start-up page, the one that depicts a blank graph:

Now left-click on the “Add Panel” button and in turn left-click on the “Add Share” button to add your first share; BHP Billiton. Next repeat the process adding one share after another laid on top of one another until you achieve a graph composite that looks like the one on the right:

The result appears a total mess at this stage but do not worry, we will sort it out in a minute.

Your next step is to left click on each share in turn to highlight it, then on the “panel” button to highlight that, thirdly on the arrow on the right of the “Panel” button in order to make it “Hidden” and finally on the “Colour” button in order to choose a different colour for each graph trace as illustrated in the example on the right.

When you left click on the “Colour” button you will be offered a colour palette from which to choose a suitable colour with which to contrast one graph trace against another as illustrated ion the right:

I have left-clicked on a red button and the result is that Kumba will be graphed in that colour once I left-click on the “OK” button.

Now repeat this process in respect of each share, in turn highlighting BHP Billiton, marking it “Hidden” and finally colouring it and clicking the “OK” button.

Note that as you make each share graph “Hidden” it will temporarily disappear from the display until you are left with a screen like the example on the left.

Now, left-click on the “Add Indicator” button in order to open up the action panel illustrated on the right:

Next, left-click on the “Base 100 Comparison Graph” option and another action panel like the one below will open up.

Note that by default ShareFinder will now create a Base 100 comparison graph starting each trace 250 trading days (or one year) in the past. You may left-click on this number and make it 500 days or 750 days or whatever you prefer for one, two, three years etc. Once you have chosen your period, left-click on the “OK” button and repeat this latter process in respect of the next share, and the next etc until you achieve a graph display like the one illustrated below: Note that if you hover your curser over any of the coloured traces, an information panel will open up identifying the share, the date at the point you are hovering over and the price on that date.

Clearly in this exercise, Palamin has outperformed the other four consistently while BHP Billiton has performed the worst. Second best was Kumba and third Anglos.

Relative strength Graphing

There is a far quicker means of comparing two different shares or indicators by using the Relative Strength graphing tools within the ShareFinder system.

We start by creating a blank graph by clicking on the icon that looks like the one on the right:

Using the activity window that thus opens, create three blank panels by left-clicking on the “Add Panel” button as illustrated on the left:

Now left-click on the “Add Share” button and choose a share which you wish to compare. Fo illustrative purposes I will chose the ShareFinder Blue Chip Index for my first graph and the ShareFinder Rising Stars Index for my second graph.

Next, highlight Panel C and then left-click on the “Add Indicator” button. Next, left-click on the “Relative Strength” button illustrated below:

Another action panel will open up like the one illustrated below:

Note in the example illustrated above that, under the heading “Parameter” you are now asked the question “Relative to?.”

Double left-click on this question and choose which shares you would like to compare. You will be presented with another action window like the example below:

Note in the example on the left that I have highlighted the ShareFinder Rising Stars Index which I wish to display relative to the ShareFinder Blue Chip Index. Now click “OK”

You will be offered a window like the example below:

Note in the lower left hand corner of the example on the right that “2-SFRISTR” advises you that the Rising Stars Index is being referenced.

The result of this exercise was the comparison graph below:

The topmost graph in the composite is the ShareFinder Blue Chip Index which tracks the average price performance on a weighted average basis of all JSE shares that meet our defined Blue Chip criteria. The second graph in the composite similarly depicts the average price performers of all those shares which meet our quality definition of Rising Stars. Now to create the Relative Strength graph that appears in the third graph, all the Blue Chip price averages are divided by the Rising Star averages.

The result enables one to see how, when the market began to get the jitters in May 2008, it was the more risky Rising Stars that first began to take the strain, falling steadily until late November 2008. From there on in, surprisingly it was also the Rising Stars that got first off the mark rising comparatively faster than the Blue Chips as speculative buyers got in first. But the Rising Stars also took strain in early January 2009 although they were again speculatively rising until min March 2009 at a time when the Blue Chips were still falling.

Foe the bulk of 2009 the relative strength chart was more or less flat, indicating that neither share grouping was doing better or worse than the other, a phenomenon more or less to be expected once a primary bull market was pretty firmly established.

In general terms, however the comparison graph well illustrates the point that when the relatively more risky Rising Stars category start moving, it is as a result of speculative buying which is more often than not a fore-runner to the overall market beginning to recover. Similarly, the Rising Stars are usually the first to take strain when the market gets nervous.

How to use Sharefinder’s technical analysis indicators

The advent of computers has led to the development of a vast range of graph-based “Technical Indicators” which are mainly used by share market traders to attempt to guess the future direction of markets. During the early development stage of the ShareFinder market analysis system, we assessed every one that we could lay our hands on in order to determine which worked and which did not. Then, we set about enhancing the best of these in order to create the ShareFinder fixed window analysis system with which the programme conventionally opens.

We are satisfied that the four indicators which appear in this fixed window are both the most accurate indicators available anywhere and that each, operating from a different combination of price and volume observations, complement one another in order to offer our programme-users a quick and easy means of forecasting future market trends. Nevertheless, we are aware that many of our clients prefer their own unique combinations of the standard technical indicators and we have accordingly provided you with a comprehensive selection of these. Furthermore we have created the tools to enable our users to create a myriad of derivatives of these indicators.

These are grouped together in categories. Thus, if you open up the graphing window by left-clicking on the icon which looks like this:

You will be presented with an action box which looks like the example on the right. ShareFinder’s Charting component enables you create your own graph of any share in ShareFinder’s database and apply indicators to the graph. You can overlay several different shares on the same graph for comparison, add trend lines, and create compound indicators of indicators in an unlimited number of combinations.

To start the graphing process left-click on the “Add Panel” button as many times as you would like graphs to appear within one composite. Next, highlight the panel within which you would like to create your first graph and then left-click on the “Add Share” button. You will then be offered another action panel which offers access to the complete ShareFinder database of shares, currencies’, metal prices, and indices etc. It will look like the example on the right:

Note that you can at this stage request a whole range of different types of graphs with pre-set parameters suitable for short-term or long-term analysis, projection graphs which use Fourier Transforms in order to project past cyclic trends into the future, Trading Bands or Fundamental tools such as earnings and dividend yield graphs, dividend percentage trends and so forth.

We will at this stage simply choose a long-term price graph of Standard Bank shares by typing the first few letters of Standard’s name in order to quickly locate this share among the hundreds stored in the ShareFinder database. Once the abbreviation “Stanbank” appears we can call for a price graph simply by left-clicking in the share name to highlight it and then in turn left-clicking on the “OK” button. The result will look like this:

Next, you may either overlay this graph with any indicator of your choice or you may create a second panel and place an indicator in that. Let us in this example, overlay this graph with an indicator. To do so, left-click in the action panel on the name of the share you wish to analyse in order to highlight it as illustrated on the right and then in turn left-click on the “Add Indicator” button in order to open up ShareFinder’s selection of technical analysis tools.

It will look like the example below:

In this panel you should now left-click on the “Indicator” button.

You will in turn be offered another action panel that looks like the one below:

Note that indicators are grouped together by type. For the purposes of illustration we will select “Moving Averages”

Note that when you hover your curser over “Moving Averages” a new panel opens offering you a choice of five versions of this type of indicator. We will left-click on “Exponential Moving Average” and we will be offered another action panel in which the user can manipulate the parameters of this indicator. The default option is a 100-day exponential moving average which has been offered for a user who wants a long-term indicator. Note that ShareFinder has suggested that this moving average might be teamed with a short-term 50-day exponential moving average.

You may choose whatever value you wish. I have elected to create a 200-day exponential moving average. So note the numbers 141 and 100 appearing at the bottom of the action panel. The number 141 is the listing or identification number of exponential moving averages within the ShareFinder directory of indicators and should not be changed. You may, however, use your destructive backspace key on your computer keyboard to delete the number 100 and in turn replace it with the number 200. Once you have changed the default number to the one you desire, left-click on the “OK” button and the resulting graph should look like the one on the right:

Technical analysts like to superimpose a short moving average upon a long one. So let us repeat the steps we have just been going through in order to add a 50-day exponential moving average to our chart. To do so left-click on the name of the share you are analysing in the lower panel in order to highlight. Next left-click on the “Add Indicator” button, and repeat the process of creating an exponential moving average as we have described above, changing the default parameter of 100 to 50. You will achieve a graph that looks like the one below:

In order to be able to distinguish between the two moving averages it might be convenient to change their colour. To do so hover your cursor over the graph trace you wish to re-colour and then right-click.

An action panel like the one on the left will now open up. Hover your cursor over word “Colour” and a colour palette like the one on the right will now open up.

Now hover your cursor over the colour of your choice and then left-click. The resultant graph will look like the example below

Seeking proof that a market has changed direction, technical analysts look for examples like the one below where the upward-rising price graph intersected the blue 50-day exponential moving average graph which a trader would take as a technical buy sign. A more cautious investor would note that shortly after this the 50-day moving average changed direction from downwards to upwards and take this as confirmation of the signal.

Following this the change to an upward direction of the red 100-day average would be the confirmation the long-term investor was seeking followed by absolute confirmation when the 50-day average intersected the 100-day average in an upward direction.

Moving averages, of which the Exponential Moving Average I have just described is considered the most accurate predictor of pending market direction change. Their principal purpose is to smooth out the often erratic up and down movements of prices in order to provide the technical analyst with a sense of market direction. More importantly, they can when used in combination be used to develop a trading strategy.

Within the ShareFinder analysis system we offer five variants of the moving average concept; Simple moving averages, Weighted moving averages, Exponentially-weighted moving averages, Complex-weighted moving averages and a variant of all of these, the MACD. Consider the example below in which I have overlain the daily price movements of Standard Bank shares with the first four of these averages.:

In each case these averages were calculated using 100 days of data and so it is clear that each average produces a very different graph. The simple moving average is coloured red, the weighted moving average green, the exponentially-weighted moving average mauve and the complex-weighted moving average is coloured black.

Now if you consider the graph you will notice that the green weighted moving average was the first to top out in September 2007 warning that the share price peak which occurred five weeks later was likely to prove a market turning point. Now, you might argue that the red simple moving average actually turned down seven weeks ahead of the weighted moving average, but if you used this average regularly you would soon realise that it’s August 2007 direction change was actually the consequence of the earlier July price peak of Standard Bank shares. In fact, on its own the simple moving average is in my opinion, all too reactive to much use generally.

Similarly, by the time the complex-weighted and exponentially-weighted moving averages turned downwards the price of Standard Bank shares had fallen to such an extent that many would have argued that the signals came too late. Here the truth is that the 100 day parameter of moving averages is generally used as a stop-loss signal in an ultra-long-term investment strategy and it should be recognised that from the point of view of the conservative long-term investor the small loss that was incurred by waiting for the confirming signal of these latter indicators is outweighed by the fact that they are relatively slow to react and thus might not be expected to turn downwards every time a short-term market decline occurs. This argument is very evident when one considers my second graph which illustrates the performance of all four of them over the entire 2003-2007 bull market. Indeed, with the exception of the simple moving average which is here clearly seen to be too reactive to be relied upon. It could be a useful strategy to use all three remaining indicators together since, as you can see, the green weighted moving average might be argued to offer a “Take your marks” signal, followed by the mauve exponentially-weighted moving average signalling “Get set” and finally the black complex-weighted moving average signalling “Go”.

So how are they constructed?

A simple moving average:

Their calculation is simple to understand and the Simple Moving Average is the easiest of all. Consider a series of ten numbers as follows: 10, 12, 13, 16, 13, 12, 11, 9, 8, 10. The average of these ten numbers is 11.4 which, if one were constructing a simple 10-day moving average, would be your first plotting point. Now on the 11th day let us assume the price of the security we were intending to graph was 11. We would thus strike off the first number in the series, ie 10 and add 11 to achieve a new average of 11.5. On the 12th day, we would strike off the second number in the series, namely 12 and add the latest number. Assuming the number for the 12th day were 15 we would thus we would achieve a third average of 11.8 and so on day after day.

A Weighted moving average:

All weighted moving averages apply a weighting to the raw data. In other words, the number sequence is multiplied by a weighting number. Those who favour this variant argue that the very latest data is the most informed about current market conditions and thus should be given the greatest weighting. Thus, if one decided to offer a weighting of 100, the most recent day’s data would be multiplied by 100, the previous day by 99, the one before that 98 and so forth. For those who prefer to see a formula, in the following formula an n-day WMA the latest day has weight n, the second latest n − 1, etc, down to zero.

\textit{WMA}_{M} = { n p_{M} + (n-1) p_{M-1} + \cdots + 2 p_{(M-n+2)} + p_{(M-n+1)} \over n + (n-1) + \cdots + 2 + 1}

Exponentially-weighted moving averages:

Here we have a similar approach with the latest data being given the greatest weighting and descending exponentially. The formula for calculating the EMA at time periods t > 2 is S_{t} = \alpha \times Y_{t-1} + (1-\alpha) \times S_{t-1} :

Complex-weighted moving averages:

A Complex-weighted moving average is created by multiplying the data by its position in the series. Thus the price on day one is multiplied by one, on day two by two etc. The average is then created by dividing this sum by the sum of the weighting numbers i.e. the divisor of a five-day complex-weighted moving average would be 15. Next, as in the case of the simple moving average, the first day’s data is dropped and the latest day’s data added.

The MACD

One of the most popular modern variants on the moving average theme is the MACD Indicator which is calculated by subtracting the output of a short Exponential Moving Average from a long Exponential Moving Average and plotting the result. In the example below I have superimposed both a 20-day Complex Weighted Moving Average and a 20-day Exponentially Weighted Moving Average upon a graph of the JSE Industrial Index. Note that the Complex moving average again signalled earlier, turning upwards on April 29 2003 while the Exponential moving average turned upwards on May 2 2003. However, in the lower panel, when a MACD Indicator was calculated by subtracting a 20-day Exponential Moving Average from a 50-day Exponential Moving Average, the resultant indicator turned downwards on Match 14, a whole 28 trading days earlier.

Making effective use of moving averages

The major problem that arises from the use of these indicators on their own is an unreasonably high ratio of false signals. Noting that the fewer the number of trading days employed in the calculation of a moving average, the more reactive will be the indicator, it follows that one needs to determine which period provides the happy medium for your purpose.

The commonly-employed trial and error method of choosing a number and progressively increasing it while looking back over the graph to see which number would in the past have provided a reliable early warning, does not work with weighted moving averages. The reason should be self-evident inasmuch as weighting the calculation so as to give greater emphasis to the latest data and less to earlier data implies that as new data is added the earlier plot of the moving average will be re-calculated. In other words, a retrospective view will not show you the moving average as it actually was at the time that an investment decision needed to have been taken some time in the past.

The intelligent way to overcome this problem is to overlay a daily price graph with a number of moving averages that employ a progressively greater number of trading days. In the following example I have used a series of Exponential Moving Averages to illustrate the point. In the example we have overlain the JSE Industrial Average with, respectively, 25-day, 50-day and 100-day exponential moving averages.

Here it can be seen that when the graph of the JSE Industrial Index cut upwards through the 25-day moving average the investor would receive his first signal that the bear market might have ended. The second confirmation occurred when the index cut through the red line of the 50-day average, the third when it intersected the green line of the 100 day average, the fourth when the 25-day average intersected the red line of the 50-day average, the fifth when the 25-day average intersected the 100-day average and the sixth when the 50-day average intersected the 100-day average.

Used in this manner moving averages are a most effective tool for gauging whether a market direction change is merely a short-term or a long-term event.

For the most effective periods to apply, do consult the Optimised ShareFinder guide that is regularly downloaded along with the ShareFinder fundamentals service. Within the ShareFinder system we have simplified this selection process by applying optimisation analysis to determine which parameters work best in a given situation. Thus, if you consider the picture on the right, when seeking to employ an exponentially-weighted moving average, our studies have shown that for long-term analysis a 100-day average is the most accurate and for short-term studies a 50-day indicator is best.

Trend Lines

Trend lines are perhaps the most commonly-used technical analysis tools. Like most technical tools, there is a good deal of common sense underpinning them.

Consider, if you will, that you have done your homework analysing the balance sheets of many stock exchange listed companies and have eventually come up with a short-list of a dozen or so that you would most like to earn; rather like choosing from the ShareFinder Quality List those companies that enjoy the highest Fundamental Grading. Now the sensible investor does not simply rush out and buy his chosen favourites. Normally he will study graphs of past performance and, having noted that most shares undergo a regular annual price cycle, he will simply sit watching and waiting until they have fallen to a level where he considers them to be attractively-priced.

Very likely they will start rising again once he starts buying for, to be certain, he will not be the only person out there watching and waiting. So he might have to wait quite a long time as shares go through a series of price cycles before he obtains his desired quantity of a particular share.

Thus, over time his buying point will become entrenched as an entry level for many investors and will be observable in most share graphs. In the example on the right you can see how during the latter part of 2009 ABSA shares repeatedly fell to R120 a share at which level buyers stepped in. Astute market watchers would soon have realised that if they wanted to acquire ABSA shares they should lodge buying orders spread around that level. Indeed, one could simply place an order for say “ R122 or better” and wait for one’s broker’s computer to trigger buys at this level.

Now exactly the same principle applies to would-be sellers. So in the next graph I have identified how ABSA regularly topped out at around R130 a share during the same period.

In their simplest form trend lines are straight lines drawn through several points on a graph to establish a trend as have illustrated. To draw a new trend line, click the 24th icon from the left  on the ShareFinder tool bar. It looks like this:


Once you have done this you will see that the normal curser which looks like this: becomes replaced by another which looks like this: mouse3 You can move it anywhere on your graph and then, by left-clicking, hook it onto any graph turning point and then stretch it with the left click depressed in order to hook the other end of the line onto any other point in the graph

Once you have dragged the line into the appropriate position, release the mouse button. The trend line can be adjusted by dragging its endpoints or moved by dragging any other part of the line. You can also double-click on the line if you want to change its appearance, such as its colour or width.

Finding turning points and drawing trend lines remains a trial and error business for most technical analysts. However ShareFinder makes it a lot easier by offering users an automatic process which locates the greatest number of turning points in any defined portion of a graph. Thus, in the graph below, I have drawn a line by the above method straight across the ABSA graph:

Next, hover your curser over the line and right-click in order to open an activity box which looks like the one on the right. Finally left-click on the “Auto-Fit” panel and in turn left-click on the share name on the right; in this case ABSA. Immediately your trend line will move in order to automatically align itself through the greatest number of graph turning points within the time period you have defined. The result will look like the example below:

Note that if you try to move this line it will immediately spring back into the same position. However, if you extend the line it will re-align itself in order to encompass the additional turning points. In the example below I have dragged the line both to the left and the right and as a consequence you will see it has re-aligned itself: Here, ShareFinder offers users a very useful feature. If you hover your curser over the trend line the programme will calculate the angle of its slope. So note I the example on the right the information that you have now extended the trend line to encompass 493 trading days during which the trend line was rising at a compound average rate equivalent to 57 percent. Share Finder also offers the additional information that this represents an annualised rate of 39.9%.

Now, having fitted itself to intersect the greatest number of turning points in the period displayed, it becomes apparent the ABSA shares were actually moving more or less in a defined channel during this period and it would be interesting is one could move the line up or down to see if this channel can be clearly defined. To remove the auto-fitting feature without changing the slope of the trend line, hover your curser over the line and left-click to open up the activity box again and left-click on the “None” button. After this you can move the line freely by dragging it with your curser.

In the example below you can see that we have dragged the line vertically downwards while still retaining its previous angle. Finally we will left-click on the “Parallel Line” button in order to create a parallel. The resulting line will now look this:

Finally, you are able to drag this new line wherever you choose without the angle of the slope changing ion any way. Thus we have elected to move it upwards in order to try and define the upper limit of the apparent channel. The resulting display looks like this:

Here it is important to note that after 14 months of steadily underpinning a rising ABSA share price, the share price broke downwards through this line in early May 2010 and fell sharply, attempted to recover but failed to rise above the support line. As a consequence it had been falling steadily at the time of writing which is a common experience when a long-term support line is broken.

One other trend line pattern is much favoured by technical analysts, the pennant which is illustrated with dark green trend lines on the extreme right of the ABSA graph below:

A pennant is formed when upper and lower graph turning points steadily grow closer to one another signalling that both buyers and sellers are becoming unanimous about what constitutes a fair price for a share. Almost invariably a pennant signals the probability of a sharp share price direction change as happened here when ABSA prices broke upwards. However, once again they failed to recover high enough for the red long-term support line to be breeched on the upside and so the recovery ran out of steam and fell backwards again.

Finally note that a tiny new pennant was beginning to form on the extreme right of this graph, signalling that a new consolidation attempt was taking place. If it failed, it seemed probable at the time of writing that the price would again fall and this time the lower green line would be seen as a possible support line which, is breeched on the4 downside, could signal another sharp fall.

Technical Analysis Tools

In addition to the proprietory indicators which are found in the ShareFinder fixed window analysis feature, the Professional and Mobile programmes offer our users a complete range of technical analysis tools. In order to access this feature, we start with the third icon from the left on the tool bar. It looks like this: Left-click on it and an action panel opens up that looks like this:

Now left-click on the “Add Panel” button. We suggest you click twice in order to add two panels to the graph composite you are building. The resulting composite will look like the following example:

Next, left-click “Panel A” to make this the active panel and then left-click on the “Add Share” button to create a graph of the share you are interested in analysing into the topmost panel of the composite. You will be offered a directory of all the shares contained in the ShareFinder database. It looks like the example below:

Type in the first few letters of the name of the share you are interested in and ShareFinder will find it for you. In the example on the left we typed in the letters “Sta” in order to highlight Standard bank. Next note that in the action box on the right you are offered a range of graph types. We will left-click on “Trading Band” to produce the example on the right:

Next, we will left-click on Panel B to highlight it and induicate that we wish to place a technical analysis indicator in the lower panel of the composite. Then in turn we will left-click on the “Add Indicator” button in order to choose an indicator to place in the panel. Doing so will open up an activity box like the one below left. Now, left-click on the large “Indicators” button to open up a directory of the many technical indicators available within the ShareFinder range. You will be offered a selection like the one below:

Note that you are now offered a range of indicators grouped according to their type. So let us left-click on the “Momentum” range. When you do so you will be offered a series of variations on the momentum theme as can be seen in the example below:

In the example we have left-clicked on the standard momentum indicator and in turn have been offered four versions of it. We will left-click on the “Smoothed version” with the result that we are next offered an activity panel in which we are offered optimised values for a number of parameters. These, under optimisation studies, have been found to be the most accurate forecasters of future share price movement in respect of the Smoothed Momentum indicator: Momentum indicators are calculated by sequentially dividing the current price of a share by the price a fixed period in the past. In the optimised example, a 24-day smoothed momentum indicator has been shown to be the most accurate forecaster of future price movement.

Such indicators tend to appear somewhat erratic which is why it is sometimes useful to apply smoothing. However, it should be noted that smoothing, while making such indicators easier to interpret, sometimes reduce the forecast accuracy.

To accept this indicator as is, left-click on the “OK” button to produce a graph composite like the one below:

Here the delay effect of smoothing is clearly illustrated. Note that on July 27 the Standard Bank shares peaked in price and began falling the following day. The smoothed momentum indicator finally peaked on August 4, six trading days later. Similarly, when the share price bottomed on June 8, the momentum indicator bottomed the following day. In conclusion, though this indicator is a useful confirming tool, investors wishing to act quickly in a fast-moving marketplace might be frustrated by the delay. However, it should be noted that waiting for a confirming signal can often save one from acting too soon and thus missing out on further profitable activity.

For those who require a more detailed explanation of the construction of this indicator, Momentum and rate of change (ROC) are simple technical analysis indicators showing the difference between today's closing price and the close N days ago. Momentum is the absolute difference:

\mathit{momentum} = \mathit{close}_\mathit{today} - \mathit{close}_{N\,\mathit{days\,ago}}

Rate of change scales by the old close, so as to represent the increase as a fraction,

\mathit{rate\,of\,change} = {\mathit{close}_\mathit{today} - \mathit{close}_{N\,\mathit{days\,ago}} \over \mathit{close}_{N\,\mathit{days\,ago}} }

"Momentum" in general refers to prices continuing to trend. The momentum and ROC indicators show trend by remaining positive while an uptrend is sustained, or negative while a downtrend is sustained.

Variations on the Momentum theme:

Within the ShareFinder tool box there are seven variations on the basic momentum theme. Place your curser over the “Momentum” activity button an you will be immediately offered all seven as you can see in the illustration on the right:

Other than our own proprietary Velocity indicator which has been shown under computer optimisation studies to greatly exceed the prediction accuracy rates of the Momentum indicator itself and all its variants , the most widely-used variants in worldwide use by technical analysts are the Overbought/Oversold, the RSI or Relative Strength Index and the Stochastic Indicator.

The Overbought/Oversold indicator which is shown in the lower graph of the composite on the right, attempts to determine when prices have moved too far and fast in either direction. This is calculated by measuring the difference between the number of advancing and declining prices over a certain period of time and smoothing the result by applying a moving average. It is plotted around a zero axis and is considered overbought if the graph rises above zero and oversold when it falls below zero. If the market is considered overbought, the technical will sell, and if the market is considered oversold he or she will buy.

In the example in which we calculated on Shoprit-Checkers using the ShareFinder optimised default of a 20-day moving average, the turning points are quite clear offering on average a two to three day warning of a pending short-term market direction change.

What is immediately evident, however, is that the indicator offers a very large number of direction changes which render it completely without value to the medium to long-term investor. It is accordingly useful to apply smoothing to the OB/OS indicator, of which ShareFinder offers two variants. Simple smoothing applies a moving average whose parameters have been optimised to select the normally most accurate number. You can, however, experiment with changing these if you wish. The smoothed version appears in the third graph of the composite below.

In the fourth graph in the composite, we have used the “Ultra Smoothing” tool which applies Fourier smoothing to achieve an indicator which is far less reactive but nevertheless provides a very useful buying/selling tool for the long-term investor. Finally, we have depicted the Disparity version which measures the difference between two different moving averages of the Overbought/Oversold indicator. It is perhaps best employed as a confirming signal of the Overbought/Oversold indicator.

Understanding Disparity

Though we have for convenience grouped the Disparity graphing tool within the various graph smoothing options in the ShareFinder toolbox, it should be clearly understood that it is not a smoothing facility. To best understand its use let us consider one of the oldest and best-loved tools of the technical analyst.

Technical analysts, forever on the lookout for a means of developing early-warnings signs of impending market direction change have long looked at the difference between short and long-term moving averages to create such a warning mechanism. Thus, in the graph composite below I have created the disparity between a 120-day and a 30-day simple moving average.

The red line is the 120-day simple moving average and the green the 30-day average. Technical analysts would have noted the upward surge of BAT share prices beginning on May 5 2009 at R198.75 but would not regard this as a confirmed trend until it cut through the green 30-day moving average on May 7 at R209.35. At this stage it would have been treated as a speculative buy.

When the price further cut through the red 120-day average line on July 13 at R230.88 this would have been regarded as an absolute confirmation for long-term investors that a bull trend was under way. Finally, when the green line cut upward through the red line on July 30 when the share price had reached R241.50, short-term traders would have regarded this as a sign that the price was becoming overbought…a warning that was confirmed when at R252.70 the share price peaked on August 13 and fell backwards. When the share price cut through the green line on the downside on August 25, this would have acted as a stop-loss signal for traders to sell.

Now, to simplify the interpretation of the two moving averages, we can employ a disparity indicator. We set it up by employing the Disparity indicator within the Moving Averages action window as seen in my example on the right:

So note we now have a blue line in the lower panel of the graph composite oscillating about a zero axis. A much simplified set of signals is now obvious. A buy signal is confirmed as early as May 7 when the Disparity line, having fallen deep into bearish territory at - 32.47 then turned upwards again giving us a buy when the share price was R209.32.The outlook for the shares remained bullish until the Disparity line peaked on September 9 at a share price of R241.90.

Volume Based Indicators

On Balance Volume

One of the most beguiling of the early generation of technical analysis indicators was the On Balance Volume Indicator which is generally attributed to US analyst Joseph E Granville.

To constructed it one creates two columns of volume data. On days when the closing price of the share is less than that of the previous day it is concluded that the principal sentiment of investors was to dispose of the share and the traded volumes are thus recorded in the negative column. On days when the closing price is higher than that of the previous day, it is considered that investors are accumulating the shares and the associated volume is thus recorded in the positive column. A moving average is then created of each

column and these are subtracted from each other. The resultant graph is plotted below in brown. I have also plotted the Positive and Negative Volume totals since they on their own can be used as indicators.

Note that when the JSE Industrial Index turned upwards on April 1 2003, the brown OBV line turned upwards in confirmation of this event on April 25. As the graph composite clearly indicates, however, the simpler Positive Volume Index help2was able to give an earlier confirmation of the market direction change, also turning upwards on April 1. Furthermore, where the OBV Indicator turned quite sharply downwards on June 20 seeming to suggest that the bull phase of the market might be over, the Positive Volume Index continued rising fairly steadily.

The Negative Volume Indicator which appears in blue in the second graph of the composite failed to offer any effective guidance at all. Readers’ attention should meanwhile note the third graph panel in which I have depicted the daily traded volume of the JSE Industrial Index as a red bar graph, overlain with a blue simple moving average to underscore the point that a direction change from a bear to a bull market is usually accompanied by rising volumes.

It should be noted, however, that in my second example below which depicts the closing stages of the bull market of 1999 that the OBV and actual volume traded were the most effective indicators while the Positive Volume Indicator again lagged events by a considerable extent.

What is particularly evident in this end of the bull market situation is that daily volumes varied dramatically as pessimism and optimism alternatively gripped the market.

Volume Accumulation

As I have explained in detail in my books ‘Footsteps to Fortune’ and ‘ How to Profit from Share Market Charting’ none of the early attempts to employ volume as a prediction tool have stood up to subsequent computer optimisation testing.

In my consequent search for a more effective means of harnessing this phenomenon, I initially turned to Mark Chaikin’s Volume Accumulation Oscillator since the philosophy behind it seemed to overcome some of the shortcomings of OBV, PVI and NVI. Plotted below together with my own first evolution of the Chaikin concept, the VAR1 on the graph composite below, neither were particularly effective in either predicting or confirming the end of the bear market in April 2003. They might, however, have some marginal value as indicators for short-term traders.

Picking up on the success of the VAR5 and VAR6 indicators, led us to the final evolution in the a shape of the Mass Indicator which, as can be seen from the example below, provided an easily-read long-term early warning system of considerable accuracy. Not only was the April 1 market turnaround foretold as early as February 4, it was clearly anticipated some time before by the observable fact that the indicator was sliding steadily down to the zero percent line before surging upwards again once more. Furthermore, by April 1, just as the market was turning, the Mass indicator was peaking temporarily to forewarn of the softer tone of the market that was to begin 12 weeks later on June 19.

Note that in this example I have teamed the Mass Indicator with its normal ShareFinder Professional fixed window analysis companions the Velocity and Volatility indicators so that you can see how the tree work together as a collective successive early warning system. Thus the downturn of the Mass Indicator on February 4 was the “Prepare to Buy” signal which should have alerted investors to start gathering cash towards the coming buying opportunity. Then on March 12 the Velocity Indicator bottomed out to warn investors that a “Buy” signal was imminent. Finally on March 24 the Volatility Indicator peaked, to provide the final warning that the buying season was arriving. And then, with three advance warnings to alert the ShareFinder user, the index itself turned upwards on April 1.

The Mass and Velocity Indicators are teamed together in both long term and short-term mode so, whereas in the long-term mode the Mass Indicator turned upwards a full eight weeks ahead of the actual event, in our automatic short-term analysis configuration, the indicator can be expected to provide approximately an eight day warning backed by the Velocity Indicator’s normally instantaneous confirmation signal.

That said, however, I must sound a note of warning that these early warning periods tend to vary. So do not count on the long-term Mass Indicator always warning eight weeks in advance. In addition, in short-term mode, the Velocity indicator can sometimes sound a warning earlier than the Mass indicator. Routinely the rule of thumb should be that one buys only when both the Mass and Velocity indicators are rising and sells only when both are falling.

Fourier Smoothing and Projection

Fourier Transforms owe their origins to the work of Baron Jean Baptiste Joseph Fourier( 1768-1830). Their great strength is their ability to digest a series of numbers to identify any recurrent cycles within the series in the form of sine waves in descending order of magnitude. In the example above the red line represents a composite of the 12 most dominant waves within the JSE Industrial Index over a period of 11 years.

These wave patterns may also be replicated into the future as is illustrated by the green line on the right of the graph and in enlarged format on the right. Here, instead of identifying just the 12 most dominant sine waves, we have used Fourier Transforms to identify the composite effect of 800 individual recurrent cycles and projected this data forward 200 days into the future. Accuracy

Observation suggests that Fourier projection is better than 80 percent accurate with respect to its timing of market direction changes. Investors should be cautious, however, about attempting to predict the magnitude of future price movements by measuring such projections since in our experience the projections tend to exaggerate magnitude. Investors should also note that while the greater the amount of data that is available for analysis, the more accurate these projections tend to become, they are however exponentially weighted; i.e. the most recent data exercises a greater influence upon the projections than early data.

Momentum or Rate of Change Indicators

By comparison with graphic tests such as moving averages which are primarily used to confirm that a market has changed direction, Indicators are used to signal in advance that a direction change is coming. Among the oldest and most widely-used indicators are those based upon the concept of Momentum or Rate of Change. Thus in the graph composite below I have compared one of the earliest-signalling moving averages, that is a 50-day Complex Weighted Moving Average with the very oldest of the graphic indicators; the Simple Momentum Indicator. It is calculated by the simple process of sequentially dividing the current price of a security by the price N days in the past.

Note that whereas the 50-day Complex-Weighted Moving Average turned upwards on May 6, the 50-day Simple Momentum Indicator shown in blue in the lower graph turned upwards over a month earlier on March 28 while the 50-day Smoothed Simple Momentum indicator shown in red in the lower graph turned upwards on April 3. Best of all the 50-day Ultrasmoothed Simple Momentum Indicator turned upwards almost two months ahead of the event on March 11.

Note, however, that the same sequence order of early-signalling was not evident when the rate at which the JSE Industrial Index was rising began slowing on June 10 and this fact was first detected by the Simple Momentum Indicator followed by the Smoothed Simple Momentum Indicator on July 15 and by the Ultrasmoothed Simple Momentum Indicator on July 28.

Double Momentum

This unreliability of the Simple Momentum Indicator explains why investors have over the years searched for more accurate and reliable indicators. One of the earliest attempts at this is the Double Momentum Indicator which, quite simply, is created by calculating the momentum of the momentum of the chosen security.

In the composite above, I have created a Double Momentum Indicator and coloured it mauve. Note that its principal characteristic is that it exaggerates the trend of the Simple Momentum Indicator but changed direction at precisely the same time, actually taking us no closer to an indicator of greater reliability.

Neither is the Smoothed versions of the Double Momentum Indicator which appears in blue in the graph above particularly more helpful. However, in this example it is evident that the Ultrasmoothed Double Momentum Indicator was earlier than the other versions in signalling both the pending upturn of the market having turned upwards on February 24 and having peaked on May 26.

Overbought-Oversold

One of the great favourites of yesteryear, the Overbought-Oversold indicator is calculated by measuring the extent to which the price of a security has risen above or fallen below its simple moving average

In the example above I have created a 50-day Overbought-Oversold Indicator in red which turned upwards on March 10 to predict the upturn of the JSE Industrial Index on March 31. In this case the Ultrasmoothed version proved a later signalling indicator turning upwards on March 18 and the Smoothed version turned upwards on April 1. Note also that the Overbought-Oversold indicator was the first of the three to turn downwards when the rise of share prices began slowing.

Relative Strength Index

Attributed to US analyst J Wells Wilder, the Relative Strength Index was long the darling to technical analysts because of its seeming ability to overcome the problem of erratically-moving graphs resulting from some dramatic price spike many months in the past. The calculation is a little complex for it involves first of all the calculation of positive and negative price changes by sequentially subtracting the previous closing price from the current one to determine the Positive Price Change and by subtracting the latest closing price from the previous one to calculate the Negative Price Change. Thereafter the following formula is applied:

RSI = 100 – (100/(1 + RS)) where RS is the exponential average positive price change divided by the exponential average negative price change. However, as can be seen in the graph composite below, the RSI Indicator actually proves to be no better than the Overbought-Oversold in providing on March 10 an early-warning of an impending market direction change that actually occurred on April 1 and on June 19 signalling the end of the short-term bull phase that occurred on that day.

The Smoothed RSI turned upwards sometime later on April 7 and was similarly late in signalling the end of the up-trend. The earliest signal came, however from the ultra-smoothed RSI which turned upwards three months earlier on December 24 but was six weeks late in signalling the end of the short-term bull market.Image2

The Stochastic Indicator

Attributed to US analyst George Lane, the Stochastic indicator introduces the element of Disparity, i.e. the difference between two moving averages. The formula for its construction is %K = ((C - L)/(H – L)))* 100 where C is the latest closing price, L is the lowest low for the chosen time period and H is the highest high fro the chosen time period. It proved to be no earlier signalling than the RSI or the Overbought-Oversold indicators in respect of the change from a bear market to a bull, but it possessed the advantage of being the earliest signaller of the short-term end of the bull cycle.

In the example above the Stochastic indictor itself was the first to signal a market direction change when it turned upwards on March 11. It was followed by the Ultra-smoothed Stochastic on March 28 and by the Smoothed Stochastic on April 4. The standard Stochastic indicator was also the first to signal the end of the bull run on May 16.

In traditional use the standard Stochastic is teamed with a Smoothed Stochastic and timing points are determined by the intersection of the two indicators.

The Slow Stochastic

The Slow Stochastic is a variation upon the standard Stochastic and here again it is conventional practice to team the standard version with a smoothed version to provide a timing signal. Thus when the Slow Stochastic indicator turns upwards, the analyst waits for the smoothed version to turn upwards and intersect the rising line of the standard version, taking tis event as a Buy signal.

Formula for creating the Slow Stochastic is:

(C-L)/(H-L)* 100 where C is the latest closing price, L is the lowest low of the chosen time period and H is the highest high of the chosen time period.

Here it can be seen that the Slow Stochastic lived up to its name, not turning upwards until April 14 with the smoothed version only turning upwards on May 16 whereas the ultra-smoothed version did to really get a look in as an indicator.

Disparity Indicators

A disparity indicator is created by the simple process of plotting the daily difference of a long-dated and a short-dated version of the chosen indicator. In the composite below I have overlain six disparity indicators over one another, each calculated using a basic 50-day indicator. The result is something of a dog’s breakfast but if you study it carefully you will note that the earliest signal came from the Disparity Overbought-Oversold Indicator which turned upwards on March 18. It was followed by the Disparity RSI in March 19 and by the Disparity Stochastic on March 21. On March 26 the Disparity Momentum Indicator turned upwards followed by the Disparity Double Momentum Indicator on April 15 (turning downwards) and finally on April 21 by the Disparity Slow Stochastic.

Other disparity indicators that signalled early were the Disparity Volatility 1 Indicator on March 21 the Disparity Volatility 3 also on March 21, and the Disparity Volatility 10 which turned on March 26.

In the VAR series, the Disparity VAR 5 turned upwards on February 14, confirming as always that the Volumetric indicators are the earliest harbingers of future change, but too early to be used for more than a “take your marks” signal that needs to be confirmed by other indicators closer to the actual date. Earliest of all the Disparity indicators was the Disparity VPT which turned upwards on February 7.

In the composite above I have illustrated how these three indicators anticipated the lower turning point of the JSE Industrial Index weeks before the event:.

The Relative Strength Index (RSI) is a technical indicator used in the technical analysis of financial markets. It is intended to chart the current and historical strength or weakness of a stock or market based on the closing prices of a recent trading period. (It is not to be confused with relative strength.)

The RSI is classified as a momentum oscillator, measuring the velocity and magnitude of directional price movements. Momentum is the rate of the rise or fall in price. The RSI computes momentum as the ratio of higher closes to lower closes: stocks which have had more or stronger positive changes have a higher RSI than stocks which have had more or stronger negative changes.

The RSI is most typically used on a 14 day timeframe, measured on a scale from 0 to 100, with high and low levels marked at 70 and 30, respectively. Shorter or longer timeframes are used for alternately shorter or longer outlooks. More extreme high and low levels--80 and 20, or 90 and 10--occur less frequently but indicate stronger momentum.

The Relative Strength Index was developed by J. Welles Wilder and published in a 1978 book, ew Concepts in Technical Trading Systems. Calculation

For each trading period an upward change U or downward change D is calculated. Up periods are characterized by the close being higher than the previous close:

U = closenow − closeprevious

D = 0

Conversely, a down period is characterized by the close being lower than the previous period's (note that D is nonetheless a positive number),

U = 0

D = closeprevious − closenow

If the last close is the same as the previous, both U and D are zero. The average U and D are calculated using an n-period exponential moving average (EMA). The ratio of these averages is the Relative Strength:

RS = \frac{\text{EMA}(U,n)}{\text{EMA}(D,n)}

If the average of D values is zero, then the RSI value is defined as 100.

The Relative Strength is then converted to a Relative Strength Index between 0 and 100:

RSI = 100 - { 100 \over {1 + RS} }

The exponential moving averages should be appropriately initialized with a simple averages using the first n values in the price series.

As with all our indicators, we offer a standard Shoprit RSI i the index itself in the composite on the right. In panels 3 and 4 we offer respectively smoothed and ultra-smoothed versions of the RSI Index together with a disparity version which, as I have previously explained measures the difference between two different moving averages of the Overbought/Oversold indicator.

Probably the most useful versions are the RSI itself which is designed to alert traders immediately a market direction change occurs. The Ultra-smoothed version of the RSI might be useful for long-term investors who do not want to be made uncomfortable by the frequent short-term cycles of the marker. However I would caution such long-term users not to rely on this indicator alone. It’s principal use should be in combination with a series of other technical indicators optimised to suit the investment style of the investor.

Fourier Smoothing and Projection

Fourier Transforms owe their origins to the work of Baron Jean Baptiste Joseph Fourier( 1768-1830). Their great strength is their ability to digest a series of numbers to identify any recurrent cycles within the series in the form of sine waves in descending order of magnitude. In the example above the red line represents a composite of the 12 most dominant waves within the JSE Industrial Index over a period of 11 years.

These wave patterns may also be replicated into the future as is illustrated by the green line on the right of the graph and in enlarged format on the right. Here, instead of identifying just the 12 most dominant sine waves, we have used Fourier Transforms to identify the composite effect of 800 individual recurrent cycles and projected this data forward 200 days into the future. Image1Accuracy

Observation suggests that Fourier projection is better than 80 percent accurate with respect to its timing of market direction changes. Investors should be cautious, however, about attempting to predict the magnitude of future price movements by measuring such projections since in our experience the projections tend to exaggerate magnitude. Investors should also note that while the greater the amount of data that is available for analysis, the more accurate these projections tend to become, they are however exponentially weighted; i.e. the most recent data exercises a greater influence upon the projections than early data.

Text Boxes

A text box allows you to write information onto the graph surface. To create a text box, click the button on the tool bar, then click and drag a rectangle on the graph where you would like the text box to appear. Finally type the text and press Enter. Double-click on the text box to change its appear, such as colour and line width. To change the text, right-click the box and choose Edit. Zoom

Zooming into a graph displays less information over a wider area, making it easier to read individual data points. Zooming out compacts the graph so that more information is visible at once. Click and or use the keypad + and keypad – keys on the numeric keypad to zoom in and out of a graph. You can also use keypad \ to reset the default zoom position and keypad * to fit the entire graph onto the screen at one time.

Scaling

You can rescale the graph vertically so that the visible portion fills the graph panel by clicking the button. As you scroll the graph, the scale will adjust automatically to fit the visible portion. (Hint: You can also press Ctrl+F on the keyboard.)

To return to the default scale setting, which is to ensure that the entire graph trace would be visible, click the button.

To enable logarithmic scaling on a graph panel, right-click on the vertical axis and click Logarithmic Scale. This setting affects all traces on the chosen graph panel. Copy & Paste

You can use copy & paste to copy a ShareFinder graph image into another document such as a word processor. To do this, click the Graph menu and choose Copy. Then switch to the intended document and use the usual paste command, usually Ctrl+V or Shift+Insert on the keyboard, to paste in the graph image.

Hint:Use the Copy & Paste facility to print a graph. To do this, paste the graph image into a word processor or graphic document using the above method, then print the document.

Understanding how to time share buying and selling using the ShareFinder Quality List timing messages

The most efficient way to effectively time of your share buying and selling is to use the ShareFinder system of alerts which can be set to open whenever you start up the programme. That way you will be alerted when any share you are interested in moves into target range

You can, however, also make a quick visual check of the trading status of any shares you are interested in by opening up the Quality List. Here the timing messages are grouped together immediately to the right of the data summation tables which are the first you see when the quality list is opened. This grouping is given a white background to distinguish it from the other Quality List groupings.

Note that Quality List divides shares into current value categories ranging down from “Very Costly” to “Costly” to “Fair” to “Cheap” and finally “Very Cheap.” These evaluations are not intended to replace the more rigorous evaluation tools which are grouped together under a pale yellow wash further to the right of the timing section. Rather they are intended to provide the programme user with a quick alert, particularly when the Quality List is used in conjunction with ShareFinder’s Portfolio Builder facility. Here an ideal situation for a prospective buyer would obviously be a share which ShareFinder evaluated as “Very Cheap” and similarly noted in the second column that the dividend “Growth” rate was “Very high.” However, in the example, the best combination on offer at the time was Wesco which the programme priced as “Fair” and which offered a “Very high” dividend growth rate. The anthesis would be a share rated as “Very Costly” which offered a “Very Low” dividend growth rate.

Moving on to the trading strategy messaging system, a detailed explanation of the message cycle appears at the foot of this file. It is more important at this point, however, to understand why the Medium Term and Short Term outlooks differ from each other. If you consider the graph below, the blue line traces the daily price movements of ABSA shares while the red line reflects the short-term trend and the green line the medium-term trend.

The daily closing price had been falling from April 20 before finally bottoming on June 23 – the low point on the left hand side of the graph – but there was really no way of knowing from this chart at the time whether the subsequent rebound was a brief event or a permanent upward change of direction. So we apply smoothing in order to smooth out the daily bumps and try to discern a trend. The red Fourier line derived by analysing the 100 most dominant price cycles, thus provides us with our short-term smoothing.

When the red line thus turned upwards at the end of July, had there also been evidence of accumulative buying taking place accompanied by an upward acceleration of the rate of change of share prices, ShareFinder would have issued a short term buy message which would have enabled a trader to have bought the shares at R96 on August 7 and sold them again at R106 on September 4 when the red line turning downwards accompanies by short-term distributive selling and declining price velocity would have –prompted the programme to issue a sell signal.

Such trading is, however, not usually profitable because of the tax implications. However, the long-term investor seeking the most opportune buying opportunities for a chosen share, wants to buy at the bottom and hold for the long-term. He would thus follow the green Fourier cycle line which was generated by analysing the 20 most dominant price cycles inherent in the accumulated price data of this share. When the green line turned upwards at the start of September, he would have been presented with an ideal buying opportunity to pick up the shares at R95 when, had there also been signs of medium-term volume accumulation and an upward acceleration of price momentum, ShareFinder would have issued a medium-term buy signal. He would, however, have had no idea at the time whether the price downturn that was then occurring might not be developing into a trend. The astute investor would accordingly wait until both the red short-term line and the green medium-term line turned upwards and both messaging systems were saying “Buy”. If you study the graph you will see that this would have enabled our investor to buy at R97 at the beginning of October. It would have cost him R2 extra, but he would have been assured that his money would by then be reasonably safe.

You can understand the cycle of messages generated by both the short and medium-term systems if you study the sequence below:

“Prepare to buy”. You can buy on this signal but the risk of reversal is high.

“Buy”. You can buy on this signal since the risk of reversal has much diminished.

“Buy! Buy! Buy!” This is a confirmed buying signal but the gains are likely to be less that in the previous two cases.

“Your buying opportunity is nearly over”. You may still buy but the profit potential has diminished a lot.

“The optimum buying point has passed”. There is now very little short to medium profit to be made.

“Wait”. Take no action.

“A sell signal might be imminent.” A warning to be on the alert for a price down-turn.

“Prepare to sell”. There is a growing risk of loss.

“Sell” It is time to consider selling.

“Sell! Sell! Sell!” It is now urgent that you sell.

“Your selling opportunity is nearly over”. Since you have not yet sold, you might as well hang on now.

“The optimum selling point has passed.” It would no longer pay you to sell.

“It's too late to sell now.” You have missed the boat and might as well hang on for the next price recovery.

How to Invest with ShareFinder

From the long-term investor’s point of view, the most important feature of an investment grade share is its ability to deliver steady dividend growth and, as a consequence of this growth, steady capital growth which are together customarily expressed as the “Total Return”; that is the sum of the latest dividend yield and the compound annual average share price growth. Accordingly, at the head of each of these share groupings, a series of averages are offered and, working from the left, if you compare these you will see that as you move down through the groupings from the ultra-safe Grand Old Favorites to the risky but usually fast-growing Rising Stars, you will note that the average “Total Return” increases and so does the degree of risk.

If you believe you cannot afford to take any risk at all, you should be encouraged to choose shares only from the top “Grand Old Favourites” category. Conversely, those who because of their youth or comparative wealth believe they can afford a higher degree of risk in return for more rapid portfolio value growth, should choose from categories like the “Medium-Term Market Leaders”. Note also that in every sector, above-average figures are coloured green and below average red. (Note, ShareFinder’s Portfolio Builder facility will aid you to make appropriate share choices depending upon your age and ability to cope with risk)

Within all quality sectors, the most important derived quality statistics are displayed on the left of the spread sheet. Starting from the left we display the “Quality Grading” of each company, the Total Return average over the past five years (this is the 5-year price growth average plus the current dividend yield) a Risk Rating which compares the price volatility of a share with that of a benchmark gilt and a Bias measurement which compares the average rate of share price growth with its dividend growth rate, a calculation of the extent to which a share is either under-priced or overpriced relative to its balance sheet fundamentals.

In addition we list the latest Dividend Yield, Earnings Yield and Price Earnings Ratio. Then to the right are listed a mass of balance sheet fundamentals of which the most important are dividend and earnings growth rates over various periods, the return on capital employed, return on shareholders’ equity, average traded volume and so forth: some 50 different statistical measurements which are scored relative to their own averages and then totalled in order to determine the Grade of each share: our “at a glance” measure of quality that makes share selection very simple.

If you are starting out building your first portfolio, you can if you wish simply ask the Portfolio Builder to do the job for you. You can call it by left-clicking on the icon at the head of the ShareFinder display which looks like this :

Portfolio Manager

The window that opens looks like this: note the buttons on the right. Let us start by asking the Portfolio Builder to “Set Objectives”. The purpose of this option is to assist you to calculate how much income you will need when you retire and how rapidly you will need to grow your present capital in order to achieve your desired objective.
It will start by inviting you to examine the value and projected growth rates of your existing investments and to also take a guess at what the average inflation rate will be in the years ahead. From the answers you supply it will then help you to decide on your risk category and suggest what share groupings should be concentrated in your portfolio. In this example we have assumed that the programme-user has R1-million available for investment and is able to save R12 000 a year to add to this sum. Recognising too that

Using Portfolio manager

ShareFinder’s Portfolio Manager keeps track of all your investments across multiple portfolios, with a summary list providing up-to-date totals and valuations of every share. Transactions may be entered and edited with a simple editor and a handy notepad gives you a place to save notes about the portfolio for easy retrieval.

To access the Portfolio Manager, click the Analyse menu and choose Portfolio Manager, or click the corresponding button on the tool bar.

Click to display the summary list for a portfolio. The summary lists the total quantity of each security held in the portfolio and their current value.

Press + or – on the numeric keypad to display or hide the summary list. Display Elements

Column - Description

Name - Name of the portfolio or security. Every portfolio includes an associated cash account named *Cash.

Price - Most recent closing price, or yield in the case of gilts.

Quantity - Total quantity held.

Cost - Total cost across all transactions and inclusive of transaction charges where applicable.

Per Share - Average cost per unit, determined by dividing the total cost by the total quantity.

Value - Current value of each security held, and also the total value of the portfolio including cash.

% Gain - Percentage gain (positive) or loss (negative) compared with the total cost.

% Portfolio - Percentage of the portfolio that each security constitutes.

Notepad - For portfolio entries only, displays the first line of notes saved in the notepad. Double-click this column to edit the notepad.

You can rearrange the columns in this window by dragging the titles at the top of each column. You can make the columns wider or narrower by dragging the dividing lines between each of the column titles. To restore the columns to their original state, click the View menu and choose Reset Columns. Portfolio Menu

The Portfolio menu contains commands for creating, renaming and deleting portfolios. Many of the menu commands have equivalent buttons on the tool bar and keyboard shortcuts, as shown below:

Activity - Tool bar - Keypress

Create a new portfolio - - Ins

Delete a portfolio - - Del

Rename a portfolio - F2

Show summary list - - Keypad +

Edit transactions - - Enter

Portfolio Editor

The portfolio editor lists every transaction in chronological order and enables new transactions to be entered and existing information updated.

To edit transactions in a portfolio go to the Portfolio Manager and double-click on the portfolio, or click the corresponding button on the tool bar.

Display Elements

Column - Description

Date - Date of the transaction.

Name - Name of the security. For transactions that only affect the cash account, *Cash is displayed.

Action - Type of transaction.

Price - Price at which the security was bought or sold.

CR - Transaction value if it adds to the cash account, such as a cash injection or sale of shares.

DR - Transaction value if it subtracts from the cash account, such as a withdrawal or purchase of shares.

Balance - Balance of the cash account after this transaction.

Memo - User-defined notes.

You can rearrange the columns in this window by dragging the titles at the top of each column. You can make the columns wider or narrower by dragging the dividing lines between each of the column titles. To restore the columns to their original state, click the View menu and choose Reset Columns. Transaction Menu

The Transaction menu contains commands for manipulating transactions. Many of the menu commands have equivalent buttons on the tool bar and keyboard shortcuts, as shown below:

Activity - Tool bar - Keypress

Add a new transaction - - Ins

Edit a transaction - - Enter

Delete a transaction - - Del

Move transaction up/down - - Alt+Up/Alt+Down Editing Transactions

To edit a transaction after it has been entered, double-click it to open the transaction editor. Afterwards the account balance and summary will be updated to reflect the changes you make. Moving Transactions

When several transactions are recorded on the same date, you can change the order in which they appear, for example to match a stockbroker’s statement. Press Alt+Up and Alt+Down on the keyboard to move a transaction. You cannot move a transaction above or below a transaction with a different date. To do that, double-click the transaction to begin editing, and change its date. Pending Transactions

A transaction that is marked as “pending” is displayed with an italic font. Pending transactions are those for which an order has been submitted but not yet completed. They are excluded from the summary valuation of the portfolio.

Portfolio Print Options

To print a portfolio, highlight or open the portfolio, then click the File menu and choose Print, or click the corresponding button on the toolbar.

Press Ctrl+P on the keyboard to print the current portfolio.

Prints a list of shares currently held in the portfolio, as well as the cash balance and total valuation of the portfolio.

Transactions

Prints transactions in the portfolio. Choose the range of dates that will be printed from the date range options that follow.

Both

Prints both the summary list and transactions. Date range

Choose the range of dates that will be included in the transaction listing:

All transactions will be printed.

Custom datesSelect the first and last dates to be printed.

RecentlySelects all transactions within the last 7, 30, 60, 90, 180 or 365 days.

Calendar yearSelects all transactions in a calendar year from January 1 to December 31.

Financial yearSelects all transactions in a financial year if the computer has been set up with a financial year end that differs from December 31.

If you choose “Custom dates”, the first and last dates are initialised with the previous date range. It may be convenient to first choose “Calendar year”, for example, then change to “Custom dates” and modify the initial settings. Summary list excludes transactions after this date range

If this option is checked, ShareFinder will calculate and print the summary list up to the end of the chosen date range only and ignore any later transactions. This is useful, for example, for obtaining a historical valuation for tax purposes, especially when used with the “Financial year” date range. If this option is not checked, the summary list will always show the current valuation using the latest share prices, regardless of the date range.

Understanding the Company Fundamental and Quality lists

Note this help file consists of several parts. The first section offers an explanation about the construction of each column of data in the fundamental lists. The second and further sections are working examples of how one might employ this data to select a share portfolio that optimally suits your personal investment profile:

Within the ShareFinder Professional’s Fundamental List there are 46 columns of information relating to each share which fulfils the basic ShareFinder quality test of having enjoyed a minimum of five years of steadily-rising dividends. The Royals and Blue Chip categories, furthermore, are an exclusive band of companies which have delivered not less than 10 years of constantly-rising dividends.

Within the ShareFinder Professional, furthermore, the Quality List takes the selection process a step further, dividing companies into: the Grand Old Favourites which have satisfied all these qualities and, in addition, enjoy a market capitalization of greater than R10-billion, the Mid-Caps which have similarly fulfilled all the above criteria and enjoy a market capitalisation of greater than R1-billion and the Tightly-Held-Mid-Caps which are the same as the former save that very few shares are in public hands resulting in restricted trading numbers.

Companies which have delivered steadily-rising dividends for a minimum of five years but less than 10, are divided into the Medium-term Market Leaders which are companies which have achieved outstandingly-high exponentially-rising compound annual average dividend and earnings growth. The Rising Stars also enjoy exponential dividend and earnings growth but at a considerably lower rate than the Medium-Term-Market-Leaders.

Finally there is a category we have labelled the Maverick Market Leaders; companies which, without identifiable fundamental characteristics, have nevertheless achieved exceptionally high compound annual average share price growth over the past decade, a growth rate which moreover has accelerated further in the most recent five years.

For a detailed explanation of the development and use of the ShareFinder calculations, you should read Richard Cluver’s books ”Investment Without Tears”, “Footsteps to Fortune” and “The Philosophy of Wealth”.

So every company in the list is worthy of consideration. But which are the best of the best? And which of them are standing at the most attractive price currently? The Professional provides a plethora of data to help you find them. But which of the 46 columns are the most important?

By hovering your curser over individual column headings you may read an expanded explanation. Noting that you can move these columns around to suit yourself simply by left-clicking on a column heading and dragging it to the left or right, the display above shows how I prefer to display those that I consider the most important for my own decision-making. To the immediate right of them I lay the columns out as follows:

Finally, to the extreme right, I arrange the data as follows:

Given that the companies are already grouped into categories ranging down from the Grand Old Favorites which collectively carry the lowest investment risk, my first criterion is to determine that I always have around two thirds of my investments in the top three categories. This proportion will, of course vary depending upon individual circumstances which is why we have developed a risk self-assessment system within the ShareFinder Professional’s Portfolio Builder. You should routinely re-visit this assessment process at least once a year or more frequently if your financial status changes significantly at any stage.

Close

With the exception of the share name itself, the first column on the left represents the overnight closing price of the share. If you wish in addition to view the previous day’s opening price high, low and traded volume, you may do so by activating the Share icon (forth from the left on the tool bar) which looks like this:

A panel that looks like this will then appear and by activating the “List” button and typing in the first three letters of the name of the share you are interested in, you will be provided with the information you seek:

The next column offers ShareFinder’s quality grading of each share in the list. Given the large number of balance sheet statistics-derived data to be found in the ShareFinder Professional Quality List, it is extremely difficult for the average investor to work through the lot in order to determine which shares represent the best long-term investment prospects. We have accordingly developed a colour grading system which in each data column awards 2 points to the very best statistics which are coloured bright green in the tabulation. The least attractive statistics are coloured bright red and score minus 2 points. Black represents an average situation with light green and light red representing +1 and -1 scores. To the sum of these numbers we then add the statistics which have been shown to be the most important of all, the percentage growth rates of dividends over ten, five and one year. The result of this calculation is displayed in the Grade column in the example below. Thus, for example, the best-rated company in the Grand Old Favourites category at the time of writing was Sasol with a score of 12.1 followed by Remgro with 11.9.

Total Return

Data in these columns is presented by default in descending order of the Total Return offered by an investment. Total Return is defined as the sum of the five-year compound annual average share price growth rate and its latest dividend yield. Obviously then in circumstances where the risk of an investment is constant what most investors are looking to buy are shares whose overall attraction is the highest investment grade quality combined with the highest Total Return in the marketplace. Obviously, however, risk is not uniform. Indeed it is generally true that the higher the return, the greater the risk. But the marketplace is NOT always as efficient as investors expect it to be. Accordingly, the best investment is the one which offers the highest possible return for the lowest possible perceived risk. Thus, knowing that the Grand Old Favourites are on average the safest category to invest in, in the example above the best choice for a safe long-term investment, notwithstanding its very high Grading of 10.6 and equally high Total Return of 37.64%, would probably NOT be Naspers N because it suffers from an equally high Risk Rating of 49.74%. By compassion, the next best return is offered by Woolies which offers 37.18% for a risk of -10.84 but again has a low grading of minus 0.6.

Do not despair, the solution to this dilemma is to blend quantities of shares together so as to achieve the highest possible combination of these three elements. As a general rule, between 10 and 12 different shares should be teamed together to achieve the optimum combination of Risk, Return and company Grade.

Risk

Within the ShareFinder Professional, a share’s Risk Rating is calculated by expressing the price volatility of a share in a ratio with the average price volatility of the safest category of shares, the Grand Old Favourites. Therefore the lower this ratio the safer the share. However it should be recognised that there is a price to pay for low volatility and that is the fact that in bull markets, low volatility shares tend to under-perform with regard to share price growth

Bias

Very important to me is whether or not a share is a short-term “Market Darling” in which case the share price will be rising faster than is warranted by the underlying growth of dividends and earnings. This is measured by the column headed Bias which offers the relationship between dividend growth and share price growth with a high figure indicating that investor appetite for this share is exceeding the company’s ability to grow its profits. In the short to medium-term in a strongly-rising bull market a higher than average number in this column is attractive for it indicates that rapid share price growth can be anticipated. However, in the event of the company releasing some bad news at a time when the share market as a whole is looking weak, you do not want to own a high-bias share. Again the Professional applies a colour coding about the most desirable number which is 1. Thus from 0.75 to 1.25 is coloured green. From 1.25 to 1.5 and from 0.5 to 0.75 is black. Above 1.5 and below 0.5 is coloured red.

Fundamental Under/Over-pricing

Timing your share purchases is arguably as important as determining the inherent quality of the company you are buying into. Of course you can to some extent determine whether a share is either cheap or expensive by considering a price graph, but this can be a misleading approach. Should a company’s earnings per share and dividend payouts have risen constantly as is usually the case with blue chip shares, it could be a mistake to sit back watching the graphs in the expectation that the next cyclic downturn will take the share price back to the same sort of low point as it reached a year or two ago. It might, of course, but in that case it would represent and exceptional bargain.

The ShareFinder method of determining whether a share is Under or Over-priced is achieved by comparing a share’s Fundamental Index of Value (which as described above is derived by a composite of fundamental values) with its Dividend Yield (which is the market’s valuation of the share and is derived by expressing the annual dividend as a percentage of the ruling share price. This relationship is compared with the average Fundamental Index of Value of all investment grade shares and with the average Dividend Yield. A minus quantity in this column indicates under-pricing and a positive value indicates that the share is over-priced relative to its peers.

Allied with this are the Dividend Yield, Earnings Yield and Price earnings Ratio, all the most commonly used tests of whether or not a share is cheap or expensive. In these latter instances the trick is to compare each of these with the sector average which appears at the head of the column. Logically the most sought-after shares — usually those that are rising fastest in price — have the lowest Dividend Yields, lowest Earnings Yields and the highest PE Ratios.

Underpriced shares are coded green since they represent a buying opportunity and overpriced shares are coloured red. High dividend and earnings yields are coloured green since these shares are cheap and low yields are coloured red since these are expensive. In between we have gradings of light green, black and light red.

This is a quick (but not absolute) guide to selecting the shares which offer the best

total return in return for the lowest risk. It is determined by dividing the Risk by 5 and subtracting the result from the Total Return. It is intended to highlight particular investment situations. You should not, however, act on this signal alone.

Real Value %

The benchmark investment return of a country is the interest rate paid by its long-dated gilt edged securities. To place a valuation upon a share one thus needs to compare the total return it offers, i.e. the sum of its compound annual average price growth and its dividend yield, with the yield on a long-dated gilt. Since dividends in South Africa are not taxed and neither is the growth in value over time of a share investment until such time as it is sold (when capital gains tax is applied), we compare the sum of the former with the taxed current yield on a suitable long bond to determine its value. The figure in the Real Value% column is the extent to which the current share price compares with this derived real value.

Dividend Yield

To most seasoned investors, the dividend yield of a share is the quick rule of thumb guide as to whether it is fairly priced, cheap or expensive. It is calculated by expressing the sum of the dividends of the past 12 months as a percentage of the current share price. In the ShareFinder display you are able to form a better assessment of this value by comparing the current dividend yield with the average yield for each quality sector and the overall average of all investment grade shares.

Price Rating

ShareFinder also offers a quick price comparison with its Price Rating column which compares the current share price with its long-term Least Squares Fit trend line. So, for example, in the illustration below the line is generated on a ten-year Remgro price graph. When from mid- 2002 to the latest position on the graph, the share price began falling below the LSF line, it obviously was moving from being “Fairly priced” when it was intersecting the line, to “Cheap” and finally “Very Cheap” before it turned upwards once more in May 2003 climbing up from “Very Cheap” to “Cheap”. It hovered around “Fairly Priced” during the early months of 2005 before rising to “Costly” when it was well above its average upper limit to “Very Costly” at the time this graph was constructed.

Growth Outlook

ShareFinder similarly compares the compound annual average five-year dividend growth rate with the average for all investment grade shares to determine whether a share offers investors a “Very High Growth” option, a “High Growth” option, an “Average Growth” option, a “Low Growth” option or a “Very Low Growth” option

Dividend Growth Rate (Long, Medium & Short)

When making my own investment selections, I am primarily concerned that dividend growth rates have been high for an extended period and, most importantly, that they have long been rising exponentially, a situation that is typified in the Fundamental List by the Long-term dividend growth figure being exceeded by the medium term figure with that in turn exceeded by the latest dividend growth figure. Here, obviously, the higher this percentage trend the better. If this exponential gain is occurring, the Professional colours all three columns in green.

Dividend Growth Trend

Next, as a double check on this ten, five one ratio mentioned above, I like to see that the trend of the past three years of dividends is continuing to rise. Here the trend growth rate is compared with the average rate for all investment grade shares and coloured accordingly. Here the actual number listed in the column is less important than the fact that it is coloured green. Here one should note that while a latest-year dividend growth slowdown is a serious warning of possible trouble ahead, in the case of a highly-rated quality share it will only become a major concern if this decline becomes an established trend. So it is obviously more important that this rate is higher than the compound five year dividend growth rate that that the latest increase rate is higher

5-Year Earnings Growth Rate

Next, I look for situations where the five-year earnings growth figure exceeds the five-year dividend growth average. Where this is so, the Professional colours both numbers green. Where earnings exceed dividend growth, the implication is that the company is setting aside money to fund internal growth and, importantly in my view, these funds will ensure that in lean years the dividend trend will be continued.

Earnings Growth Trend

It is also important to know that, in the current financial year, corporate profitability is on track So the next item I check is whether the latest earnings per share are greater or less than the five year earnings growth average and, more importantly, whether the percentage comparison between this year’s interim earnings and last years interim is better or worse than the comparison between this and last years final earnings per share. Again in both these instances, the Professional colours these numbers green.

15Year Growth/5Year Growth

A classic test of long-term investment quality is how favourably investors have regarded a company over very many years. Thus I look for shares which have enjoyed the highest compound annual average price growth rate over 15 years. Those with above average overall growth are coloured green and those where the rate is very much above average are coloured dark green. Where the rate is close to average it is coloured black, below average light red and significantly below average dark red. Most desirable of all, when the five-year compound annual average price growth rate exceeds the 15-year growth rate, the same range of colour gradings apply with dark green representing the greatest improvement and dark red the greatest slow-down in growth.

Real Value

For visual display purposes the Real Value figure is separated from the Real Value % column. To reiterate its derivation; the benchmark investment return of a country is the interest rate paid by its long-dated gilt edged securities. To place a valuation upon a share one thus needs to compare the total return it offers, i.e. the sum of its compound annual average price growth and its dividend yield, with the yield on a long-dated gilt. Since dividends in South Africa are not taxed and neither is the growth in value over time of a share investment until such time as it is sold (when capital gains tax is applied), we compare the sum of the former with the taxed current yield on a suitable long bond to determine its value.

Gilt Relative Value

A more commonly used but, in our view, less accurate method of valuing a share is the one widely associated with US investment guru Warren Buffet. In this instance the earnings yield of a share is compared with the taxed current yield of long bond.

Gilt Relative Value %

The closing price of the share expressed as a percentage of the Warren Buffet Gilt Relative Value.

Intrinsic Value

This is the breakup value of the company after all loans and other financial commitments have been taken care of. If ever the share price falls below this figure you know you are buying value.

Intrinsic Value %

As with the Real Value % and Gilt Value%, ShareFinder also enables you to see the Intrinsic Value as a percentage of the closing price of the share.

Earnings Yield

When corporate earnings are divided by the number of shares in issue we derive the earnings per share which are in turn expressed as a percentage of the share price or Earnings Yield which, by comparison with either the quality sector earnings yield or the average yield of all investment grade shares, provides a means of gauging whether a share is under or over priced.

PE Ratio

This is the ratio of the share price to the earnings per share or, to put it another way, if all corporate earnings were employed to buy back the issued share capital of the company, this number then expresses how many years it would take to complete the transaction. A high PE is thus often a means of identifying the costliest and, usually by definition, the most sought-after shares in the marketplace.

Opportunity Index

The “Opportunity Index” is another ShareFinder pricing guide to medium-term trading opportunities. The higher this figure above average the greater the opportunity. It is derived by multiplying the current dividend yield by the 5-year compound average dividend growth rate.

Index of Value

An early version of the Fundamental The Index of Value, this index is derived by a proprietary process which gives varying weightings to a number of the fundamental statistics in order to create a number. Essentially, the higher the Index of Value the more attractive is the share as an investment for the medium-term. This index is the only one of its kind available in the ShareFinder Royals & Trader module Fundamental List and has accordingly been retained for the sake of continuity.

Under/Over Priced

Calculated in the same way as the Fundamental The Index of Value Under/Overpriced measure of share value – i.e. by comparing the index of value of an individual share with the overall index and the dividend yield of the individual share with the overall average dividend yield, we can determine that having regard to the inherent investment grade of the share, whether it is current cheap or expensive.

Future Gain

Under optimum conditions, an underpriced share might be expected to correct to its true value. In addition it will rise in price commensurate with any percentage dividend increase announced during the coming year. This measure represents the sum of these two observed phenomena.

Fundamental Future Gain

Here, using the extent of under/overpricing determined by the Fundamental Under/Over Price calculation, a similar future gain potential is calculated.

Market Capitalization

Expressed in billions of Rands, the Market Capitalisation of a company is its total market value. It is derived by multiplying the current share price by the number of shares in issue. Big cap companies that achieve high dividend and earnings growth achieve higher share price growth than small cap companies and so the Professional colours this column green where the market capitalisation is above average within its grading sector and red when it is below average.

Volume

The average daily traded volume over the past 90 days.

As a general rule the market favours the shares of those companies which are traded in sufficient volume to facilitate an easy sale. Tradability expresses the daily average traded volume as a ratio of the traded volume of similar quality shares.

Probably the most important of these three volumetric columns is the percentage of issued shares that is traded on an average day over the past 90 trading days.

Retained Earnings %

Usually a proportion of annual corporate earnings is retained either to fund business expansion or simply to provide a contingency reserve. Accordingly it has become a convention to assume that any gain in company profits is attributable to the re-investment of these retained earnings and to express this gain as a ruturn on retained earnings. Obviously the higher this figure the better and again the Professional colours the above average companies in green.

Return of Capital Employed

One of the oldest fundamental analytical tests of corporate good health is the profit it makes as a percentage of the funds invested in the company. Obviously the most desirable investments are to be found in those companies which consistently achieve high returns on invested capital. Above average percentage returns are coloured green and below average returns red.

Capital Return Trend

The most desirable companies are those where the return on employed capital is trending stedily upwards. Here the same gradient in colour from dark green for the highest returns through light green, black, light red and dark red take us through the gradings towards the lowest returns.

Return on ShareHolders Equity

Astute investors, however, realise that the return achieved on the capital sum that is attributable to shareholders, is arguably the most important of all. Thus the higher the figure in the “EquRtn” column the more desirable the share. Again we grade from dark green to dark red.

Current Liabilities Trend

Rising current liabilities in an investment grade company is a sign that the company is employing the funds of its creditors, usually as a source of interest-free development capital. Where such increases are associated with steadily rising profits, this is a desirable attribute and so above average figures are coloured green and below average figures are coloured red.

Annual Average Price Volatility

The extent to which the price of a share oscillates about its long-term mean is the basis of investment risk calculation. The higher this figure the greater the risk associated with it. High volatility numbers are accordingly coloured red and low volatility numbers green. Note, however, High volatility means that I should be able to buy low and sell high within the annual price cycle.

Price Volatility Trend

A rising volatility trend other than in a medium-term market bull cycle, is not desirable and so ShareFinder punishes this phenomenon by scoring it red. How to use the ShareFinder Quality List

Derived fundamentals appear at the extreme left of the display. In each case there is an overall average and a group average. Every fundamental statistic is colour coded from bright green through light green to black(average) to light red and dark red. Bright green is the most desirable statistic. In the example below, Remgro is graded the best of the Grand Old Favourites.

The next figure is the Total Return, that is the 5-year compound annual average price growth rate of the company together with the current dividend yield. Note that despite its very high fundamental rating, Remgro offers a comparatively low total return of 18.88% but its price volatility “Risk Ratio” of –28.11 makes it clear that this is one of the safest companies to invest in on the JSE. Note that Remgro’s extremely low “Bias” figure of 0.29 emphasises that the 5-year compound dividend growth rate of this company is considerably greater than its compound price growth, which reinforces the view that in the event of an overall market retracement, Remgro is unlikely to suffer as badly as the average company. Furthermore the “Fundamental Underprice/Overprice measure at –131.15% underscores the fact that the share is comparatively cheap. Yet a Dividend Yield of 2.5 against a group average of 2.7% belies this fact. Furthermore the “Growth outlook” suggests the share is “Costly”.

To understand this apparent paradox, it would pay at this stage to ask ShareFinder to construct a Least Squares Fit line on the Remgro price graph. Such a line is constructed by invoking the trend line icon that looks like this:

Next you left-click on a suitable point on the left of the graph and then while still holding down the left-hand mouse button, dragging the cursor to the right to a second point of choice. Once the trend line is drawn, hover your cursor over it and right-click to produce a dialogue box that looks like this:

Next left-click on the “Auto-Fit” label and the trend line will become a least squares fit line i.e. a line that intersects the greatest possible number of graph turning points. The Remgro graph looked like this:

Now to re-cap, when one compared a Dividend Yield of 2.5 with the group average of 2.7% the implication was that the share was in fact not cheap as implied by the Underpriced/Overpriced figure. Furthermore the “Price outlook” suggested the share was “Costly”. To understand this apparent contradiction one must accordingly understand that notwithstanding its extremely low dividend yield, Remgro ws nevertheless comparatively cheap because of its outstanding fundamental quality relative to most other shares on the JSE, However, relative to its own long-term average as illustrated by the least squares fit mean line, it was at that stage comparatively expensive. The conclusion is that a long-term investor would have been advised to hold off buying.

Next let us consider the “Price” and “Growth Outlook” messages which are intended as a quick guide for long term investors.

Ideally one would be searching for shares that are both cheap and offer very high growth and, provided they also offer the right Grade, Risk, Return and Bias qualities, one might next double left click on the share to view a technical analysis graph as well as be guided by both the Medium-Term and Short-Term outlook messages in order to choose the best buying moment.

I shall deal at length in the section on Technical Analysis about the indicators used in the ShareFinder fixed window analysis. Meanwhile note that ShareFinder was sensing that a buying point might be approaching.

Returning now to the ShareFinder Quality List, the next three columns allow the investor to see what dividend growth rate he might be able to expect from his investment. The columns headed Long, Medium and Short accordingly offer the compound annual average dividend growth rates over 10 years 5 years and the past year. Here one obviously seeks the highest rate and, better still, a situation where the latest rate is higher than the 5-year one and the 5-year rate is higher than the 10-year one: such is proof of management excellence.

The dividend growth trend should, moreover, be considered since this is a vital barometer of the future. Following a truly spectacular dividend increase in 2001, Remgro’s rate of increase had been progressively slowing. Accordingly the Remgro Dividend Trend figure of –31.8% is highlighted in red as a warning.

To get a perspective on the Dividend Trend one can left click on the icon in order to view the analysis below:

In the composite it can clearly be seen that although the Remgro share price has climbed fairly steadily for the past 9 years, relative to the JSE average it had been falling since late 2002. Furthermore the green trace in the third graph showed that the Final dividend growth rate had also been slowing since March 2002 accompanied by a decline in the earnings per share growth rate in the fourth graph.

At this stage the investor might be prompted to check ShareFinder’s long-term technical projection for Remgro and note the likelihood that the price growth rate might be moving into a sideways trend with possible downside potential early in the new year!

And, returning to Remgro’s fundamental statistics there is both good and bad as disclosed by the even spread or red and green figures.

Note that both the 5-year compound and 1-year earnings growth rates are coloured red because they are lower than the respective dividend growth rates. Clearly dividends cannot for long outpace earnings. Something has to give!

There is no 15-year compound annual average price growth available, but the 5-year figure is coloured red because it is less than the dividend growth rate, a fact we have already observed when we noted the low Bias figure. ShareFinder accordingly rated Remgro as fifth out of eight in its “Buyers Guide” The closing price of Remgro shares was R126.95 on the day this snapshot was taken but, by comparing the Total Return of the share relative to the taxed total return of a long bond, ShareFinder determined that the shares had a “Real Value” of R522.05. They were, in other words standing at only 24.32% of their Real Value.

Many investors, however, prefer, the Warren Buffet “Gilt Relative” approach to valuation and so ShareFinder offers these figures as well, noting that this valuation set Remgro at R237.30 which meant it was then standing at 53.5% of its true value.

Another means of determining share value is the Intrinsic Value: this is the breakup value of the company after all loans and other financial commitments have been taken care of. If ever the share price falls below this figure you know you are buying value. ShareFinder also expresses the Intrinsic Value as a percentage of the closing price of the share.

Other important pricing guides are provided by the Earnings Yield and the Price/Earnings Ratio. A share is considered cheap if the dividend yield is higher than average or the PE lower than average

The “Opportunity Index” is another ShareFinder pricing guide to medium-term trading opportunities. The higher this figure above average the greater the opportunity. It is derived by multiplying the current dividend yield by the 5-year compound average dividend growth rate.

The “Index of Value” is an early version of the ShareFinder Professional’s Grading system which has been retained because it is still favoured by many programme-users as a medium-term value guide. The higher this figure the more attractive the share.

By comparing the Index of Value of a share with the overall average index and comparing the dividend yield of the share with the average dividend yield, ShareFinder calculates whether a share is either Underpriced of Overpriced: “Und/Ov” and hence calculates the likely future gain/loss in the forthcoming 12 months.

ShareFinder performs a similar calculation of “Fundamental Future Gain” using the “Grading” as a basis of the calculation.

The current “Market Capitalisation” of a company is determined by multiplying the share price by the number of shares in issue. The market tends to favour the “Big Cap” shares: those of companies with a Market Cap greater than R10-billion.

The market also favours shares that are freely traded. Accordingly the higher the “Tradability” of the share the better its price performance over time.

Of greater interest to fundamental analysts, however, is what percentage of the Issued Share Capital is traded. ShareFinder accordingly derives what percentage of the issued share capital is traded within a 90-day period. The higher this figure the better.

The extent to which corporate profitability is influenced by the use to which undistributed profits are put, is an important measure of how efficiently the company is run. Thus the higher the figure in the “RetEarn” column the more desirable the share.

One of the most important tests of corporate performance is the return achieved upon the capital invested in corporate productive capacity: the “Return on Capital Employed”. The higher this figure the better.

Of even greater importance, however, is whether the return on employed capital is rising or falling. The higher the figure in the “CapRtTr” column the better.

Astute investors, however, realise that the return achieved on the capital sum that is attributable to shareholders, is arguably the most important of all. Thus the higher the figure in the “EquRtn” column the more desirable the share.

An increase in Current liabilities can be worrying if a company is not trading profitably, but if it is a means towards generating interest-free working capital it obviously points towards smart management. Thus in investment-grade shares the higher this figure the more attractive the share.

Stable price growth rather than price Volatility is what the long-term investor seeks. Accordingly the lower the figure in the “Volatil” column the more attractive the share. Similarly a trend towards lower price volatility is preferable. Thus the most desirable figure in the “VolTr” is a low one.

In summation then, the most desirable choice in any category of the ShareFinder Quality Shares List is a series of numbers coloured green.

This is reflected in the ShareFinder Professional’s share grading system where the higher the number the more attractive is the share from the long-term investor’s point of view

There can be no substitute for working through all the fundamental tests, but if you are in a hurry, ShareFinder’s colour gradients and the grading system does all the work for you. Putting a fair price on a share

In the above two articles we have described the 46 statistical columns that are generated within the ShareFinder Professional module’s Quality List and provided a working example of how to use them in order to determine whether or not a share represents an attractive investment. ShareFinder makes this evaluation process very simple by applying a colour coding to each statistic. Thus the most desirable situation is a bold green number, progressing to light green to black (which represents the middle or average range) to light red and finally bold red for the least desirable.

These data columns are by default displayed in descending order of the “Total Return” offered by an investment in each share. However you are able to sort each and every column in either descending or ascending order simply by left-clicking on the title of that column.

Long-term investors, might prefer however, to sort the data in respect of ShareFinder’s share “Grade” process which is arguably a more reliable guide the comprehensive quality of a company. This process is essentially a summation of the green and red columns. It is created by first of all adding up all green numbers appearing in the Long, Medium and Short dividend-growth columns and dividing the result by 10. Next we evaluate each of the colour coded statistics by awarding a value or 2 to all bold green numbers, 1 to light green, 0.5 to black, -1 to light red and – 2 to dark red. The sum of all of these is added to the number derived from the dividend growth calculation in order to create a Grade value.

Assume you have left clicked on the Grade heading in order to display shares in descending order of long-term investment quality, you will now want to know whether the share is under or overpriced relative to its peers. So lets start by looking to the right to ShareFinder’s Fundamental Under/Overpriced column. At the time of writing, FirstRand at -71.6 was, relative to the Index of Value applied to its peers, the cheapest share in the Royals category. You can check this by contrasting this value with the Group Average at the head of each section column. Thus, at the time of writing the Group Average of the Royals category of shares was – 20.4%. Thus Firstrand was three and a half times cheaper than the average Royal and undoubtedly attractive.

I would at this stage double left click on the share of my choice, in this case FirstRand in order to put up a medium-term graph of the share’s price performance together with ShareFinder’s three fixed-window technical indicators to get a technical analysis view of whether or not the share was cheap from a long-term point of view. My quick-view method of doing this is, once a graph is displayed, to hit the star button on my keyboard in order to give myself a long-term view of share price performance.

and right click in that line in order to be able to select the “Auto Fit” process.

In the case of FirstRand shares then provides me with a Least Squares Fit line; that is a line which intersects the greatest possible number of graph turning points in order to provide me with an effective compound annual average share price growth rate. If you hover your cursor over this line you will see a stylised hand appear and, attached to it a box containing the compound annual average share price growth rate, in this case 19.7%p.a.

Now if you add that number to FirstRand’s current Dividend Yield of 3.7% you will see that this share is offering investors a Total Return of 23.4% which, since dividends are not taxed in South Africa and share price growth is untaxed until you eventually sell the shares and have to pay Capital Gains Tax, is 23.4% tax free which makes FirstRand very attractive indeed.

But are the share cheap? Certainly they are cheap relative to other Royals on a price for quality basis, but a long-term investor will very likely view the fact that the share price has recently risen far above the Least Squares Fit trend line as proof that it, and thus by definition most of its peers, were currently rather expensive notwithstanding the declines of the past few months as evident on the graph. Your long-term investor will be wondering whether the share price might not in the medium term very likely retreat towards the least squares line which, after all, had been its average trend for nearly 20 years.

Well to continue this discussion further, I would at this stage click on ShareFinder’s “Projection Graph” feature that looks like this:

In order to see whether the programme believes is likely that the price will retreat back to the trend line sometime during the next 12 months.

Here, noting the Fourier Projections, it would seem probable that although in the short-term the share price might be expected to fall a little more, Fourier projection does not envisage this share falling back to the red trend line in the foreseeable future.

So we have a share that is cheap relative to its peers, a fact borne out by the fact that the Total Return figure of 23.68 % is higher than that of most of the Royals. But is it cheap relative to other forms of investment? Would it not, for example, be better to be invested in a gilt? Well ShareFinder’s Fundamental list provides you with three additional valuation tools:

   The Intrinsic value. The higher this figure as a percentage of the current market price, the cheaper this share actually is in real terms. Intrinsic Value is the underlying value of each share assuming all assets were realised at current book value and all debts were re-paid. Normally share prices are considerably higher than this value. At the time of writing the average quality share on the JSE was priced at almost exactly its intrinsic value. Firstrand was, at the time of writing however, priced at 3.38 times its intrinsic value. This implies that Firstrand was abnormally expensive.

   The Gilt Relative value is a popular international guide to the fair price of a quality share relative to a long-bond and I would never want to pay more for a share that the figure in this column. Here the earnings yield of the share is contrasted with the current yield on a long bond. Thus, for example, at the time of writing, when the average earnings yield of a top quality share was 9.1% and the yield on the E170 long bond was 9.02%, then after applying a 40% marginal rate of tax to this yield, the E170 was offering an after-tax yield of 5.412%. Thus the average Royal was priced at 54.12% of the taxed return on the E170 or, to put it another way, it was standing at a 43.88% discount to the E170.

   My own Actual Gilt Relative Value takes into the account compound annual average share price growth and the dividend yield as the two elements that over time enrich a shareholder. In my calculation I compare this composite yield with the taxed return on a long bond. If, in times of market uncertainty you elect to invest in bonds instead of shares, this is the return you will be foregoing, but do not expect ever to pay this price for a share unless it is grossly overpriced. At the time of writing, FirstRand shares were standing at only 22.85% of this value compared with an investment grade average of 18.06% which obviously made FirstRand a little more expensive than average.

   Finally, ShareFinder provides three classic valuation tools; the historic dividend yield of the share, its earnings yield and the price earnings ratio. Here the numbers themselves are relatively unimportant except inasmuch as they compare with the sector and overall market averages which ShareFinder calculates and displays in italics at the top of each column. A low PE or high dividend and earnings yields suggest that the share is out of favour in the marketplace which, when it coincides with good quality attributes, makes it a potentially great investment opportunity….or conversely a high PE or low dividend and earnings yields suggest that the share is expensive.


Two other bits of information are available in this display; the Opportunity Index which is a number calculated by multiplying the five-year compound annual average share price growth rate by the current dividend yield in order to highlight shares offering a short to medium-term buying opportunity. Here, for example, at the time of writing FirstRand offered an Opportunity Index of 88.13 compared with an investment grade share average of 126.62 which implied that this share was offering a better buying opportunity for investment purposes than the average investment grade share.

Finally, the display calculates the likely Future Price Gain of the share. It takes the simple view that if a share offers investment grade quality and is underpriced, the market will wake up to this fact and over time restore it to its true value. In addition, since there is an absolute relationship between the share price gain and the dividend gain, then this percentage will be added to the amount by which the share price recovers. USING THE FUNDAMENTAL LIST TO SELECT A PORTFOLIO

The ShareFinder Fundamental List is the starting point for everyone who intends either building an investment portfolio from scratch or polishing up an existing one. Sadly, it seems that the average programme user views it as a bewildering array of numbers that is just too complex to understand and accordingly Mr Average opts just to buy from the daily Medium Term recommendations.

That approach, if I might say so, is dangerously haphazard. So let us start with the most important step of all. But before you do anything else, I believe it is vital that you take stock of your own attitudes towards investment. So let us start by recognising that most of the time investors fall into three distinct categories: short-term traders, medium-term investor\traders and long-term investors. For these three we have developed respectively the ShareFinder Trader, the ShareFinder Royals module and the ShareFinder Professional.

By definition, the person who uses the share market exclusively for trading is very different from the average user of the ShareFinder software. He is usually relatively young with very little investment capital behind him and, most importantly, he has a stomach for taking risk. The older one becomes and, accordingly the less one’s capacity to recover from a major capital loss, the less one should be prepared to indulge in risky short-term trading. Furthermore, even within this group of youthful players for whom the adrenalin rush of risk taking is almost more important than the profits to be gained from the process, there is a smaller group who trade futures, options and warrants where one’s investment capital is usually leveraged by a factor or about 10 and where the risks and the rewards are commensurately greater.

Then we have the medium-term trader, the individual who seeks to understand risk and cater for it by considerable vigilance, whose purchases would be predominantly from within the ShareFinder Royals module’s Fundamental List’s Aristocrats and Rising Stars categories which over the past five years respectively achieved compound annual average share price growth rates of 39.66% and 17.13% as opposed to the safer but less exciting 27.44% compound growth rate achieved by the Royals category and the relatively plodding 8.81% compound annual rate of the Blue Chips. By trading this sector using the ShareFinder Medium Term recommendations as their principal guide, we have observed that gains of better than 33% are on average possible in an average period of 22 weeks.

Finally we have the long to ultra-long term investor who would rather take no risk at all and is prepared to waive a portion of the possible portfolio growth in exchange for the virtually absolute security of a category of shares that I term the Grand Old Favourites, shares with relatively high compound annual average growth rates extending over many years. Experienced braver souls within this category often opt to blend in a portion of high growth shares in order to boost the share price and dividend growth rates without excessively increasing the risk profile of their portfolios: and the proportions with which they blend in these riskier but more profitable shares should exactly mirror their attitude to risk. If it does not then it is clear that they have not accurately thought out their investment philosophy.

Risk, meanwhile is a factor of investor concentration. If for example you want to invest your retirement gratuity and sail off into the sunset on a long-dreamed-of round the world yacht, then you should concentrate solely on the Grand Old Favourites. If, on the other hand, you are intellectually active and have at least an hour a day available to keep abreast of the financial Press and for the study of your share portfolio, then regardless of your age, you might opt to factor in a reasonably high percentage of Aristocrats. The important thing is to clearly understand your personal circumstances and to invest accordingly.

Sharefinder is tailored to every type of need. It is up to you to decide how you need to use it.

Traders pretty well understand, I believe, that to most effectively use the ShareFinder Trader’s daily recommendations, only two criteria really apply. The daily recommendations are ranked in descending order of probable accuracy. In other words the shares appearing at the top of the list are the ones most likely to move in the predicted direction. The would-be trader accordingly needs only to be selective inasmuch as he should choose from the top end of the list those recommendations which ShareFinder calculates are likely to produce the highest percentage gain.

An additional point is that it is generally wise to go with the flow of the market. In other words, a trade is most likely to be successful if the market is predicted to move in the same direction as the individual share that you are considering. Additionally of course, ShareFinder provides over 100 technical analysis tools for those who would like to use the selections as a basic starting point; so that those who prefer to do so might apply their own favoured verification tests. Furthermore the programme allows one to construct multiple indicators of indicators in order to take such individual testing to an extreme extent.

Now to some extent, everyone but the most cautious of souls is a trader. Given a sufficiently attractive situation where there is a great deal of certainty and the probability of a large percentage gain to be made, most people will do a trade. Furthermore, given the statistics that we have observed about the success rate of the Trader programme; that 84% of trades recommended by the programme were profitable and that the average gain was 42.26% in an average period of 25.5 trading days, it is understandable that many newcomers in particular, choose short-term trading as their favoured method.

For such people one should note that the most profitable trades tend to be in the so called “penny stocks”, the cheapest shares on the market that are predominantly to be found on the VCM and DCM boards in which price movements of 100% in a day are not unheard of. Of course this is also the riskiest area of the market and so, if it is here that you wish to dabble, then it is vital that you divide your trading capital into a series of bite-sized portions. My own rough rule of thumb is the Ten Ten Ten approach. Briefly explained, if you had a total capital of R100 000 to commit to the market, you would set aside one tenth of this for trading and you would divide that tenth into ten equal sums. The balance of R90 000 you would then commit to a medium to long-term portfolio.

Provided you work in this way, less than two percent of your total investment capital is at risk of loss and, furthermore, provided you apply a “Stop Loss” approach to your trading, you will further reduce your risk to just one percent. To apply the stop loss technique, let us assume you bought into a trade situation paying 10 cents a share and hoping to double your money; you would set your stop at 5 cents. In other words if, instead of rising, your shares fell to 5 cents you would immediately sell out.

Medium-Term Recommendations

When it comes to longer-term investment, the Royals module was originally developed for long-term investors. Increasingly, however, it has proved itself to deliver the best results when operated as a medium-term trading programme. Hence the observation that the average Royals selection reaches a major price peak every 22.48 weeks offering an average gain of 33.47% which annualises to 127%. Programme-users who ignore such peaks and continue to hold their shares to the next major peak, on average see gains of 107.49% in an average of 74.4 weeks which annualises to a lower gain of 75%. Held even longer, the gain will of course eventually come down to the long term average growth rate of the share itself which, in the case of the Royals is an average currently of 27.44% a year over the past five years, slowing further to an average of 16.98% over the past 15 years.

There is, thus, clearly a price to be paid for opting to be a long-term investor without clearly thinking out your personal strategy. Here, the point should be very self-evident, that if you are the kind of person who hates selling your shares, then you need to make sure that the shares you initially invest in are going to do more than just deliver a short to medium-term burst of price gains.

Why, you might ask, would someone be prepared to forego portfolio growth of 127% a year simply because, on the surface, they appear too lazy to indulge in the comparatively leisurely exercise of medium-term trading? Well the point that is inclined to escape the average private investor who invests a few thousand Rands at a time and finds it relatively easy to get the shares that he wants, is that wealthier investors who habitually buy in blocks of a few million Rands, often find it quite difficult to get the quantities of shares that they seek. Having assembled a R20-million portfolio, they are not as easily inclined as others to sell their holdings once again in order to achieve a 33% gain even though the profit would be equal to more than most ordinary folk earn in a year.

It is thus almost axiomatic that the more you have the more seldom you will want to trade, which is why in recent years it became increasingly evident that we needed to develop the ShareFinder Professional, into a programme whose major attribute is a greatly expanded Fundamental List and within which all our current development work is being invested.

Long Term Investing

By definition the sort of company that would make up the bulk of such a portfolio would satisfy four basic criteria. First and foremost it will be a “Big Cap” company whose market capitalisation exceeds R10;-billion and it will have achieved a high rate of dividend growth for a minimum of ten consecutive years. Furthermore that dividend growth rate will be accelerating exponentially; i.e. if the dividend has been rising at say 24% a year on average for the past decade, it will have accelerated to say 31% in the most recent five years and in the past year it will have exceeded even that figure. In the current Royals list, the most recent year’s dividend growth rate was, for example 46%.

Ideally, such Grand Old Favourites will also have exhibited earnings per share growth rates even higher than these averages, thus guaranteeing the probability that the dividend growth rates can be maintained during recession years.

How to find such shares? The Grand Old Favourites can as a rule ONLY be found within the ShareFinder Royals and Professional modules. So go to that list and left-click on the Market Capitalisation heading. You will now see these shares arranged in descending order of their market capitalisation.

Next look to the left to the Long, Medium and Short columns for those companies where all three sets of numbers are coloured green. Finally look to the right of those three columns for those where the 5-Year Earnings growth figure is similarly coloured green. If you find such a company then you have a Grand Old Favourite.

As a final test, look across to the left to the 15-Year Growth column. Here, the companies coloured in green are the best compound annual average share price performers; these are the shares you want to buy for the long term.

HOW TO TIME YOUR SHARE PURCHASES

It is one thing to have decided WHICH shares you would like to include in your investment portfolio and quite another thing to buy them. Timing is everything for, if you buy at the wrong point in the price cycle of the average share, you could be a VERY long time waiting before you enjoy any worthwhile gains.

Your essential market timing tool is the ShareFinder fixed window analysis and understanding it requires a basic grasp of how the various indicators work. To provide a graphic understanding, I have reproduced a ShareFinder analysis which highlights the point when in April 2003 the JSE Industrial Index turned upwards to signal the end of one of the longest bear markets of recent history.

Examining this display it can be clearly seen that the Velocity Indicator turned upwards on January 30 followed by the Mass Indicator which turned upwards on February 18 while the Volatility Indicator began rising sharply on March 3 to peak on March 21 all in anticipation of the JSE Index itself finally turning upwards on April 1.

Now it needs to be appreciated that in designing the fixed window we wanted to create a “Ready, Steady, Go” sequence of signals with each indicator drawing its conclusions from a quite different set of share market trading statistics. Thus, the proprietary RCIS Velocity Indicator derives its decisions from the Momentum or Rate of Change concept which sequentially compares the latest price of a security with that of a fixed number of days in the past. Under exhaustive testing it has shown itself to accurately foretell future price direction changes earlier than any other momentum-based indicator or indeed any of the conventionally-used indicators which can be found in this and in competing software. It can thus always be relied upon to provide a very early warning of impending price direction change. It is, furthermore, Fourier smoothed in order to make it far easier to interpret. Note that the Velocity Indicator had bottomed back in January 2003 signalling that “bottom fishing” bargain hunters had at this stage begun to drive prices of leading shares upwards at an accelerating rate which had caused the Velocity indicator to turn upwards.

Second in the sequence is the Mass Indicator which draws its decisionmaking from the principle of volume accumulation\distribution that was first enunciated by New York analyst Mark Chaikin in his On Balance Volume indicator. Under computer optimisation testing, the proprietary RCIS Mass Indicator has proved itself consistently more reliable and earlier-signalling than the OBV Indicator which in this example only signalled an upturn of the JSE Industrial Index 16 days later on April 25. The strong upward surge of this indicator in mid-February confirmed that more accumulative buying was occurring than dispersal selling. Note, the Mass indicator often is the first indicator to turn upwards at the end of a bear market, but as in this instance this is not necessarily always the case. Note that though the Mass Indicator is also Fourier smoothed to facilitate easier interpretation, the data from which draws its conclusions are quite different from that used to perform the Velocity calculation and so when the Mass and Velocity indicators both begin signalling a change of market direction, they are confirming one another’s findings, thus rendering the conclusion that more accurate.

Then in final confirmation of the pending market direction change, the Volatility Indicator began surging upwards on March 3 indicating that the daily difference between the highest and lowest values of the JSE Industrial Index was rising steadily, highlighting the growing tug of war between the bulls and the bears as optimism gradually began to overcome pessimism. Note that Volatility, which is a measurement of the daily spread between the highest and lowest prices, tends to rise whenever there is a growing sense of uncertainty in the market. Thus a rising Volatility indicator late in March 2003 in this instance was the final signal foretelling that the market would turn upwards as it did just a week later at the end of March.

Now, turning to the assumption that you have as a medium-term investor, done your homework with the ShareFinder Professional’s Fundamental List and have decided that you would like to include as a sweetner in your portfolio the top medium-term dividend growth share in the Aristocrats list, Amaps, which had at the time of writing achieved a remarkable compound annual average dividend growth rate of 125% a year since 2000. That was the highest growth of all the companies listed in the Fundamental List and the fact that this performance had not led to a commensurate share price growth rate might lead one to conclude that catch-up time was overdue. The Fundamental list also suggested that given its grading value of 47.3 compared with an Aristocrats average of 5 and a dividend yield of 3 compared with an Aristocrats average of 3.8, Amaps shares were currently 57.7% underpriced and likely to gain 276% in the year ahead if this share was accorded its true worth.

Now granted the Aristocrats are a riskier group than the Royals and so one would expect them to be a bit underpriced, but 57.7% is surely too underpriced? Well let us look at the Pricing tools provided within the Fundamental List starting with Amap’s Intrinsic Value which is R1.19 compared with a then current share price of R5. Since Intrinsic Value is the value of all assets per share after all debts have been deducted, the implication is that the market has accorded this share a “Goodwill” of R3.81 per share. Were Amaps to be liquidated for any reason, then the best shareholders could expect to receive would be R1,19. So by that test the share was expensive. Nevertheless it is worth noting that the Intrinsic value of the average Aristocrat was 31.48% of its price whereas Amaps was priced at 23.87%. So it was a lot cheaper than its peers.

Next, US fundamentalist Warren Buffet whose stock exchange investing has made him the world’s second wealthiest man is said to argue that any share standing at less than twice its bond relative value is worth considering as a buy. Here we compare the tax-free return on the share (earnings per share) with the taxed return on a long bond (in this case the E170) which implied that the share was standing at only 34.79% of the return an investor would receive if he had instead put his money into the E170. This made it cheap.

My own approach to the Gilt Relative equation is to compare the average annual total return on a share with that of a gilt. So I take the compound annual average price gain and add to that the compound annual average dividend growth rate. Since both of these factors together represent the effective annual enrichment of the shareholder and since neither are taxed until the shares are sold, I choose to compare this total with the taxed return on a gilt. On that basis, Amaps was standing at only 10.26% of its “Real Value” and that was only a third of the Aristocrats average of 29.56%. So by my tests it was exceptionally cheap.

Now let us have a look to see what technical analysis tells us about this share., considering the Amaps graph below, noting that ShareFinder’s own analysis at the top of the graph was that the “Market for this share” as measured by the green line of the long-term Fourier line in the topmost graph was in a “long-term falling trend”. But it also noted that the Mass indicator was sensing the beginning of accumulative buying while the Velocity indicator had bottomed and upward price velocity is being detected. However the Volatility indicator was still trending down which suggested that this is an early stage in the price recovery process.

My next step is always to look at the short-term ShareFinder fixed window analysis suggests is likely and here in the second fixed window analysis there is an implication that short-term weakness was likely with the share price likely to fall to R4.82 within the next three weeks.

Noting that the ProfessionaI’s Projection Graph pictured below envisages the price of these shares moving up to R5.85 by September 19, I would accordingly have advised my broker that I wanted to place an order at between the current R5 and R4.82.

The database used by ShareFinder 4 and beyond is vastly different and not compatible with earlier ShareFinder products. A new database with 2½ years of historical data is included with every new ShareFinder program, and more historical data may be purchased. The new database format takes advantage of new operating system features to improve efficiency and performance.

ShareFinder stores daily prices and trading volumes for every listed share in the market. The data is stored in a single indexed file which, accompanied by share and sector information files, make up the complete historical database. Provision is also made for additional information to be stored in future, such as fundamental statistics and company reports.

Updating the Database

In order for ShareFinder to produce accurate recommendations, the database needs to be updated each day with the latest stock market information. Updates are provided by one of a number of data providers, usually a short while after the close of market each day.

Data providers use varying methods to transmit each day’s data to their subscribers. Usually the procedure involves retrieval of an update file containing the market data and maintenance instructions that ShareFinder uses to keep up with new listings, delistings, corrections and so on. The specific update method for each data provider is discussed separately in this help system.

How to Update ShareFinder’s Database

InvestorData sends a Zip file attached to an email each day after the close of market. The Zip file contains a header that allows ShareFinder to keep track of new listings and delistings, correct errors, etc, and a data file that contains all the share prices and volumes for the day.

In order for ShareFinder to update its database, you must extract the file attachment from the email message and save it into a special folder on your computer. ShareFinder checks for files in that folder every time it starts up, and incorporates any new information it finds automatically. If there is more than one update file available ShareFinder will process all of them beginning with the oldest. This might arise if you have not downloaded email for a few days.

Update procedure

1.Start your email client program (Outlook Express, Eudora, Pegasus Mail, etc) and download any new email from your Internet Service Provider (ISP). The exact method varies depending on the email program and the ISP. Contact your ISP if you need help with this procedure.

2.Check your new email for messages that were sent by InvestorData. Your email program might have an indicator to show that the message(s) have attached files, such as a pin or paperclip symbol.

3.Extract the attached files and save them into your Update files folder. This is normally the C:\ID folder, unless you elected to use a different folder.

4.Repeat step 3 for every InvestorData email that contains a file attachment, if there are more than one.

6.Start ShareFinder by clicking the ShareFinder icon on your desktop or in the Start menu.

7.ShareFinder will find that there are new update files waiting to be processed, and will ask if you wish to process them. Click Next to allow the update to begin. The update procedure takes several seconds to finish. If you click Cancel instead, the update will be postponed until later.

8.After all the files have been processed, ShareFinder will continue loading. Depending on the Preference settings, the update files will either be moved to an archive folder or deleted.

If there are no update files, ShareFinder simply skips this update procedure and loads normally.

Updating Out Of Sequence

When more than one update file is available, ShareFinder always processes the files in chronological date order, beginning with the oldest, to minimise the effect of out-of-order processing.

Out-of-order processing happens when ShareFinder processes data for a date that precedes the latest data in the database. This can cause glitches in the database and should be avoided. Refer to the following illustration for an example:

The share price history for ACMEACRES in ShareFinder’s database up to the 10th of the month is: 1000, 1010, 1030, 990, 1000

On the 11th, a 10-for-1 split is issued, resulting in ShareFinder adjusting the share price history: 100, 101, 103, 99, 100, 102

Subsequently, ShareFinder processes data for the 10th a second time (a glitch in the download caused the file to be sent twice): 100, 101, 103, 99, 1000, 102

Notice how the data for the 10th now has the old price value – before the 10-for-1 split was issued.

If you see this warning while updating the database, it means that ShareFinder has detected an out-of-sequence update. The usual action is to skip over the update files that have already been processed and continue only with the new updates. The skipped files are removed so as not to trigger this warning again.

If you clear the checkbox option, ShareFinder will continue with all the updates it finds, including those that had been processed before. This might be appropriate in some cases, such as if the data provider has a special update to correct a problem that cannot be solved with any of the automated correction facilities.

If you cancel updating at this point, ShareFinder will stop updating and take no further action. The update files will remain and ShareFinder will attempt to process them again during the next update, again triggering this warning.

Sectors and Shares

This version of the database manager component does not allow for user-defined shares or sectors. The share and sector names are maintained automatically during the database update procedure.

Fundamental List

The Fundamental List is only available if you have purchased the ShareFinder Royals component.

The Fundamental List is a complete list of all the shares in the five fundamental categories that ShareFinder searches when calculating long term recommendations. With the Royals component installed you can view the list of shares along with its underlying fundamental balance sheet information, as illustrated below.

Columns in the Fundamental List include:

- The previous day’s closing price, - Average traded volume, - Tradability, - Index of Value, - Overprice / underpriced, - Optimum future gain, - Bias, - Price growth, - Dividend yield, - Earnings yield, - Long, medium and short term dividend growth, - Earnings growth.

Information in the list is compiled by Richard Cluver Investment Services and is distributed in a monthly fundamental update by email, for which an annual subscription fee is charged.

Without the Royals component, the ShareFinder Starter still makes use of the same fundamental data for its long term recommendations, but you are not able to view the complete fundamental list.

Relative Sector Strengths

The Relative Sector Strengths option is only available if you have purchased the ShareFinder Royals component.

The Relative Sector Strengths option displays the strength of each market sector relative to the overall index or any other sector index.

Short Term Graph Mode

The Short Term Graph Mode is only available if you have purchased the ShareFinder Trader component.

With the addition of the Trader component any graph can be opened in short term mode and then toggled between the short and long term modes.

A short term graph is similar to the standard graph display in the ShareFinder Starter program, but uses parameters for the Mass and Velocity indicators that are better tuned for short term performance; the standard graph display is tuned for medium to long term performance.

The short term graph includes a Fourier projection of likely price movement over the next 30 days, as illustrated alongside.

Short Term Recommendations

Short Term Recommendations are only available if you have purchased the ShareFinder Trader component.

ShareFinder’s short term buying and selling recommendations are chosen from the entire market according to selection criteria that are specially tuned for short term performance, typically a few days, and are arranged in groups of similarly-priced shares.

Columns include:

- Average traded volume, - Projected highest or lowest price, - Days expected to achieve the high or low, - Percentage increase or decrease if the high or low is achieved, - Fundamental quality of shares, - Buying or selling strategy message.

Using the ShareFinder Share Alerts facility

The ShareFinder Professional offers users the facility to set share alerts which will be triggered either when a share price falls below or rises above a desired level or when “Prepare to Buy”, “Buy” or “Buy Buy Buy” signals are generated by the automatic analysis system.

To set up your alerts, left-click on the Catalogue icon that looks like this:

This will open up the Catalogue which will look something like this:

Now left-click on the + sign immediately to the left of the “Lists” heading and a panel will appear listing all the portfolios you have so far created. It should look like this:

Now right click on the name of the portfolio that you would like to activate and a dialogue box will open up that looks like this:

Next, left click on the heading “View Outlook Messages for this list”

You may click on as many portfolios as you wish.

Alternatively, if you would like all of your portfolios to be activated every time, after right clicking on the heading “Lists” and the following dialogue box has appeared, leave all the headings un-ticked.

You should now left click once more on the Catalogue icon to take you back to a clear screen.

Finally, left click on the Alerts icon which looks like this:

A display similar to the one below will now appear.

Ideally, you are looking for a situation similar to that in respect of Absa and Astral where these shares have entered a medium-term “Prepare to Buy” which is echoed in the short-term outlook as a similarly positive Wait Pending“Buy” “Buy” or “Buy Buy Buy” phase. Experienced ShareFinder users will well understand the need for this medium and short-term similarity of signals but many programme newcomers are confused by the issue. It is thus important to understand that although a share might be approaching the end of a long-term price down-trend and technical analysis indicators are sensing that an up-trend is beginning, periods of short-term weakness are extremely likely at this stage. Thus the ideal buying moment would be when a “Buy” message occurs in both the medium and short-term columns. The reverse occurs when the long-term trend of a market is peaking and ShareFinder issues “Prepare to Sell” signals. Short-term signals suggesting further market gains are at this stage very likely but these should be used as opportunities to sell at optimum prices.

Left click on the + alongside the portfolio containing the shares you are interested in. This will give you a display of all the shares in the portfolio.

This will open up a dialogue box that looks like this:

And a dialogue box will open that looks like this:

Now just follow the instructions and left-click “OK”

Auto-Run

Auto-run is a facility that enables you to load a series of share graphs in succession. To use the auto-run you must first create a share list.

Using auto-run

Click on the toolbar to start the auto-run. This button starts auto-run on the list which is named “Autorun” or “Auto-run”. If no such list exists ShareFinder will suggest that you create a new list. To start auto-run on a different list, locate the list in the Catalogue under Lists, right-click and choose Auto-Run.

Click to proceed to the next step in the auto-run. ShareFinder displays one item at a time, advancing each time this button is pressed, until the end is reached.

Click to stop the auto-run before it reached the end. When the end of the share list is reached the auto-run stops automatically.

How to use the ShareFinder automatic start-up facility

It is possible to automate the daily ShareFinder start-up process so that various analyses of your choice are opened up as soon as you switch on the programme.

You start by left clicking on the Catalogue icon which looks like this:

A window opens like the one below.

Next, right click on “Start-Up Tasks” and then left-click on the “Expand/Collapse” button to disclose a list that looks like the one below

Notice there are a number of tasks, each in the example marked with a bold red X. Right-click on any one of these headings and an action panel will appear which looks like the one on the left below:

If you right-click on “Run Always”, whenever you open ShareFinder in future, this task will be performed automatically.

I find it convenient to have ShareFinder open up my “Alerts” panel whenever I switch on so that I am able to check at a glance if any shares in my portfolio are vulnerable. Thus, for example, in the example below all is well in respect of every share in this portfolio except for Netcare where a short term “Your selling opportunity is near!” message has been posted. By double left-clicking on this share name one can call up ShareFinder’s fixed window technical analysis of the share in order to decide whether one might wish to act on the recommendation.

Copying to a New Computer or Hard Disk

It may be necessary to copy or move ShareFinder onto a new computer or hard disk, for example in these circumstances:

-You have bought a new computer and wish to transfer your existing program and database onto it without losing the historical share data you have collected this far;

-You have installed a second hard disk because the first disk was full, and wish to move the program onto the new disk.

-Your old disk crashed and you want to restore ShareFinder from a backup.

It is not possible to simply copy the ShareFinder program files from one computer or disk to another. If you do this, ShareFinder will not work correctly on the new computer or disk. The reason is that there is important setup information stored in the operating system registry that will not be updated or transferred if you only copy the program files. You also need to transfer the setup information, which is not an easy task to perform manually.

Reinstall ShareFinder

If you need to transfer ShareFinder, you should rather reinstall the whole program, including database and add-on components, in the new location. If it is a new computer, or if you are restoring from a backup, install ShareFinder as if it were a new program, but use the same license codes as were originally issued to you. If it is a new hard disk in the same computer, then reinstall ShareFinder as if it were a new program, but remember to choose the correct folder when prompted by the setup program. By default the setup program will suggest the same folder as was used previously.

Restore the database

Reinstalling ShareFinder will give you a new database of approximately 2½ years of historical share prices. Older data that you might have collected in the past will be lost. If you wish to restore your old database, you may do so after installing a new database simply by copying the entire database subdirectory from the old ShareFinder installation over the new database. For example, if your data provider was InvestorData, copy the entire \Program Files\SF4\DBase folder. If you were restoring from a backup, then this is the folder you should restore.

It is important in all cases to first install a new database, before copying or restoring the old database. This is because installing the new database re-establishes the setup information in the operating system registry.

Regular backups of your work enable you to recover from unforeseen events such as computer crashes, power failures and natural disasters.

Why back up your ShareFinder database?

If ShareFinder’s database becomes damaged, the easiest solution is to replace it with a new historical database. You may be able to do this by downloading a refresh or purchasing a new database from your data provider. If you had a recent backup on hand, you could simply restore the backup, catch up the additional daily updates, and be on your way again. The backup can save you time and money.

How to back up

You will need a backup storage device that can hold at least 200MB, such as an USB Flash Drive or CD writer. Many such devices are supplied with special software for backing up your files.

ShareFinder’s main program directory is usually located in:

C:\Program Files\ShareFinder

Add this folder to the list of folders that are to be included in the backup. Consult the documentation supplied with your backup program or device for assistance or specific instructions.

If you do not use special backup software, you may backup the entire ShareFinder folder by copying and pasting the folder into another location (eg. Flash Drive or CD)

How to restore from a backup

You cannot simply restore the ShareFinder program files from your backup disk. Doing this will not restore the internal information that ShareFinder uses to link the database and program files together.

Before restoring from a backup, you must reinstall ShareFinder from the original setup file. This may have been a CD-ROM that you purchased or a file that you downloaded from the Internet. It does not matter if the database you reinstall is old, because it will be replaced later. The purpose of this step is to ensure that ShareFinder is properly set up on your computer. If you do not have the original setup file, you may be able to download the current setup from the Richard Cluver Investment Services website or by contacting your ShareFinder agent.

After ShareFinder has been installed, you may restore from your backup disk.

If you make a backup of the entire computer, which includes the system registry files, then you can simply restore ShareFinder from the backup without any additional steps as long as the system registry files are also restored.

Bias

Recognizing that there should in theory be an absolute relationship between the compound average annual growth of both dividends and share prices, the bias represents the extent of any deviation between these two growth rates.

It follows that a share with a high Index of Value and a high Bias will be a “Market Darling”: a share which has been driven high above its true value and which carries the risk of a sharp downward price correction in the event of the company at any stage failing to live up to market expectations.

Using the ShareFinder Portfolio Builder

The Portfolio Builder has been developed to facilitate “What If” investment planning. It provides tools to help you assess your own ability to handle market risk, a cut and paste facility that allows you to add or subtract shares from a portfolio and measure the consequences, projecting dividend and capital growth trends ten years into the future.

To activate it, toggle the 13th icon from the right of the ShareFinder tool bar which looks like this The following screen will appear, which consists of a version of the ShareFinder Quality Share List overlain with an action box within which you are invited to select an existing portfolio. (Note, if you would like to create a new portfolio at this stage, select the one named “None”. Later in the process you will be able to save this new portfolio at which stage ShareFinder will invite you to give it a suitable name. Alternatively you may discard it when you have ceased experimenting.)

Note also that by activating the “More” button you will be offered a series of descriptive profiles that describe a series of portfolio risk profiles. You should either select the profile that best describes your personal circumstances and then toggle the “OK” button or, alternatively, if you toggle the “More” button ShareFinder will open a window like the following which will assist you to set personal investment objectives and give you a greater insight into your own investment circumstances.

Note that this personal analysis file will be saved along with the portfolio you are now creating. You will accordingly be able to re-visit it from time to time as your personal circumstances change. Once you are satisfied that you have adequately defined your personal circumstances, toggle the “OK” button and the following page will appear:

If you are creating a new portfolio, the initial cash value will appear as R0.00. You will need to change this to reflect the amount of cash you expect to inject into the portfolio in order to launch it. Right-clicking on this zero cash value will allow you to change the sum that is there reflected.

Now, from the tabulation below, right-click on any share that interests you and the following panel will appear.

Left-click on the “Add to Portfolio” option

And the panel below will appear:

You can vary the number of shares in the panel to suit your personal choice. Assuming, for example, you had a total of R1-million to invest, you might now choose sufficient of each share selection to represent + - R100 000: i.e. about a tenth of your available capital:

If you want to remove a share from your trial portfolio, simply place your cursor over the share name and right-click. A dialogue box like the one below will then allow you by left-clicking on the various labels, to either adjust the quantity of shares you want to include or remove them from the portfolio. By left-clicking on the “Properties” option you can view the dividend and earnings history of the company.

For a fuller understanding of this selection process, you should read Richard Cluver’s book The Philosophy of Wealth and then follow the guidelines at the top right of the panel. Ideally you would click on those shares in the tabulation that offer you the highest “Return” figure that is commensurate with your risk profile. Here you should appreciate that by teaming one high-risk profile share with another that enjoys a low risk, you can effectively lower your risk while simultaneously raising your aggregate total return. Try cutting and pasting a series of approximately equal value blocks of shares in order to structure a portfolio that offers the best combination of high growth and lowest risk. A portfolio consisting of around 10 to12 different shares offers the fairest combination of risk diversification and optimum growth expectations. You might create something like the following:

As you add further blocks of shares to the Portfolio Builder, you will notice that the weighted average risk and return aggregates change accordingly. Note also the ten-year projection beneath the portfolio. These projections are calculated using the proportionally weighted five year compound annual averages of dividend and share price growth of each share you have included in the portfolio. Since these latter compound averages are constantly changing figures, it is obvious that the projections are for illustrative purposes. They do, however, serve to dramatically highlight the compound effect of different growth rates when projected for a number of years.

For the purpose of the projection calculation, the cash ingredient in the portfolio is considered to carry a zero risk rating and a zero growth rating.

The million Rand portfolio below illustrates how one might team high growth with relatively low risk rated shares to produce a comparatively safe long-term growth portfolio.

When you are satisfied that you have created your ideal portfolio, right click the 19th icon from the left which looks like this:

Your experimental portfolio will now be saved within the Portfolio Manager. Note, however, all the entries will be in italics in order to denote that these are currently unexecuted holdings; in other words, you still need to contact your stockbroker and place orders for these shares.

For an explanation of how to use the ShareFinder Alerts, activate the Help file and read the section headed “Using the ShareFinder Share Alerts facility”

Understanding Cash Flow Analysis

The ShareFinder Professional Quality List provides a series of fundamental analysis tests of company balance sheet statistics. These are grouped together in categories highlighted by the use of a pale colour wash. Those relating to cash flow are represented by the eight columns of data located on the extreme right hand side of the Quality List, grouped together with a pale red wash.

As the example shows we have grouped together Market Capitalisation, Current Liabilities and the Percentage Return on Retained Earnings. Here it is important to note that in South Africa, a “Big Cap” company is one with a market capitalisation of greater than R9,5-billion; one of the primary qualifications for classification as a Grand Old Favourite. The latter are a category of companies noted for their remarkable price stability over lengthy periods of time and for their steady increase of annual dividends over many years.

The Mid-Caps which represent categories two and three in descending order in the display, are in South Africa companies with a market capitalisation greater than R1-billion but less than R9.5-billion. In the case of the London Stock Exchange, companies require a market capitalisation of more than £5-billion to qualify as Grand Old Favourites while the Mid-Caps earn that title with market caps greater than £1-billion. Market capitalisation is, of course, calculated by multiplying the current market price of a share by the number of shares in issue.

The figure under the column heading Current liabilities represents percentage trend of the sum of all short and long-term debt, a figure that needs to be interpreted with intelligence. Here it is clear that when debt is employed profitably, i.e. when the company is able to productively gear the capital it employs by earning more from its use than the cost of borrowing, this is a positive advantage that tends to be reflected in a high return on shareholders’ equity. It can, however pose a threat to profitability if the margin on borrowings is narrow and interest rates are rising.

The key to whether or not borrowings are working to shareholders’ advantage can be found in the next column, the Return on Retained Earnings. Simply stated, this figure is determined by attributing any increase in company profits year on year to that portion of corporate earnings that is not distributed in the form of dividend. Clearly from the shareholder’s point of view, if retained earnings result in profits rising at a significantly higher rate than the current cost of money, the result will normally be reflected in a share price rise which in turn represents a tax-free capital gain. In the Richemont example, the Return on Retained Earnings was 21.1% at the time of writing which was nearly three times the return that a shareholder could have received had earnings been paid out to him as dividend and he had then invested the money in a gilt. Most shareholders would in such circumstances be delighted to forego that portion of earnings. Were, however, the Return on Retained Earnings to have been significantly lower than a shareholder might have received in the money market, it would be a pointer to a company using its money inefficiently and, furthermore, in such case a rising percentage trend of current liabilities would point to a company headed for trouble.

Moving on to the next columns of data, for those who are unfamiliar with the terms, the return of Capital Employed is simply the total profit expressed as a percentage of all the funds invested in the business including short, medium and long-term borrowings. It is the most commonly-employed measure of how efficiently a business is run. Similarly, the percentage return on shareholders’ equity is profit expressed as a percentage of the Intrinsic Value of the company, i.e. the value of the remaining assets if all borrowings and short-term liabilities have been repaid.

Ideally, companies borrow money long-term at rates lower than the profits they are able to achieve from using these borrowings; in effect they positively gear their shareholder’s funds by such borrowings. The consequence of such gearing is immediately apparent when the two figures are juxtaposed. For example, in the tabulation, Richemont Securities achieved a return of 13.52% on all the capital it employed in the latest financial year which was a tad lower than the average return it managed to achieve in all the previous years recorded in the ShareFinder database. Furthermore the capital trend was declining at an uncomfortable –52.7% which could be worrying to investors down the line if efficiencies were not improved. The trend could be a function of the rising cost of borrowing. Nevertheless, it should be noted that Richemont still managed to increase the return it achieved on Shareholders’ equity from an average return of 117.38% to a current return of 127.59….a very positive sign!

It is also very important to compare the returns achieved by individual companies compared with the averages for the sectors and the overall averages for all investment grade shares which can be found at the head of each column and heading each quality sector. Here it is noteworthy that while the average return on capital employed improved for all investment grade shares, the Grand Old Favourites did not manage to improve their average return on equity...a matter of concern for this category of shares.

Catalogue Window

The catalogue window is a general-purpose display area arranged as a hierarchical list of items and sub-items. The catalogue is typically used to store lists of similar items, such as shares in the database or collections of files.

The actual items that become visible in the catalogue depend on the components that have been added to ShareFinder. In a simple installation there might only be a single database item, while with additional modules the catalogue may also show lists of recommendations, user-defined lists of shares, portfolios, and so on.

Expanding and Collapsing Items in the Catalogue

Some catalogue items can be expanded to reveal sub-items that are related. A small “plus” symbol to the left of the item name indicates items that can be expanded. Clicking on the plus symbol, or double-clicking on the item itself, causes the item to expand to reveal its sub-items. Clicking or double-clicking a second time removes the sub-items.

Working with Catalogue Items

Most catalogue items respond to a right-click by displaying a context menu of options that apply to the chosen item. The options available for specific items in the catalogue are discussed elsewhere in this documentation.

Maximising the workspace

Since the screen space occupied by the catalogue window cannot be used for any other window, you may wish to hide it temporarily. You can adjust the size of the catalogue window size by dragging its right-hand edge, or you can hide it by clicking the View menu and selecting Catalogue, or by pressing the F9 key. Repeating the procedure makes the catalogue window visible again. The tool bar includes a shortcut button that has the same effect.

Fundamental Categories

The fundamental examination categories shares into one of five major quality groups. The Blue Chips are defined as shares whose dividends have risen steadily for a minimum of ten years. Of these, the top 20 are known as the Royals.

Shares that do not qualify for inclusion in the Blue Chips list fall into the Rising Stars category, of which the top 20 are the Aristocrats. Shares that do not qualify for inclusion in any of these categories fall by default into the Rest-Of-Market group and are not considered for any long-term recommendations. The Rest-Of-Market group does not appear in ShareFinder’s listings.

The fifth share quality group, No Dividends, is for shares of companies that do not declare regular dividends, but show good fundamental value nonetheless. ShareFinder’s Index of Value and other fundamental indicators are adjusted in this group to work without dividend information.

The ShareFinder Starter produces recommendations based on the Blue Chips and Rising Stars categories only, but does not distinguish between the categories. The Royals component analyses all four fundamental categories and produces separate recommendations in each category.

Components

The ShareFinder system is modular by design, with features distributed over a number of separate modules that add onto the basic ShareFinder program. This allows new features to be added and existing features improved without the need for a whole new software package to be installed. It also enables the user to get started with ShareFinder at minimal cost, with provision for new features and options to be added as soon as the program owner is ready to use them.

The simplest installation is the ShareFinder Starter, which comprises a database manager, analytical routines for calculating long-term buying and selling recommendations, and a graphing component for simple graphical examinations of shares. Added to that is a provider-specific component that takes care of updating the share price database using daily stock market data from the chosen data provider.

The Royals and Trader modules expand the capabilities of the Starter to include an expanded display of fundamentally categorised long-term recommendations, and short-term recommendations respectively.

In future, more components will become available to satisfy specific needs. These include a Charting component with more flexible graphing capabilities, a Portfolio component to replace the old portfolio manager from ShareFinder 2, and specialized components to deal with Unit Trusts, Gilts, and so on.

Composite Return

The annual average growth rate associated with the composite return is produced using the least-squares fit calculation on five years worth of data. In the event that five full years worth of data is not available, the amount of data required is reduced by one full year at a time until there is sufficient data.

Understanding The SF opening window and how to use the program

To the first-time viewer, the ShareFinder opening display is a bewildering Pandora’s Box of investment analysis tools and so it is not at all surprising that some newcomers are completely overwhelmed.

So let us start by recognising that the ShareFinder suite is the only one that fully integrates the twin techniques of fundamental and technical analysis. Not surprisingly then, it offers a great deal more than the usual share market program which usually consists of little more than a facility to draw a series of share price graphs. The ShareFinder opening window which is reproduced here, is where your journey of exploration begins.

Note that after left-clicking on any of the icons displayed in this opening field and consequently opening up that option, you are able by invoking the F1 help key, to call for a full description of each of these libraries of program tools as well as an explanation of how to make optimum use of the facilities each offers.

How to make the most effective use of this program!

We have noted that most share market programs are simple technical analysis systems. By that we mean that they are designed to assist the short-term trader to try and guess the likely price direction of markets as a whole and of the individual securities that are listed on them. At best these are thus only able to provide some guidance as to the likely direction of prices for a day or two ahead.

Now the fact is that trading the market was once an extremely profitable exercise. Sadly, however, the Receiver of Revenue has killed that option with the result that the only consistently-successful share market operators today are value investors: individuals who are able to seek out the shares of companies whose unique product range or consistent management excellence has given them the capability of delivering consistently rising profits year after year over extended periods. Such companies are able consequently to offer their shareholders ever- increasing dividend incomes and as a consequence their share prices also rise steadily year after year. Since dividends are not taxed in South Africa and Capital Gains Tax does not apply until the shareholder sells his shares, all of the consequent income and increase in personal wealth logically flows directly to the benefit of the share-holder. Furthermore, for those who are smart enough to invest directly into listed shares, there is nobody out there collecting annual management fees and commissions. Every cent is yours to do whatever you wish. No wonder many of the world’s great fortunes have been built upon long-term share market value investment!

The ShareFinder Professional program was designed to cater specifically for this category of share market operator and the fact that it boasts one of the best short-term share price prediction systems available in the marketplace should thus not cause confusion. ShareFinder’s short and medium-term prediction systems were developed solely to assist long-term investors to chose the optimum moment to buy and sell the shares they have already selected by employing the program’s fundamental analysis tools in order to seek out companies that offer the best historic balance sheet statistics.

Creating a Portfolio

Our journey thus begins by invoking the ShareFinder Portfolio Builder which you do by left-clicking on the icon that looks like this:

Having activated it, you will be offered a screen that looks like the illustration below and, by following its prompts you will be able to work through a process of analysing your personal capacity for risk-taking. Here it is important to recognise that in the share market there invariably exists a direct relationship between the rate that a share price is growing and the probability of that share price retreating just as rapidly. Furthermore, unless you are in the happy position of having already built up considerable reserves of wealth, the fewer the number of years left to you to spend in gainful employment, the less you can afford to take the risk of investing in high gain/ high-risk shares.

Once you have developed your risk profile, ShareFinder will remember it and, relative to the day by day volatility of the share market will provide you with a Risk Aggregate recommendation which you would normally be unwise to exceed. It will also provide you with a recipe for the categories of shares that you would be best advised to concentrate upon.

Finally, noting the example above, it will enable you to make “What If” experiments in order to create portfolios that would allow you to achieve the highest growth rate for your money commensurate with your personal risk profile. The example on the right shows the consequence of blending together a selection of five “Grand Old Favourites” which represent the safest category of long-term investment companies with four relatively safe “Mid Caps”,two relatively risky and volatile Market Leaders and one very risky Maverick.

Selecting shares for these experimental portfolios is an extremely easy task because ShareFinder provides an extremely comprehensive tabulated analysis of each and every investment grade share listed on the share market. There are some 42 different balance sheet statistics listed in vertical columns in respect of each share. These allow the would-be investor to make exhaustive comparison tests. Each entry is, moreover, colour coded so that you can make a very quick diagnosis. The results of all of these fundamental analysis tests is, furthermore, summed up in a “Quality Grading” so, as you can see below, you can instantly spot which share has the highest quality grading. Alongside the Grading figures appear a “Total Return” column which represents the sum of the compound annual average share price growth rate and the dividend yield: the reward, in other words, that the investor achieves annually for holding each share. Next we list the all-important Risk rating. So all the would be long term investor needs to do is look within the descending quality groupings for the shares which combine the highest Total Return with the lowest “Risk” and to facilitate this selection, ShareFinder also offers a Best Long Term Buy selection.

Note that ShareFinder also verbally evaluates whether shares are currently cheap or expensive, listing them as Very Cheap, Cheap. Fairly Priced, Costly and Very Costly categories and in addition offers its opinion as to whether a share displays a Very High, High, Average, Low or Very Low dividend and price growth rate expectation

Another important tabulation is the Bias of the share. This is a comparison between the compound annual average price growth of the share and the growth rate of its underlying corporate profits. Ideally the Bias should only significantly exceed 1 in extremely bullish market conditions for when price growth exceeds profit growth, a price downturn will inevitably result in time.

ShareFinder provides a series of valuation tests to assist the would-be investor to buy at the right price. First, by-correlating the dividend yield of the share with its fundamental grading, the program provides a tabulation of Under/Overpricing which allows one to consider the value of each share relative to its peers. Note that this value should normally coincide with the medium-term price rating that appears in the eleventh column from the right, but this will not always be so. ShareFinder also calculates how the current share price compares with its “Real Value” and expresses this as a percentage. The calculation is made by comparing the Total Return offered by the share with the taxed total return on a long-dated bond. Furthermore, as a quick guide to which shares currently offer the best value for money in the long-term, the program also offers a list of the Best Buys in each category.

Finally, the program also allows one to forward-project the price graphs for a short-term guess at the likely future price trend of each share as you can see on the right. And it also offers a long-range projection of the share price together with those of its tried and tested technical indicators, the Mass, Velocity and Volatility indicators as can be seen in the second graph composite:

Armed with all of these, it is fairly easy to decide on which shares are immediate buys and which might become buys in the not too distant future. You can accordingly decide on fair prices for each of your chosen shares and, finally, using the “Alerts” feature instruct the program to keep watch over all them all so that you will be alerted when share prices get close to your desired levels.

Getting started as an investor

We have frequently commented that investing in shares certainly beats life insurance policies. The average retirement annuity enjoys only one great advantage and that is it represents enforced saving, coupled with the fact that the investor enjoys some degree of deferred tax. The great disadvantage, however, is usually a hefty penalty if one seeks to either cease contributing or an outright denial of your right to access the capital before you attain the age of 60. Furthermore, at that stage you face heavy taxation on all withdrawals and even then the average person has no control over how the money is invested and is only permitted to withdraw a maximum of 20% of the capital value on an annual basis.

But what really irks me is the poor performance of the average retirement annuity. The bitter experience of so many retirees who have taken the trouble to calculate how much they paid in over the years, is that notwithstanding years of share market growth, the management fees, commissions and plain bad management of insurance company portfolios, have frequently resulted in the beneficiaries being paid out less in actual terms than they paid in.

In stark contrast, the sums you save into your own portfolio are yours to do what you wish whenever you wish. You are your own portfolio manager able to maximise the gains you achieve and, if you use the ShareFinder programme to guide your choice of shares so as to achieve a fair balance between companies of enduring quality and those of greater risk but stupendous growth potential, your money will be at no greater risk than that which you have customarily paid into an RA. More importantly you can reasonably expect to build a sizable fortune that will guarantee that you enjoy a life of exceptional ease at a far earlier stage in your life.

But lets be practical. Assuming one is just starting out as an investor with, say R1 000 a month to save, is it really practical to buy blue chip shares rather than contribute a monthly amount towards a retirement annuity? Of course if you were attempting to put together a share portfolio at R1 000 a month and wished to make a purchase every month, your choices would be severely limited. There are precious few shares today priced at less than R10 each. Furthermore, were you to buy in lots of 100 you would be penalised by the fact that stock brokers charge on a sliding scale with the lowest rates only kicking in at around R1-million in most cases .

In the graph example I have illustrated the price movements of one of the few ultra blue chip shares that is really affordable, Woolworths which was standing this week at R13.55 a share. For the purposes of this exercise I will assume you are able to draw a simple graph and note the closing price each day. The red line is a least squares fit line that is drawn automatically by the ShareFinder Professional computer program, but it is not too difficult to create it for yourself: it is simply the line that passes through the greatest number of graph turning points. Now, all you need do is save your R1 000 every month and whenever the daily price falls really far below the red line, you buy as many shares as you are able to afford.

Thus in the example, had you begun saving on January 1 2001 you would have been able to buy 857 Woolies shares at R3.10 in March 2001, In January 2002 you could have bought 2950 shares at R3.39, in June 2002 1299 shares at R3.85, in February 2003 1 333 shares at R4.50, in September 2003 1 333 shares at R6, in March 2004 930 shares at R6.45 and in April 2005 1392 shares at R9.34. In total you would thus have bought 10 095 shares for a total outlay of R51 000. Furthermore, since no further buying opportunity would have arisen you would have saved a further R12 000 by the time the market peaked in value at R17.79 on May 4 this year.

Care to work it out and you would see that your shares would have been worth R179 580 which together with your savings would have given you a net worth of R191 580 from a total investment of R51 000. You would have nearly quadrupled your money.

Had you instead bought R1 000 worth of Woolies shares each month and, assuming you got the lowest price of the day every first of the month, you would have ended up with 11 044 shares worth R196 466.9. On the face of it you would have done better buying monthly. And given that there is very little difference in brokerage charges between a R1 000 purchase and a R7 000 purchase (that is the average value of each deal arising from the save and buy at the bottom approach) it would appear that there is little to choose between the two methods. You should note, however, that the former approach of buying steadily month by month is only superior if you are buying into steadily-rising bull markets that have not become excessively overheated. It will NOT offer you superior growth if you continue buying on a falling market.

However, this approach would clearly not apply for investors who have larger sums to invest. For example, for someone able to save R10 000 a month, the difference in transaction charges is 1.2% on purchases of R10 000 and less whereas by saving and buying at average intervals of seven months as in the first example, the brokerage would have been 0.85%. Far more important, however, the save and invest approach would open up a far larger range of potential shares to buy. Woolies was an excellent performer achieving a compound annual average price growth of 35.21% over the past five years, but Naspers achieved 57% compound, Wesco 55.14%, CMH 45.85%, City Lodge achieved 44.81%, Wesco 41.55% and Metair 36.53% to mention only a few ShareFinder investment grade shares.

Returning, however, to the beginner investor with just R1 000 a month to save, the problem is as I have explained that there are very few shares that can be bought in blocks of 100 for as little as R1 000. The practical alternative would, in the good old days, to have invested in a unit trust. Sadly, like the assurance industry, unit trusts have also become suspect. The compound annual average return on all unit trusts that have been in business for greater than ten years is a pathetic 9.1 percent.

There is one unit trust, however, which is not subject to commissions, management fees and the mismanagement of portfolio managers; the Satrix which simply represents the performance of various JSE Indices. The five Satrix funds illustrated above have not been around for long enough to enable us to make an effective comparison with the long-term top unit trust performers like the best of them, Futuregrowth Albaraka Equity Fund which has achieved a compound annual average growth rate of 15.3% over the past 15 years. But, starting from the bottom of the current bull market in April 2003, the Futuregrowth Albaraka Equity Fund has since achieved a compound annual average growth rate of 37.3%. The Satrix Industrial Fund has done even better, achieving 40% compound, the Satrix 40 fund has achieved 38% and the Satrix Financial Fund 35.4%.

In other words, with no portfolio managers to guide them—or collect management fees from them - the Satrix funds are actually doing better than the market’s long-term best performing general equity unit trust. And you can invest monthly lump sums in really quite small amounts.

So why bother at all with shares directly when the Satrix can do it for you? Well the answer is clearly that there are a great number of shares that will offer you even better growth rates. Provided too, that you select your shares with care, confining your selection to those that, because of either their superior management skills or a unique product range, have achieved steadily-rising corporate earnings over very many years and have consequently faithfully rewarded their shareholders with steadily rising dividends over very many years, you are unlikely to go very far wrong. Furthermore, if you in addition further spread your risk by buying a portfolio of at least ten different shares, you would reasonably expect to achieve better capital growth than most insurance company annuities could offer you along with a very high degree of safety.

So we now have the beginnings of a wealth-making strategy for an investment beginner. Invest monthly in the Satrix until you have accumulated sufficient capital in order to enter the share market directly.

Next, if you consider the graph above which represents the JSE Industrial Index which is a proxy for the Satrix Industrial Fund but of course extends far further back in time, the green line represents the growth you would have achieved by monthly investments throughout the 14-year period. If you cared to measure it you would see that your money was compounding at a an annual rate of 7.5%. In contrast, the three bull market phases represented by the red trend lines represent the growth that would have been achieved had you ceased investing during the two bear markets between May and September 1998 when the market fell by 47% and between January 2000 and April 2003 when the market fell 43%. The three lines were rising respectively at 14.3%, 29.7% and 39.4% compound.

Clearly, and notwithstanding the arguments of the unit trust salespeople about rand cost averaging, you would have lost heavily has you bought steadily month after month without regard for the state of the market.

We have another simple investment rule: Never invest on a falling market. During that time you should rather save your money in an interest-bearing account towards the day when the market again begins turning upward. Better still, sell your holdings whenever the market reaches a major peak. But how do you know when that is? Well the truth is nobody ever knows for sure. What happens is that as the market gets higher and higher, investors become increasingly nervous and this begins to show on the technical indices. Within the ShareFinder Professional system we have developed a series of indicators which represent the best we have been able to find in respect of each observable trechnical analysis phenomenon.

Thus in the graph composite above we note that while the smoothly-curving red line of the Fourier long term projection in the topmost graph of the composite suggests with a known 82% average accuracy rate that the market might still move slightly upwards, the Mass measure of distribution selling/accumulative buying has been heading downwards for some weeks and that trend has now been joined by a downward-trending Velocity indicator. It remains only for the Volatility indicator to turn upwards to suggest that the daily spread between price highs and lows is widening which is an acute measure of nervousness for the probability of a short-term market decline to be imminent.

Next we consider ShareFinder’s long-term mode analysis above which suggests that the present weakness is unlikely at this stage to turn into a protracted decline. Given, however, the plethora of bad Economic news now filling the pages of the Financial Press to warn us that the end of the latest bull market could be very close indeed.

Note in the long-term ShareFinder composite on the right that while the smoothly-curving red line of the long-term Fourier projection suggests the market will continue climbing at least until the end of the third quarter of 2007. However the more erratic red line of the medium-term Fourier projection senses the same a short-term market downturn that was predicted by the previous graph composite in respect of the last weeks of December 2006 lasting until mid February 2007.

Note that technical analysis projections need to be watched continually because they tend to change as market conditions change. That is why the smart long-term investor makes it a daily routine to scan these graph composites so as to be kept fully aware of the market prognosis.

Thus in the graph composite above we note that while the smoothly-curving red line of the Fourier long term projection in the topmost graph of the composite suggests with a known 82% average accuracy rate that the market might still move slightly upwards, the Mass measure of distribution selling/accumulative buying has been heading downwards for some weeks and that trend has now been joined by a downward-trending Velocity indicator. It remains only for the Volatility indicator to turn upwards to suggest that the daily spread between price highs and lows is widening which is an acute measure of nervousness for the probability of a short-term market decline to be imminent.

Next we consider ShareFinder’s long-term mode analysis above which suggests that the present weakness is unlikely at this stage to turn into a protracted decline. Given, however, the plethora of bad Economic news now filling the pages of the Financial Press to warn us that the end of the latest bull market could be very close indeed.

Note in the long-term ShareFinder composite on the right that while the smoothly-curving red line of the long-term Fourier projection suggests the market will continue climbing at least until the end od of the third quarter of 2007. However the more erratic red line of the medium-term Fourier projection senses the same a short-term market downturn that was predicted by the previous graph composite in respect of the last weeks of December 2006 lasting until mid February 2007.

Note that technical analysis projections need to be watched continually because they tend to change as market conditions change. That is why the smart long-term investor makes it a daily routine to scan these graph composites so as to be kept fully aware of the market prognosis.

Main Program Window

ShareFinder uses the “Multiple Document Interface” feature that is built into Windows in order to present separate windows containing different information that can be viewed simultaneously. The types of windows that are possible include graphs, historical data and the results of ShareFinder’s analyses. This makes it convenient, for example, to look at individual graphs of each share in a list of recommendations, while at the same time being able to see the recommendations list itself.

The main menu at the top of the program window contains all of the various functions and features that ShareFinder is able to perform. The main menu changes to match the type of window with which the user is currently working. For example, when working with historical price data for a share, an extra “Edit” menu option enables changes to be made to the data in the window.

Tool Bar

The tool bar, immediately below the main menu, contains a series of buttons that provide quick access to the most commonly used menu functions. When the mouse cursor is stationary over a button for a few seconds, a tooltip box gives a hint as to the function of the button. The tool bar changes to match the type of window with which the user is currently working, similar to the main menu.

If you have a newer version of the Microsoft Windows common control library installed on your computer, such as that installed by Microsoft Internet Explorer, you can toggle between the normal tool bar button style and the new flat style by clicking on the View menu, clicking Options and then choosing Flat Buttons. This option has no effect on computers with the older common control library.

Status Bar

The status bar appears at the very bottom of the main program window. It is a general information area that ShareFinder uses to provide unobtrusive feedback to the user during certain operations. While navigating the main menu system, the status bar displays a longer explanation of each menu item selected.

One panel displays the selected database along with the date it was most recently updated. If more than one database is installed, a left-click enables switching to a different database.

Catalogue Window

The catalogue is a general-purpose tool for displaying lists of shares, files, and other items.

Creating and using Trend Lines

With any graph open, you will see an icon that looks like this:

To add trend lines onto the graph, left-click on the trend line icon which looks like this:

Notice now that your cursor has had a short line tool added to it. Place this on any graph point, left-click and then drag the resultant red line to any other point of interest, such as in the example below, and then release the left-hand mouse button. You will achieve something like the example below. Note I have repeated the process twice in order to highlight a classic graph pennant formation which was followed in classic fashion by an upside breakout:

Once you have trend lines in place, you can manipulate them in various ways. You might, for example, want to create a parallel line in order to see whether it is possible to delineate a trading channel. Hover your cursor over the trend line and right-click. A dialogue box like the one below will appear.

Left-click on the “Parallel Line” label and a draggable line will be created close to the first trend line. If you left-click on this line you are able to drag it to anywhere on the graph. By hooking your cursor over the boxes that appear at the ends of the line, you may also extend the line of change its angle. In addition you can change its appearance by left-clicking on the “Width” or “Colour” labels and selecting the option you prefer, creating something like the following:

You can, of course, also delete it if need be.

Another option is to create a Least Squares Fit line which is the arithmetic mean of all the data between two points of your choice.

In this instance, since we were generating a Least Squares Fit line on a graph of Sasol data, you would click on the word “Sasol”. Note how the green line has jumped into a new position:

Note this line is active. Should you hook on either of the boxes at either end of the active (Green) line and extend it in order to incorporate new data, it will move in order to describe a new mean as evident if you compare the displays above and below:

You can render it inactive by bringing up the dialogue box once more and left-clicking on the word “None”. The line will once again become draggable:

Creating a ShareFinder Custom Auto-Run

While we are satisfied that the ShareFinder fixed window technical analyses represent the best possible options for predicting the future movements of exchange-listed securities, some programme-users nevertheless prefer to be able to apply their own set of technical indicators in order to regularly analyse a particular list of securities. With the ShareFinder Professional, this is a simple procedure once you have set it up.

We start by creating a standard technical graph. In the example that follows, I have started by creating a standard technical analysis graph of the share Wesco. Then in graph windows B and C I have created sequentially a Relative Strength graph of Wesco relative to the JSE Industrial Index and a standard Stocastic of Wesco as illustrated in my second graphic.

The result looks like this:

Now we need to “Save” this composite by left-clicking on the “File” menu and in turn on the “Save As” menu option which looks like this:

You will be asked to choose a name for this customised analysis window. We have chosen to name it “Custom”

Next we need to bind this custom analysis to an existing portfolio. We start by opening the Catalogue menu by left-clicking on the extreme-left icon like this:

Next we right-click on the “Autorun” option in order to open a window that looks like this:

Now we left-click on the “Apply saved graph” heading and a window will appear looking like the one below.

Type in the name of the saved graph that you would like applied.

Note you can bind more than one custom graph analyses to a portfolio or portfolios!

You will be rewarded by the following message.

Left-click on “OK”

Now when you left click on the “Auto-run” icon the portfolio of your choice will be analysed according to your Custom technical analysis selection.

Finally, you are able to retain the standard fixed window analysis and follow it with one or many custom analyses. To create additional custom analyses, follow the method we have already outlined, saving each with a unique name. Then, by right-clicking on the name of the portfolio or portfolios you wish to subject to this multiple analysis process, you will open up a window that looks like this:

Simply left-click on the “Append Custom Graph” label and add in the names of the custom graphs you have saved.

How to create custom graphs

ShareFinder’s Charting component enables you create your own graph of any share in ShareFinder’s database and apply indicators to the graph. You can overlay several different shares on the same graph for comparison, add trend lines, and create compound indicators of indicators in an unlimited number of combinations.

We start by clicking on the “New Graph” icon that looks like this:

It opens a dialogue box that looks like this:

Next we click on the “Add Panel” button as many times as we want to add graphs within one composite. Here we have clicked three times and ShareFinder has created the following blank graph:

Next we left-click on the “Add Share” button and ShareFinder will offer a directory that looks like this:

By typing in the first three letters of the name of the share you are seeking, ShareFinder will search it out. Once the share of your choice is highlighted as is Sasol in the example above, left click on the “OK” button and a 30-month price chart will appear.

Note that Panel A is highlighted in the Graph Setup box example above. If you left this panel highlighted you could left-click on the “Add Share” button and overlay the previous graph with another. Let us assume, however, that you wished to add a second graph in Panel B. You would thus need to activate this panel by left-clicking on it with the following result:

Now, once again left-click on the “Add Share” button and chose the share you want. We will choose the JSE Top40 Index:

Let us assume that you would now like to create a relative strength graph in the third panel which will indicate how Sasol shares have been performing relative to the JSE Top40 Index. We accordingly highlight Panel C and in the lower panel we highlight Sasol. Finally we left-click on the “Add Indicator” button to create a dialogue box that looks like this:

Next we left-click on the “Indicator” button which opens up a series of choices. Under miscellaneous you will find a choice that includes “Relative Strength. Left-click on this and the Trace Editor will change to look like this:

Double left-click on the words “Relative To” and ShareFinder will open up its index of shares. Choose the JSE-Topi. Note that the display will change to the following once you have left-clicked on the “OK” button:

Note that the title under the “Value” heading has now changed to “JSE Topi”.

Once you are satisfied with this command, left-click on the “OK” button.

Note that the “Graph Setup” will appear with the lower information panel now advising that Panel C will contain a \REL graph. In the background a relative graph will appear in panel 3. Now all that remains is to view the graphs you have created:

I have overlain the three graphs with red trend lines to underscore the fact that both Sasol and the JSE-Topi index were rising at this time. Note, however, that relative to the Top40 Indicator (Topi) Sasol shares were actually falling during most of july 2006.

Graph Setup

You can change the appearance of a graph by accessing the graph setup. Click the Graph menu and choose Graph Setup. When working with a graph window, an additional button on the tool bar provides quick access to the graph setup. It looks like this:

If you left-click on it the “ Graph Setup” panel will appear wherin you may change any of the displays you had previously created.

Information Box

You can examine the actual data values at any point on the graph by hovering over the graph for a few seconds. An information box like the following will appear:

Trend Lines

You can read a detailed description of the creation and use of Trend Lines by highlighting the Trend Line icon and then hitting the F1 button.

Trend lines are straight lines drawn through several points on a graph to establish a trend. To draw a new trend line, click the button on the tool bar, then click and hold the mouse button in the graph window at the starting point, drag the line into the appropriate position and release the mouse button. The trend line can be adjusted by dragging its endpoints or moved by dragging any other part of the line. Double-click on the line to change its appearance, such as colour and line width.

Text Boxes

A text box allows you to write information onto the graph surface. To create a text box, click the

button on the tool bar, then click and drag a rectangle on the graph where you would like the text box to appear. Finally type the text and press Enter. Double-click on the text box to change its appear, such as colour and line width. To change the text, right-click the box and choose Edit.

Zoom

Zooming into a graph displays less information over a wider area, making it easier to read individual data points. Zooming out compacts the graph so that more information is visible at once. Click

or use the keypad + and keypad – keys on the numeric keypad to zoom in and out of a graph. You can also use keypad \ to reset the default zoom position and keypad * to fit the entire graph onto the screen at one time.

Scaling

You can rescale the graph vertically so that the visible portion fills the graph panel by clicking the

button. As you scroll the graph, the scale will adjust automatically to fit the visible portion. (Hint: You can also press Ctrl+F on the keyboard.)

To return to the default scale setting, which is to ensure that the entire graph trace would be visible, click the

button.

To enable logarithmic scaling on a graph panel, right-click on the vertical axis and left-click on “Logarithmic Scale”. This setting affects all traces on the chosen graph panel.

Copy & Paste

You can use copy & paste to copy a ShareFinder graph image into another document such as a word processor. To do this, click the Graph menu and choose Copy. Then switch to the intended document and use the usual paste command, usually Ctrl+V or Shift+Insert on the keyboard, to paste in the graph image.

Hint:Use the Copy & Paste facility to print a graph. To do this, paste the graph image into a word processor or graphic document using the above method, then print the document.

Database Properties

The Database Properties window displays information about the installed database.

Catalogue Name

The name of the database as it appears in the catalogue window. This may be different from the internal name that is used to identify the data provider.

Location

The name of the folder in which the database is stored.

Support Information

Contact information for the data provider that is responsible for updating the database.

Database Statistics

The Database Properties window displays information about the installed database.

Database Statistics

Displays the total number of share price records, along with the number of records that contain valid data. In the normal course of database maintenance share records might be modified or deleted, leaving spaces in the database that are never used. When the indicated number of deleted records grows large, it is recommended that you use the database optimiser function. Optimising the database reduces the amount of disk space consumed by eliminating the deleted records, and may also improve the overall access speed of the database.

Displays the dates of the most recent database updates. Share prices are updated every day after the close of market so the “last share price update” should normally indicate the previous day’s date. Fundamental data is normally updated less frequently, every few weeks.

Deleting a Portfolio

To delete a portfolio go to the Portfolio Manager, click the Portfolio menu and choose Delete, or click the corresponding button on the tool bar. ShareFinder will stop to prompt for confirmation before deleting the portfolio.

If the portfolio is open for editing when you delete it, ShareFinder will close the editor window before proceeding.

Press Del on the keyboard to delete a portfolio.

Disparity Indicators

A disparity variant of an indicator is created by the simple process of plotting the daily difference between a long-dated and a short-dated version of the chosen indicator. In the example I have overlain six disparity indicators over one another, each calculated using a basic 50-day indicator. The result is something of a dog's breakfast but if you study it carefully you will note that the earliest signal came from the disparity Overbought-Oversold indicator which turned upwards on March 18. It was followed by the disparity RSI in March 19 and by the disparity Stochastic on March 21. On March 26 the disparity Momentum indicator turned upwards followed by the disparity Double Momentum Indicator on April 15 (turning downwards) and finally on April 21 by the disparity Slow Stochastic.

Other disparity indicators that signalled early were the disparity Volatility 1 Indicator on March 21 the disparity Volatility 3 also on March 21, and the disparity Volatility 10 which turned on March 26.

In the VAR series, the disparity VAR 5 turned upwards on February 14, confirming as always that the Volumetric indicators are the earliest harbingers of future change, but too early to be used for more than a "take your marks" signal that needs to be confirmed by other indicators closer to the actual date. Earliest of all the disparity indicators was the disparity VPT which turned upwards on February 7.

In the graph I have illustrated how these three indicators anticipated the lower turning point of the JSE Industrial Index weeks before the event:.

Dividend Yield

One of the queries most frequently raised by ShareFinder users is that the dividend yield quoted in the SF fundamental “Quality List” does not accord with the actual dividends that they, as shareholders, have received.

So let me emphasise that the dividend and earnings yields published within the programme come directly from the JSE computers and are accordingly the official figures. However, many listed companies currently choose the tax-efficient method of paying out a combination of a dividend and a capital repayment. The dividend yield is, understandably, then calculated only on the dividend portion.

Unfortunately, the consequence is that dividend yields are no longer a reliable means of judging whether a company is under or over priced. Take for example the 2007 payouts from Mr Price Stores. At the latest interim statement in September 2007 the company paid an interim cash dividend of 23,0 cents per share and a capital reduction out of share premium of 13,5 cents per share, in lieu of a dividend to the holders of ordinary and unlisted B ordinary shares. The total value distributed to shareholders thus amounted to 36,5 cents per share. Add to this the 70.6 cents capital payment paid out at the year end in March 2007 and we get a total distribution for the 12 months of 107.1. Thus on a total distributed expressed as a percentage of a closing price of 1906 cents we get an effective dividend yield of 5.6%. However the official figure disseminated by the JSE was 1.2% calculated by expressing the 23 cent dividend as a percentage of 1906 cents.

Type the new price and volume information for the selected share record in the fields provided.

If this is a new price record, you must enter a date for the record. ShareFinder can only store one price record per day for each share in the database, so if the date you enter matches an existing price record, you will be warned and given the opportunity either to choose a new date or to replace the existing record with new information.

If you are modifying an existing price record, you cannot change the record date. To move a record to a new date you must create a new record with the appropriate information and then delete the old record.

Historical Data Window

The historical data window displays all available share prices and volumes numerically for a share, and allows adjustments to be made and records added or deleted. Access this window by choosing the List option after searching for a share.

Column - Description

Date - Date to which the record applies.

Close - Price at which the share last traded before market close.

Open - Price at which the share first traded after market open.

High - Share’s highest trading price for the day.

Low - Share’s lowest trading price for the day.

Volume - Total volume of shares traded for the day.

To make changes, use the Edit menu, or right-click on any price record in the list.

1.Click the Edit menu and choose Add Price Record, or press the Insert key.

2.Type the date of the new record and the fill in the various price and velocity data fields.

3.Click OK to save the new record.

ShareFinder can only store one record per day for a share, so if there is already a record for the date you chose, you will be warned and given the option to replace it with your new record.

Deleting records

1.Click on the price record you wish to delete.

2.Click the Edit menu and choose Delete Price Record, or press the Delete key. Modifying records

1.Click on the price record you wish to modify.

2.Click the Edit menu and choose Modify Price Record, or press the Enter key.

3.Type the new data into the various price and velocity fields, then click OK to save the modifications.

You cannot change the date of a record. To achieve the same result, create a new record with the same information and then delete the old record.

Searching for peaks

Use the [ and ] keys to jump backwards or forwards to the nearest price peak. Hold down Shift to jump to the nearest price low instead.

Fourier Smoothing and Projection (FFT)

Fourier Transforms owe their origins to the work of Baron Jean Baptiste Joseph Fourier (1768-1830). Their great strength is their ability to digest a series of numbers to identify any recurrent cycles within the series in the form of sine waves in descending order of magnitude.

In the example alongside the red line represents a composite of the 12 most dominant waves within the JSE Industrial Index over a period of 11 years.

These wave patterns may also be replicated into the future as illustrated by the green line, extended in the second example. Here, instead of identifying just the 12 most dominant sine waves, we have used Fourier transforms to identify the composite effect of 800 individual recurrent cycles and projected this data forward 200 days into the future.

Accuracy

Observation suggests that Fourier projection is better than 80 percent accurate with respect to its timing of market direction changes. Investors should be cautious, however, about attempting to predict the magnitude of future price movements by measuring such projections since in our experience the projections tend to exaggerate magnitude. Investors should also note that while the greater the amount of data that is available for analysis, the more accurate these projections tend to become, they are however exponentially weighted; i.e. the most recent data exercises a greater influence upon the projections than early data.

Find Sector Window

The “Find Sector” window provides an alphabetical list of all the sectors in the database. To activate this feature from the catalogue, right-click the database and choose Find. To find a sector, scroll through the list using the scroll-bar, or type the first few letters of the share name to quickly jump to the nearest matching item. Click OK to locate the chosen sector within the catalogue list.

Find Share Window

The “Find Share” window provides an alphabetical list of all the shares in the database as an alternative to using the catalogue in order to find a share. To activate this feature, click the Analyse menu and choose Share, or click the corresponding button on the tool bar. For convenience the list indicates each share’s type and the sector in which is it located.

To find a share, scroll through the list using the scroll-bar, or type the first few letters of the share name to quickly jump to the nearest matching item. When a share is selected, click Open to view it graphically or List to view it numerically.

Mass

Picking up on the success of the VAR5 and VAR6 indicators, led us to the final evolution in the shape of the Mass indicator which, as can be seen from the example, provided an easily-read long-term early warning system of considerable accuracy. Not only was the April 1 market turnaround foretold as early as February 4, it was clearly anticipated some time before by the observable fact that the indicator was sliding steadily down to the zero percent line before surging upwards again once more. Furthermore, by April 1, just as the market was turning, the Mass indicator was peaking temporarily to forewarn of the softer tone of the market that was to begin 12 weeks later on June 19.

Note that in this example I have teamed the Mass Indicator with its normal ShareFinder Professional fixed window analysis companions the Velocity and Volatility indicators so that you can see how the three work together as a collective successive early warning system. Thus the downturn of the Mass Indicator on February 4 was the "Prepare to Buy" signal which should have alerted investors to start gathering cash towards the coming buying opportunity. Then on March 12 the Velocity Indicator bottomed out to warn investors that a "Buy" signal was imminent. Finally on March 24 the Volatility Indicator peaked, to provide the final warning that the buying season was arriving. And then, with three advance warnings to alert the ShareFinder user, the index itself turned upwards on April 1.

The Mass and Velocity Indicators are teamed together in both long term and short-term mode so, whereas in the long-term mode the Mass Indicator turned upwards a full eight weeks ahead of the actual event, in our automatic short-term analysis configuration, the indicator can be expected to provide approximately an eight day warning backed by the Velocity Indicator's normally instantaneous confirmation signal.

That said, however, I must sound a note of warning that these early warning periods tend to vary. So do not count on the long-term Mass Indicator always warning eight weeks in advance. In addition, in short-term mode, the Velocity indicator can sometimes sound a warning earlier than the Mass indicator. Routinely the rule of thumb should be that one buys only when both the Mass and Velocity indicators are rising and sells only when both are falling.

Making Intelligent use of the Fundamental Data Display

The following tips of what to look for are given to assist in picking which shares are the better investments:

   Dividends have long been rising exponentially, a situation that is typified in the Fundamental List by the Long-term (10-year) dividend growth figure being exceeded by the medium term (5-year) figure and that in turn exceeded by the latest dividend growth figure. Here, obviously, the higher these percentages the more attractive the company from an investment perspective.
Look for situations where the five-year earnings growth figure exceeds the five-year dividend average. Where it exceeds dividend growth, the implication is that the company is setting aside money to fund internal growth and creating funds, which will ensure that in lean years the dividend trend will be continued.
It is also important to know that in the current financial year corporate profitability is on track, so check the annual percentage change in interim earnings.
Assuming shareholders funds are being set aside, look to see what percentage return is being achieved on retained earnings. Obviously the higher this figure the better.
Look for those companies offering the highest return on employed capital, which can be expected to match an above average return on shareholder’s equity.
Look at the trend of the company’s current liabilities, as a rapid rise in liabilities that is not accompanied by an above average return on retained earnings, capital employed and on shareholders’ equity often provides an early warning of a company headed for trouble.
Although this is not a critical issue, determine whether or not the company enjoys reasonably high share price volatility. High volatility means that I should be able to buy low and sell high within the annual price cycle.
Consider tradability, for shares that are traded in sufficient volume facilitate an easy sale should there be a need to do so. There are three columns of data listing (A) The average daily traded volume over the past 90 days (B) Tradability, which expresses this volume as a ratio of the traded volume of similar quality shares, and (C) finally, probably the most important of these three is the percentage of issued shares traded on an average day over the past 90 trading days.

   The last check is the column headed Bias. This is the relationship between dividend growth and share price growth with a high figure indicating that investor appetite for this share is exceeding the company’s ability to grow its profits. In the short to medium term a higher than average number in this column is attractive for it indicates that rapid share price growth can be anticipated. However, in the event of the company releasing some bad news at a time when the share market as a whole is looking weak, you do not want to own a high bias share.


Now for pricing issues

ShareFinder Professional provides a series of valuation tools. You may sort these and all other columns in the Fundamental Display by left-clicking on the column heading. The valuation guides start with:

   The Intrinsic Value. The higher this figure as a percentage of the current market price, the cheaper this share actually is in real terms. Investment guru Warren Buffet is reported never to buy a share when the traded price is more than double its Intrinsic Value.
The Gilt Relative Value is a popular international guide to the fair price of a quality share relative to a long-bond and I would never want to pay more for a share that the figure in this column. In the Gilt Relative Percentage column to the right, the figures are coloured from light green to dark red with the cheapest shares by this test being coloured green in this and the most expensive coloured red. The colouration is determined relative to the mean average of these values and that colouration is carried over to the respective entry in the Gilt Relative Percentage column on the left.
The ShareFinder Real Value takes into account compound annual average share price growth and dividend yield as the two elements that over time enrich a shareholder. In this calculation we compare this composite yield with the taxed return on a long bond. If, in times of market uncertainty you elect to invest in bonds instead of shares, this is the return you will be foregoing, but do not expect ever to pay this price for a share unless it is grossly overpriced. In the Real Value Percentage column to the right, the figures are coloured from light green to dark red with the cheapest shares by this test being coloured green in this and the most expensive coloured red. The colouration is determined relative to the mean average of these values and that colouration is carried over to the respective entry in the Real Value Percentage column on the left.
The Grade of the share: The higher the number in this column the better the long-term investment quality of the share.
The ShareFinder Index of Value is our tried and tested medium-term relational value from which the Underpriced/Overpriced calculation is derived. Obviously you would never seek to buy an Overpriced share and usually seek to buy the most underpriced share that conforms to as many of the quality tests mentioned here. Ideally both the Grade of the share and its Index of Value should be approximately similarly ranked.
Finally, ShareFinder provides three classic valuation tools; the historic Dividend Yield of the share, its Earnings Yield and the Price Earnings ratio. Here the numbers themselves are relatively unimportant except inasmuch as they compare with the sector and overall market averages, which ShareFinder calculates and displays in italics at the top of each column. A low PE or high dividend and earnings yields suggest that the share is out of favour in the marketplace which, when it coincides with good quality attributes, makes it a potentially great investment opportunity… or conversely a high PE or low dividend and earnings yields suggest that the share is expensive.


Fundamental List Window

Requires: Royals component

For more details on how to use the fundamental list, see the usage section.

The new Quality Shares List is closely linked to the Fundamental List. For more details on how to use this new feature, see this usage section.

For a detailed look on Understanding the Company Fundamental and Quality lists, see this section.

Understanding how to time share buying and selling using the ShareFinder Quality List timing messages

Understanding how to put a value on a share

The Fundamental List is a complete list of all the shares in the five fundamental categories that ShareFinder searches when calculating long term recommendations. Access this window by clicking the Analyse menu and choosing Fundamental List, or by clicking the corresponding button on the tool bar. By itself, the Fundamental List proves to be a powerful tool in choosing investments.

The Professional version of ShareFinder now holds considerably more information than previous versions of ShareFinder, and also makes use of colour to assist in analysis. In general, a green value is favourable, whereas a red value is not. A lesser green or red, or black represents a more mid-range value. Below is the list of all the columns available in the latest release of ShareFinder.

Information shown

Column - Description

Name - Name of the share. (Share names may differ from one data provider to another.)

Grade - A weighted total summation of all the fundamental data for each share.

Return - Total Return: The sum of the Dividend Yield and the 5-year compound annual average share price growth rate.

Risk - The volatility of each share relative to the average volatility of the grand old favourites category.

Bias - The Bias represents the extent of deviation between the compound annual average growth of dividends and share prices.

F.Und/Ov - An underpriced (-) / overpriced (+) rating based on the share’s grade and dividend yield in relation to the average.

DY - The latest Dividend Yield.

Close - Price at which the share last traded.

PriceOut - Price Growth Outlook

GroOut - Dividend Growth Outlook

Long - Long Term Dividend Growth Rate: 10-Year Compound annual average dividend growth rate.

Med. - Medium Term Dividend Growth Rate: 5-Year Compound annual average dividend growth rate.

Short - Short Term Dividend Growth Rate: Latest year on year Compound annual average dividend growth rate.

DivTr - The rate of change of the dividend growth

Earn - Earnings Growth Rate: 5-Year Compound annual average earnings growth rate.

1YrEarn - Interim Earnings Growth Rate: Latest year-on-year percentage interim earnings increase

IntEarn - Annual percentage change in interim earnings

15YrGro - Five Year Growth: The compound annual average share price growth over the previous 15 years.

5YrGro - Five Year Growth: The compound annual average share price growth over the previous five years.

ReaVal - Real Value: The sum of the compound annual average share price gain and the dividend yield relative to the yield on a taxed long bond.

ReaVal% - Real Value Percentage: The closing price of a share expressed as a percentage of the Real Value.

GltRel - Gilt Relative Value: The relative value if a share were accorded the same value as a taxed long bond.

GltRel% - Gilt Relative Value Percentage: The closing price of a share expressed as a percentage of the Gilt Relative Value.

Intrin - Intrinsic Value: The sum attributable to shareholders if all assets were liquidated and all debts paid off.

Intri% - Intrinsic Value Percentage: The Intrinsic Value expressed as a percentage of the current selling price.

EY - The latest Earnings Yield.

PE - Price Earnings Ratio.

OpIndx - Opportunity Index: A measurement of medium-term investment potential.

Index - Index of Value: A mathematically-derived number calculated from a series of historic balance sheet statistics and related to the actual share price movement over time. The higher the index the better the quality and likely long-term growth rate of the share.

Und/Ov - Underpriced/Overpriced Percentage: The extent to which the market value of a share, as expressed by its dividend yield, either under or overvalues the Index of Value.

FutGn - Optimum Future Gain: The percentage potential for price gain or loss under optimal conditions over the next 12 months

F.FutGn. - Optimum Future Gain: The percentage potential for price gain or loss under optimal conditions over the next 12 months based off the fundamental under/overpriced value

MktCap. - Market capitalisation (billion R)

Volume - Average daily traded volume over past 90 days.

RetEar% - Return on Retained Earnings Percentage: Percentage return achieved on retained earnings.

CapRtn% - Return on Capital Employed: Percentage return achieved on employed capital.

CapRtTr - Return on Capital Employed Trend: Percentage Trend of capital return.

EquRtn - Return on Shareholders’ Equity.

CurLia - Current Liability Trend: The percentage trend of current liabilities.

Volatil - Volatility: Annual average price volatility.

VolTr - Volatility Trend: Price volatility trend year on year.

Examining a share

To open a graph of any share in the list, right-click on the share name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the share name. To see the share price history, right-click on the share name and choose List from the context menu.

Sorting the columns

Click any of the column headings to sort the list by the information in that column. Click again to sort in the reverse order.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the View menu, then choose Reset Columns. Columns are printed in the same order as displayed on your screen, with the excepting of the Name column, which is printed as the first column of every page.

Printing the list

To print the Fundamental List, click on the File menu and choose Print, or click the corresponding button on the tool bar.

Copy to clipboard

The Fundamental List may be copied to the clipboard and then pasted into another document. To copy the list, click on the List menu and choose Copy. Then switch to the target document and paste using that program’s paste command. Most programs use a Ctrl+V keystroke for the paste command.

Each share is graded on its fundamental data, based on the colour of the relevant columns. The grading is taken primarily from a weighting of the long, medium and short dividend growth rates, then adjusted positively for favorable (green) and neutral (black) values, and negatively for unfavorable (red) values, with the more favorable and unfavorable values carrying a greater adjustment.

This adjustment is made from each column except true value columns (Intrinsic Value, Gilt Relative Value and Real Value), as their colours are based on other columns.

Standard Graph Window

A standard graph window provides a simple fixed graph display for any share in the database. The graph window displays all the price history of the chosen share that is contained in the database, together with the predetermined Mass and Velocity indicators. The graph begins with the most recent data, but may be scrolled back to reveal the share’s history.

Click here for information on understanding Fundamental analysis graphing and how to use these tools to trade cyclic profit companies.

View all indicators

For more flexible graphing facilities, you can create your own graph by starting with a blank graph window, or by modifying the standard graph.

Graph panels

The price history of the chosen share appears in the largest of the three graph panels that comprise the graph window. It is accompanied by a Fourier-smoothed average. The two remaining graph panels display the Mass and Velocity indicators respectively. Since the Mass indicator is volumetrically based, it will be absent in the case of securities for which no volume information is available, such as gilts and unit trusts.

If ShareFinder Professional is installed, a fourth graph panel will display a volatility graph.

Outlook Messages

At the top of the graph window, ShareFinder reproduces the long-term outlook message for the share. The outlook message is a verbal interpretation of the Mass and Velocity graphs, and is useful for determining ShareFinder’s expectation for the share’s future performance.

Here it is important to recognise that although the process of share selection begins with the fundamental analysis of balance sheet statistical data, it is possible that when the graphs of certain other shares are called they might also display “Buy” or “Sell” messages even though they have not appeared in any of ShareFinder’s recommendations. In this instance the reason is that such shares have not met with the fundamental selection criteria.

Graph Setup

You can change the appearance of a graph by accessing the graph setup. Click the Graph menu and choose Graph Setup. When working with a graph window, an additional button on the tool bar provides quick access to the graph setup.

Information Box

You can examine the actual data values at any point on the graph by hovering over the graph for a few seconds.

Trend Lines

Trend lines are straight lines drawn through several points on a graph to establish a trend. To draw a new trend line, click the button on the tool bar, then click and hold the mouse button in the graph window at the starting point, drag the line into the appropriate position and release the mouse button. The trend line can be adjusted by dragging its endpoints or moved by dragging any other part of the line. Double-click on the line to change its appearance, such as colour and line width.

Text Boxes

A text box allows you to write information onto the graph surface. To create a text box, click the button on the tool bar, then click and drag a rectangle on the graph where you would like the text box to appear. Finally type the text and press Enter. Double-click on the text box to change its appear, such as colour and line width. To change the text, right-click the box and choose Edit.

Zoom

Zooming into a graph displays less information over a wider area, making it easier to read individual data points. Zooming out compacts the graph so that more information is visible at once. Click and or use the keypad + and keypad – keys on the numeric keypad to zoom in and out of a graph. You can also use keypad \ to reset the default zoom position and keypad * to fit the entire graph onto the screen at one time.

Scaling

You can rescale the graph vertically so that the visible portion fills the graph panel by clicking the button. As you scroll the graph, the scale will adjust automatically to fit the visible portion. (Hint: You can also press Ctrl+F on the keyboard.)

To return to the default scale setting, which is to ensure that the entire graph trace would be visible, click the button.

To enable logarithmic scaling on a graph panel, right-click on the vertical axis and click Logarithmic Scale. This setting affects all traces on the chosen graph panel.

Copy & Paste

You can use copy & paste to copy a ShareFinder graph image into another document such as a word processor. To do this, click the Graph menu and choose Copy. Then switch to the intended document and use the usual paste command, usually Ctrl+V or Shift+Insert on the keyboard, to paste in the graph image.

Hint:Use the Copy & Paste facility to print a graph. To do this, paste the graph image into a word processor or graphic document using the above method, then print the document.

How to hedge against share market crashes without having to pay tax

The tax man has made it very difficult for the share market investor who seeks to protect himself against an impending share market crash which could cost him as much as 60% of the value of his life savings.

It is small wonder that, as a consequence, only some 125 000 South Africans out of a total population of 47 390 900 invest directly on the Johannesburg Stock Exchange. That is a mere 0.25% of our population compared with nearly 50% of US citizens.

For the South African investor who buys and sells a share inside five years, the Receiver of Revenue is likely to collect tax at the maximum marginal rate of 40% on any apparent gains he makes. I stress the word apparent because inflation, running at a current 5.3% will strip away a fifth of the buying power of your savings over the next four years. So, for example, were a South African investor to have bought shares that merely rose in value by an amount equal to the inflation rate, he would have made an apparent gain of 22.95% over the past four years. Demonstrably, however, he would merely have retained the buying power of his money which is a relatively poor return on an investment. If he had accordingly decided to cut his losses and sell his shares the Receiver of Revenue would then step in and demand 40% of the apparent gain. The result would be to leave our investor with the buying power of his original investment diminished by 7.47%.

The Receiver — that fair weather partner who collects his percentage when you make a profit but is nowhere to be found when you make a loss — will still be there with his hands outstretched towards the investor who has held on to his share holding for over five years and then sold. This time around he is there to collect Capital Gains Tax, admittedly at the lower rate of 10%.

The implication of these taxes is that this time around, as the share market heads ever upward into uncharted territory, investors are hesitant to do what they would normally do at such times. They are reluctant to take profits and set aside money that would enable them to buy back in at the bottom when the inevitable correction has completed its course. The customary answer to this dilemma is to take out some put options...that is an option to deliver shares at a pre-arranged price to someone who has gambled that there will not be a crash within the specified period which is usually three months. The problem is that options get costlier as the market becomes increasingly vulnerable. Currently you might expect to pay something like 12% of the value of your portfolio in order to take out such insurance. So it is not an option that many are keen to make use of unless the market has started to look extremely shaky……...and of course at that stage the price of puts is likely to have become impossibly high.

Happily however, there is an alternative that costs practically nothing and plays the Receiver at his own game. It merely involves putting in place a line of bank credit that would enable you to buy in at the bottom, if or when it happens. The process is simple and the banks are currently very happy to come to the party at favourable rates of interest because of the large sums of money washing around in the country. Provided your portfolio is a high grade one consisting of shares like the ShareFinder Grand Old Favourites and Mid-Caps, you should have no difficulty arranging a loan facility at better than prime minus 1%.

Cautious investors will understandably baulk at the risks involved in this process, so it is important to set some very well thought out rules in place if you plan to go this route. Let us start by noting that the major market correction of May/September 1998 cost investors 55.4% and the January 2001 to April 2003 bear market cost 58.2%. Furthermore, considering that we are currently witnessing the greatest bull market in modern South African history, it is reasonable to expect that when the next major correction occurs it is likely to be of at least an equal magnitude.

Next, noting that the current average dividend yield of all investment grade shares is 3.2%, this suggests that dividend yields might in such circumstances rise to an average level of 8% while a lesser correction that caused a 30% overall market fall would push average yields to around 4.6%. These dividend yields should thus be considered one’s potential buying signs.

Now you need to recognise that when making loans like these, banks generally require that you put up security equal to twice the value of the loan you are seeking. So let us assume you have a R1-million portfolio which you offer the bank as security, they will in turn allow you to borrow R500 000. If you now use this money to buy quality shares and in turn put these up as further security, you might borrow a further R250 000, and so on and so on by progression until you have actually borrowed 100 percent against the original security.

Now you face two different risks. One is your ability to fund the interest payments and the other is a margin call by the bank should the value of the securities you have provided diminish further. So, for example, assume you have a portfolio currently valued at R1-million and a dividend yield of 3.2% which consequently brings in an annual income of R32 000. If the market falls by 60% it will now only be worth R400 000 but the income will still be R32 000 or 8%. Using the process outlined above you now borrow R400 000 at prime minus 1% (which is presently 11%) to buy shares yielding 8%. Thus you have to fund the difference between 8% and ll% which, on a R400 000 loan would be R12 000 a year. Clearly this can be funded by the R32 000 income from your portfolio with an adequate margin should bank rates rise by anything up to a further 8% …..so there should be no problem there unless you were dependent upon the portfolio income for other needs. But what if you put this process into action after the market had fallen 30% and it subsequently fell a further 30%? Clearly the bank would then want an additional R200 000 in securities as guarantees against the loan. So would you be able to fund this guarantee?

The answer is to contain your borrowing. Knowing that a 60% market decline is a possibility, do NOT seek a 100% loan at the 30% mark. Rather stick to borrowing only 50% and, if necessary, you can increase this if the market falls further.

The pleasing bonus from this exercise is that while dividend income is tax-free, you may charge your borrowing costs as an expense which will either reduce your overall tax liability or, were you for example working through a trust, enable you to accumulate an assessed loss to offset future capital gains taxes. Its nice to win sometimes!

How to Find a Share in the Database

Finding a share in the catalogue

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Find the database item, which may be named simply “Database” or may have the name of your data provider, then double-click to expand the item.

3.Find the sector containing the share you are looking for, then double-click to expand it.

4.Find the name of the share you are looking for within the chosen sector, then right-click and choose Open to view the share graphically or List to view it numerically.

Finding a share alphabetically

1.Click the Analyse menu and choose Share, or click the corresponding button on the tool bar.

2.Find the name of the share you are looking for in the list by typing the first few letters of its name.

3.Click Open to view the share graphically or List to view it numerically.

How to Produce a list of Recommendations

ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later.

Calculating and displaying the recommendations

1.Click the Analyse menu and choose Short Term Recommendations, or click the corresponding button on the tool bar.

2.ShareFinder responds by calculating the recommendations list if necessary, and then displaying the results in an output window.

Using the catalogue to recalculate the recommendations

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Find the Analysis item and double-click to expand the item.

   Find the Short Term Recommendations item and right-click, then choose Recalculate to force ShareFinder to ignore the previous results and generate a new set of recommendations.


How to Produce a list of Recommendations

ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later.

Calculating and displaying the recommendations

1.Click the Analyse menu and choose Medium Term Recommendations, or click the corresponding button on the tool bar.

2.ShareFinder responds by calculating the recommendations list if necessary, and then displaying the results in an output window.

Using the catalogue to recalculate the recommendations

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Find the Analysis item and double-click to expand the item.

3.Find the Medium Term Recommendations item and right-click, then choose Recalculate to force ShareFinder to ignore the previous results and generate a new set of recommendations.

How to Produce a list of Recommendations

ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later.

Calculating and displaying the recommendations

1.Click the Analyse menu and choose Medium Term Recommendations, or click the corresponding button on the tool bar.

2.ShareFinder responds by calculating the recommendations list if necessary, and then displaying the results in an output window.

Using the catalogue to recalculate the recommendations

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Find the Analysis item and double-click to expand the item.

3.Find the Medium Term Recommendations item and right-click, then choose Recalculate to force ShareFinder to ignore the previous results and generate a new set of recommendations.

How to Produce a list of Recommendations

ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later.

Calculating and displaying the recommendations

1.Click the Analyse menu and choose Long Term Recommendations, or click the corresponding button on the tool bar.

2.ShareFinder responds by calculating the recommendations list if necessary, and then displaying the results in an output window.

Using the catalogue to recalculate the recommendations

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Find the Analysis item and double-click to expand the item.

3.Find the Long Term Recommendations item and right-click, then choose Recalculate to force ShareFinder to ignore the previous results and generate a new set of recommendations.

How to Produce a list of Recommendations

ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later.

Calculating and displaying the recommendations

1.Click the Analyse menu and choose Unit Trust Analyser, or click the corresponding button on the tool bar.

2.ShareFinder responds by performing the analysis if necessary, and then displaying the results in an output window.

Using the catalogue to recalculate the recommendations

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Find the Analysis item and double-click to expand the item.

3.Find the Unit Trust Analyser item and right-click, then choose Recalculate to force ShareFinder to ignore the previous results and generate a new set of recommendations.

InvestorData provides market data for all shares on the Johannesburg Stock Exchange, unit trusts, gilts, warrants, and others, within an hour of the close of market each trading day.

InvestorData sends update files to subscribers by email. There are no additional steps required in order to retrieve the update files and no special software is required except for a modern email client that is capable of receiving file attachments.

Contact and Support Information

InvestorData Support is able to assist you with any matter relating to their data provision service. They have experience with most of the email client programs in common use, and will be able to help you find and extract the update files from your email. You may also request a resend if an update file fails to reach you for some reason.

Telephone:0861 101057 (Monday to Friday, 08h30 – 17h00)

021 7851977

082 7851977 (Monday to Sunday, 08h30 – 23h00)

E-Mail: mike@investordata.co.za

Please note that InvestorData Support cannot assist you with issues relating to the ShareFinder program. For help with your ShareFinder program, contact Richard Cluver Investment Services or your nearest ShareFinder agent.

Fundamental Data

InvestorData does not provide the fundamental data that ShareFinder uses to calculate recommendations. This is generated and sent separately from Richard Cluver Investment Services on a regular basis to everyone with a fundamental update subscription.

ShareFinder will warn you if the fundamental data has not been updated for some time (usually a few months), but you will not usually see this warning unless something has prevented the regular fundamental updates from reaching you.

If you receive a warning that your fundamental data is out of date, you should contact Richard Cluver Investment Services or your nearest agent to arrange for an update. Out-of-date fundamental data does not invalidate ShareFinder’s recommendations, but it does adversely affect ShareFinder’s accuracy.

Updating Out Of Sequence

When more than one update file is available, ShareFinder always processes the files in chronological date order, beginning with the oldest, to minimise the effect of out-of-sequence processing.

Out-of-sequence processing happens when ShareFinder processes data for a date that precedes the latest data in the database. This can cause glitches in the database and should be avoided. Refer to the following illustration for an example:

The share price history for ACMEACRES in ShareFinder’s database up to the 10th of the month is: 1000, 1010, 1030, 990, 1000

On the 11th, a 10-for-1 split is issued, resulting in ShareFinder adjusting the share price history: 100, 101, 103, 99, 100, 102

Subsequently, ShareFinder processes data for the 10th a second time (a glitch in the download caused the file to be sent twice): 100, 101, 103, 99, 1000, 102

Notice how the data for the 10th now has the old price value – before the 10-for-1 split was issued.

If you see this warning while updating the database, it means that ShareFinder has detected an out-of-sequence update. The usual action is to skip over the update files that have already been processed and continue only with the new updates. The skipped files are removed so as not to trigger this warning again.

If you clear the checkbox option, ShareFinder will continue with all the updates it finds, including those that had been processed before. This might be appropriate in some cases, such as if the data provider has a special update to correct a problem that cannot be solved with any of the automated correction facilities.

If you cancel updating at this point, ShareFinder will stop updating and take no further action. The update files will remain and ShareFinder will attempt to process them again during the next update, again triggering this warning.

InvestorData Preferences

The InvestorData Preferences window allows you to change the folders that ShareFinder scans for new update files. To access this window, click the File menu and choose Preferences, then click the InvestorData tab.

It is strongly recommended that you do not change these settings unless you know what you are doing or have been instructed to do so by a ShareFinder support technician. If these are set incorrectly ShareFinder will not be able to update its database properly.

Database folder

This is the location of the database files, and is normally a subfolder of ShareFinder’s program folder, for example, C:\Program Files\SF4\DBase2.

Update files

This is the name of the folder that ShareFinder searches for update files that were emailed or downloaded from the data provider service. This should normally be C:\ID.

Temporary files

This if the name of the folder that ShareFinder uses for temporary files during the update process. This may be left blank, in which case the Update files folder will be used.

Archived packed and unpacked files

These are folders to which ShareFinder will move packed and unpacked files after it has finished processing them, if you have chosen not to have them deleted automatically. Archived files are normally kept for 60 days before being deleted; if you wish to keep them for longer, you should move them to another location yourself. These may be left blank, in which case a subfolder named \Archive under the Update files folder will be used.

Log files

This is the name of the folder in which ShareFinder will save daily update log files while it is updating the database. Log files are useful for troubleshooting, and may be requested by the support technician if you contact technical support for assistance with a problem. The log folder is normally C:\Program Files\SF4\DBase2\Logs.

Keep packed files

If this option is checked, ShareFinder will move packed files that have been processed into an archive folder instead of deleting them.

Keep unpacked files

If this option is checked, ShareFinder will move unpacked files that have been processed into an archive folder instead of deleting them.

Update at startup

If this option is checked, ShareFinder will look for database update files every time it starts up. If any are found, the database update procedure will begin automatically. If this option is not checked, ShareFinder will only update the database when manually started. To start updating manually, right-click InvestorData in the Catalogue window and click Check for Updates.

Understanding the Importance of Volume

The ShareFinder Professional Quality List provides a series of fundamental analysis tests of company balance sheet statistics. These are grouped together in categories highlighted by the use of a pale colour wash. Those relating to trading volume are represented by, counting from the right hand side of the Quality List, columns nine through to 13. They are grouped together with a pale green wash.

Appreciating the importance of trading volumes is critical to understanding the daily tug-o-war between the bulls and the bears in the marketplace. As a general rule one would never want to invest in a share long term if the average daily trading volume was so low as to render it difficult to dispose of should the need arise. In the ShareFinder Professional’s Quality List, above-average daily trading volumes are accordingly coloured dark green and below-average volumes dark red. Volumes close to average are coloured black with light green and light red representing the medium situations.

The second data column from the left headed “Tradability” expresses the daily average trading volume of the past 90 trading days as a percentage of the overall trading average. Obviously the higher this number the more desirable the share and again the desirability colouration descends from dark green to dark red. However, this measure is somewhat generalised because small capitalisation companies tend to be penalised by this measure. Accordingly, even more important is the percentage of the issued share capital that trades and ShareFinder accordingly determines this percentage as an average over the previous 90 trading days and again colours the most highly traded shares in dark green by gradation down to dark red.

Clearly the most desirable combination is a freely-traded big cap situation and so a series of dark green numbers in this section should alert the investor towards an attractive volumetric summary. In the example, Woolworths stands out according to these tests.

Strictly speaking, the last two columns in this light green sector of the quality list have nothing to do with volume for they represent measures of daily price fluctuations. The column headed “Volatility” measures the annual average standard deviation of the share price about its long-term mean. In a raging bull market, a high number in this column is an attractive situation for it signals that the share price has been rising far faster than average. Nevertheless it must be recognised that, in the absence of a commensurate rise in corporate earnings, the higher a share price rises above its long-term mean, the greater the probability exists that the price might come crashing down once more. High volatility thus represents heightened risk.

Finally, the last column in this grouping, measures “Price Volatility Trend”. Here the higher this number the greater the rate that the share price is accelerating away from its mean. Here low numbers are the most desirable.

In association with the latter in the Risk number which appears at the extreme left of the Quality List. Here the average volatility of a share is expressed as a percentage of that of the Grand Old Favorites which as a group tend to be less volatile than the market as a whole and, most importantly, have demonstrated over time that they are a safer investment than a government long bond.

Keyboard Shortcuts

Some menu options have associated keyboard shortcuts for convenience, enabling them to be activated simply by pressing a certain key combination. The shortcut combination in most cases is shown alongside the associated menu option, with some exceptions.

Shortcut - Function

F1 - Calls for help that is most relevant to the current activity

F3 - Opens the share list

Shift+F4 - Arranges all windows one on top of another

Shift+F5 - Arranges all windows side by side

Ctrl+Shift+F5 - Arranges all windows one above another

F6 - Switches between the active window and the Catalogue window

F9 - Hides or shows the Catalogue window

Shift+M - Displays a memory usage report

Licensing

Some of the Components used by ShareFinder require a license code in order to operate. Without a valid license a module will refuse to load or may operate as a limited demonstration instead. You should only need to enter the license code the first time you use a module. Thereafter ShareFinder stores and reuses the license automatically.

If you have purchased a license code

Type the license code, using only digits 0 to 9 and letters A to F, and click OK. Upper- or lower-case is acceptable and the dashes between digits are optional. If the license code is correct, ShareFinder will continue to load the module.

Click Later. ShareFinder will not load the module this time, but next time you will be asked again to enter a license code. This will continue until a license code is entered or the module is removed.

If you do not wish to purchase the module

Click Remove. ShareFinder will not load the module and will not ask for a license code again. If you later decide to purchase the module you can reactivate it using a simple menu option.

• Only one free trial license code per person is permitted. For ongoing use, ShareFinder requires a subscription to a data download service.

Hints when entering a license code

- ShareFinder asks for a license code by module name. If you have more than one license code, check that you are entering the correct code for the module. - License codes are individually serialised and cannot be used on another computer. - Keep your license codes in a safe place, in case you need to reinstall your ShareFinder program.

How to use the ShareFinder Medium-Term Recommendations

The Medium Term Recommendations window is activated by clicking the Analyse menu and choosing Medium Term Recommendations, or left-clicking the icon on the right. ShareFinder stores the results of the most recent analysis in temporary memory in order to save time if you need to come back to them later. If necessary, however, you can force a refresh.

As the name implies, the medium-term trading selections are intended for medium-term trading, that is in respect of trades likely to last on average some 26 weeks between a buy and a sell. They are selected from a group of shares which conform to the primary ShareFinder investment grade qualifications, i.e. the Royals and Blue chips are the shares of companies which have declared steadily-rising dividends for a minimum of ten years. The Aristocrats and Rising Stars are companies which have achieved steadily-rising dividends for a minimum of five years but not yet ten.

The recommendations are determined by a process that first creates a list of the most fundamentally underpriced shares in the ShareFinder Fundamental List. ( For a detailed explanation of the construction of the Fundamental List, open the list by left-clicking on the

11th icon from the left which looks like this:

Then invoke the F1 button)

Continuing the search process, in order to search out buying situations, the programme thereafter searches the current trading records of each fundamentally-under-priced company for technical buy signals. Conversely it searches the current stock exchange trading records of each over-priced company for technical sell signals.

You can see these signals graphically displayed by the ShareFinder fixed window analysis system if you double left-click on the name of any share in the list. Thus, for example, in the sample above, we highlighted Sanlam which at the time was one of the most fundamentally underpriced shares of that day at minus 83.59%. On that day its fixed window ShareFinder analysis looked like this:

Note the auto analysis message at the top of the screen which, in response to the direction of the green Fourier line in the topmost graph, reported that “The Market is in a falling trend”. Next, it considered the Mass indicator and noted that this was rising indicating that accumulative buying was beginning. Here note that visually it appears in the example above that the Mass indicator had merely flattened out after a long decline. To get a closer view of the graph, we accordingly invoke the + button in order to create a close-up view of the graph:

Next, reading the slope and position of the Velocity indicator, the analysis notes that “Price Velocity is rising very fast” and accordingly concludes on the basis of these three indicators that there is a probability that share prices will begin rising in the near future. It accordingly creates the message “Wait pending buy”. Note that these three employ a set of parameters that are optimised for the medium to long term investor.

(The Volatility indicator is not employed in the verbal analysis system since it is rather less reliable than the three primary indicators, the Fourier, Mass and Velocity indicators. Nevertheless it should be noted that a strongly-rising Velocity indicator is usually a good warning that a price direction change is likely.)

Understanding the Medium-Term Recommendations

Note first of all the Medium and Short-Term Market outlook messages at the top left of the screen. There is a long respected market view that argues “The trend is your friend”. In simple terms you would not normally want to be buying in a falling market. However most shares enjoy their own boom and bust cycles within the overall market cycle and so it is usually safe to buy ShareFinder's selections at the time they are recommended. It should, however, be recognised that the best time to buy any share is when the overall market is in a positive cycle, i.e. when the Overall Market Strategy is stated as one of the following:

“The optimum buying point has passed”

“It's too late to buy now”

“Wait”

Conversely, it would be unwise to buy anything if the Overall Market Strategy report was one of:

“Prepare to sell”

“A sell signal might be imminent”

“Your selling opportunity is nearly over”

“The optimum selling point has passed”

“It's too late to sell now”

When the Overall Market Strategy is either "Sell" or "Sell! Sell! Sell!" you should give serious consideration to liquidating all your share holdings.

When reading the medium and short-term overall market messages together, these may sometimes appear to contradict one another. Thus it is important to recognise that although in the medium term the market might have begun a recovery, a periodic day or two of weakness should not surprise anyone. Obviously, in such circumstances, one would wait a day or two until both medium and short-term outlook messages were both indicating the probability of an upward trend.

Returning to the list of daily recommendations, you need to understand that individual shares appear in the order of most probable short to medium-term gain. Investors who alternatively seek the greatest long-term gain are advised to ignore the order in which the selections occur within the four risk categories and instead choose only those shares that are the most underpriced and enjoy the highest "Index of Value".

Although recommendations are displayed in descending priority order, the best buy of the day may not necessarily be a particularly attractive opportunity. To state the obvious, ShareFinder does not control the market. It only analyses it. Occasionally a share that has already passed its optimum point of purchase or sale may be the best opportunity of the day on a not particularly auspicious day for investors. It is thus important to pay attention to the Index of Value of a share, avoiding all those shares that have a negative Index of value. It is also important to consider the graph of each recommendation, and not to blindly follow the buying and selling lists each day.

Understanding the detail

Turning to the medium term recommendations themselves, these are, as we have already explained, grouped into four categories starting with the best long-term investment grade companies which we describe as the Royals and the Blue Chips, both of whose primary quality criterion is that they have delivered steadily-rising dividends for a minimum of ten years. The Royals are simply the 20 best of this ten-year dividend group after a series of further fundamental tests have been applied.

The Aristocrats and Rising Stars categories are companies whose primary fundamental quality is that they have delivered steadily-rising dividends for a minimum of five years and less than ten years. The Aristocrats are the 20 best of these after a series of further fundamental tests have been applied.

Information shown for each company

Note that if you hover your curser over the column headings you can read a brief explanation of each as in the example below:

Column - Description

Name - Name of the share. (Share names may differ from one data provider to the another.)

Close - Price at which the share last traded.

Volume - The average volume of shares traded over the past 90 days.

Index - The Fundamental Index of Value is a mathematically-derived number calculated by blending the compound annual average dividend growth rates with the scores of 42 different tests applied to historic balance sheet statistics. The higher the index the better the quality and likely long-term growth rate of the share.

Overpriced - The extent to which a share is either overpriced (if greater than zero) or underpriced (if less than zero)

Future Gain - The Optimum Future Gain is determined by assuming that during the next 12 months investors will realise this share is underpriced and their buying pressure will drive it upwards to the extent needed for this share to return to its true value PLUS an amount representing any increase in the dividend in the current year.

Bias - The Bias represents the extent of deviation between the compound annual average growth of dividends and share prices. A number greater than 1 thus draws attention to shares likely to do better than average in a bull market and relatively worse in a bear market. Recognising that there should in theory be an absolute relationship between the compound average annual growth of both dividends and share prices, the bias represents the extent of any deviation between these two growth rates. It follows that a share with a high Index of Value and a high Bias will be a “Market Darling”: a share which has been driven high above its true value and which carries the risk of a sharp downward price correction in the event of the company at any stage failing to live up to market expectations.

Growth - The compound annual average share price growth over the previous five years.

DY - The latest Dividend Yield. That is the past annual dividend total expressed as a percentage of the current share price.

EY - The latest Earnings Yield. That is the past annual earnings per share expressed as a percentage of the current share price.

Div. Growth - Compound annual average dividend growth rates over the past ten, five and one year respectively.

Earnings Growth - Compound annual average earnings growth over the past five years.

On most days ShareFinder will have at least one or two shares that are recommended buys, but it is possible when the market is in a general long-term downward trend for there to be no “Buy” recommendations at all. However, even at times when the share market is falling quite rapidly, there are usually a few shares swimming upwards against the tide and ShareFinder's automatic evaluation system will seek these out. It is usually safe to buy these shares even when the overall market trend is falling, but there is the risk that a more severe long-term down trend could turn even these shares around. It is therefore always wisest to wait for a positive market mood before buying. The outlook messages at the top of the recommendations window are helpful to identify the overall market trend, both in the long and short term.

Examining a share

To open a graph of any share in the list, right-click on the share name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the share name. To see the share price history, right-click on the share name and choose List from the context menu.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the View menu, then choose Reset Columns. This does not change the order of columns when printing

Printing the list

To print the Recommendations, click on the icon that looks like this

or alternatively on the File menu and choose Print, or click the corresponding button on the tool bar. Printing facilities are not available in the ShareFinder Starter

Medium Term Recommendations Output Window

The Medium Term Recommendations window displays the results of ShareFinder’s medium-term analysis of quality shares. Access this window by clicking the Analyse menu and choosing Medium Term Recommendations, or by clicking the corresponding button on the tool bar. ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later. If necessary you can force a refresh.

ShareFinder’s medium term recommendations are determined according to a set of parameters that are optimised for the medium to long term investor. Other ShareFinder components are optimised for shorter trading periods. The analysis begins with a fundamental examination of all the top listed companies’ financial balance sheet information, which is published annually. This examination is performed by Richard Cluver Investment Services, and the resulting fundamental data is sent to all ShareFinder program owners on a regular basis.

Information shown

ColumnDescription

NameName of the share. (Share names may differ from one data provider to the another.)

ClosePrice at which the share last traded.

VolumeThe average volume of shares traded recently (typically 20 days).

IndexThe Index of Value is a mathematically-derived number calculated from a series of historic balance sheet statistics and related to the actual share price movement over time. The higher the index the better the quality and likely long-term growth rate of the share.

OverpricedPercentage overpriced (if greater than zero) or underpriced (if less than zero).

Future GainThe Optimum Future Gain is a comparative figure which attempts to predict what price rise might occur to a share in the forthcoming 12 months in an otherwise static market.

BiasThe Bias represents the extent of deviation between the compound annual average growth of dividends and share prices.

GrowthThe compound annual average share price growth over the previous five years.

DYThe latest Dividend Yield.

EYThe latest Earnings Yield.

Div. GrowthCompound annual average dividend growth over the last ten, five and one year respectively.

Earnings GrowthCompound annual average earnings growth over the last five years.

NameName of the share. (Share names may differ from one data provider to the another.)

ClosePrice at which the share last traded.

VolumeThe average volume of shares traded recently (typically 20 days).

IndexThe Index of Value is a mathematically-derived number calculated from a series of historic balance sheet statistics and related to the actual share price movement over time. The higher the index the better the quality and likely long-term growth rate of the share.

OverpricedPercentage overpriced (if greater than zero) or underpriced (if less than zero).

Future GainThe Optimum Future Gain is a comparative figure which attempts to predict what price rise might occur to a share in the forthcoming 12 months in an otherwise static market.

BiasThe Bias represents the extent of deviation between the compound annual average growth of dividends and share prices.

GrowthThe compound annual average share price growth over the previous five years.

DYThe latest Dividend Yield.

EYThe latest Earnings Yield.

Div. GrowthCompound annual average dividend growth over the last ten, five and one year respectively.

Earnings GrowthCompound annual average earnings growth over the last five years.

On most days ShareFinder will have at least one or two shares that are recommended buys, but it is possible when the market is in a general long-term downward trend for there to be no “Buy” recommendations at all.

However, even at times when the share market is falling quite rapidly, there are usually a few shares swimming upwards against the tide and ShareFinder's automatic evaluation system will seek these out. It is usually safe to buy these shares even when the overall market trend is falling, but there is the risk that a more severe long-term down trend could turn even these shares around. It is therefore always wisest to wait for a positive market mood before buying. The outlook messages at the top of the recommendations window are helpful to identify the overall market trend, both in the long and short term.

Using ShareFinder’s recommendations wisely

Most shares enjoy their own boom and bust cycles within the overall market cycle and so it is usually safe to buy ShareFinder's selections at the time they are recommended. It should, however, be recognised that the best time to buy any share is when the overall market is in a positive cycle, i.e. when the Overall Market Strategy is one of:

The optimum buying point has passed

It's too late to buy now

Wait

Conversely, it would be unwise to buy anything if the Overall Market Strategy report is one of:

Prepare to sell

A sell signal might be imminent

Your selling opportunity is nearly over

The optimum selling point has passed

It's too late to sell now

When the Overall Market Strategy is either "Sell" or "Sell! Sell! Sell!" you should give serious consideration to liquidating all your share holdings.

Individual shares appear in the order of most probable short to medium-term gain. Investors who alternatively seek the greatest long-term gain are advised to ignore the order in which the selections occur within the four risk categories and instead choose only those shares that have the highest "Index of Value".

Although recommendations are displayed in descending priority order, the best buy of the day may not necessarily be a particularly attractive opportunity. To state the obvious, ShareFinder does not control the market, only analyses it. Occasionally a share that has already passed its optimum point of purchase or sale may be the best opportunity of the day on a not particularly auspicious day for investors. It is thus important to pay attention to the Index of Value of a share, avoiding all those shares that have a negative Index of value. It is also important to consider the graph of each recommendation, and not to blindly follow the buying and selling lists each day.

Examining a share

To open a graph of any share in the list, right-click on the share name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the share name. To see the share price history, right-click on the share name and choose List from the context menu.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the View menu, then choose Reset Columns. This does not change the order of columns when printing.

Printing the list

To print the Recommendations, click on the File menu and choose Print, or click the corresponding button on the tool bar. Printing facilities are not available in the ShareFinder Starter.

Moving Averages (MA)

Moving averages are an effective and simply-calculated means of smoothing out the daily oscillations of share prices in order to provide investors with a clearer indication of the average price trend. There are several variations available within the ShareFinder system and in order to illustrate their efficiency relative to one another, I have overlain a number on the graph.

In each case I have calculated the averages using the past 50 trading days of information as a basis and, as can be seen, the red line of the Complex-weighted moving average was the first to turn upwards on May 6 2003 providing the first hint that the bear market which began in January 2000 might finally be over. It was followed by the pale blue line of the Exponential moving average on May 12, then on May 15 by the purple line of the Weighted moving average and the green line of the Simple moving average.

It follows then from this example that a Complex-weighted moving average might be the best choice when seeking an early-signalling indicator. The major problem that arises from the use of these indicators on their own is an unreasonably high ratio of false signals. Noting that the fewer the number of trading days employed in the calculation of a moving average, the more reactive will be the indicator, it follows that one needs to determine which period provides the happy medium for your purpose.

The commonly-employed trial and error method of choosing a number and progressively increasing it while looking back over the graph to see which number would in the past have provided a reliable early warning, does not work with weighted moving averages. The reason should be self-evident inasmuch as weighting the calculation so as to give greater emphasis to the latest data and less to earlier data implies that as new data is added the earlier plot of the moving average will be re-calculated. In other words, a retrospective view will not show you the moving average as it actually was at the time that an investment decision needed to have been taken some time in the past.

The intelligent way to overcome this problem is to overlay a daily price graph with a number of moving averages that employ a progressively greater number of trading days. In the next example I have used a series of Exponential Moving Averages to illustrate the point. I have overlain the JSE Industrial Average with, respectively, 25-day, 50-day and 100-day exponential moving averages.

Here it can be seen that when the graph of the JSE Industrial Index cut upwards through the 25-day moving average the investor would receive his first signal that the bear market might have ended. The second confirmation occurred when the index cut through the red line of the 50-day average, the third when it intersected the green line of the 100 day average, the fourth when the 25-day average intersected the red line of the 50-day average, the fifth when the 25-day average intersected the 100-day average and the sixth when the 50-day average intersected the 100-day average.

Used in this manner moving averages are a most effective tool for gauging whether a market direction change is merely a short-term or a long-term event.

How Moving Averages are constructed

Let us start with a simple moving average for, shall we say, a 20-day period. An average is calculated by adding up the closing prices of the security for the past 20 trading days and the result is divided by 20. Next, from the 20-day period calculation we subtract the closing price of the first day and add on the closing price of the 21st day. By replicating this process on an ongoing basis, a simple 20-day moving average is constructed.

A Weighted moving average is created in exactly the same way as a simple moving average with the one exception that the very last bit of data, that relating to the 20th day in a 20-day weighted moving average, is multiplied by 2 in order to increase its weighting in the overall average.

A Complex-weighted moving average is created by multiplying the data by its position in the series. Thus the price on day one is multiplied by one, on day two by two etc. The average is then created by dividing this sum by the sum of the weighting numbers i.e. the divisor of a five-day complex-weighted moving average would be 15. Next, as in the case of the simple moving average, the first day's data is dropped and the latest day's data added.

An Exponentially-weighted moving average is very similar in concept to the complex-weighted moving average is calculated using the formula

X = (C - Xp)K + Xp

where X is the exponential smoothing for the current period, C is the closing price for the current period, Xp is the exponential smoothing for the previous period, K is the smoothing constant (equal to 2/n+1 in some systems and 2/n, where n is the total number of periods in a simple moving average which is to be approximated by X).

MACD

One of the most popular modern variants on the moving average theme is the MACD Indicator which is calculated by subtracting the output of a short Exponential Moving Average from a long Exponential Moving Average and plotting the result.

In the example I have superimposed both a 20-day Complex Weighted Moving Average and a 20-day Exponentially Weighted Moving Average upon a graph of the JSE Industrial Index. Note that the Complex moving average again signaled earlier, turning upwards on April 29 2003 while the Exponential moving average turned upwards on May 2 2003. However, in the lower panel, when a MACD Indicator was calculated by subtracting a 20-day Exponential Moving Average from a 50-day Exponential Moving Average, the resultant indicator turned downwards on Match 14, a whole 28 trading days earlier.

Mass Indicator

This is a smoothed and indexed measurement of share volume accumulation and distribution. Accordingly, a rising Mass graph will indicate that professional investors are accumulating shares. The higher the Mass indicator rises, the more vigorous share accumulation is becoming. The converse is equally true: The lower the Mass indicator falls, the more vigorous share dispersal selling is becoming.

The Mass indicator is an extremely sensitive long-range indicator that has been known to peak and subsequently begin falling as long as three months before the market as a whole turns down.

Use the notepad to attach arbitrary notes to a portfolio. For example, you might record the account number and stockbroker’s contact details. To access the notepad, go to the Portfolio Manager, click the Portfolio menu and choose Notepad.

The first line in the notepad is displayed in the rightmost column of the Portfolio Manager.

Press Ctrl+N on the keyboard to open the notepad.

Momentum (MOM)

By comparison with graphic tests such as moving averages which are primarily used to confirm that a market has changed direction, indicators are used to signal in advance that a direction change is coming. Among the oldest and most widely-used indicators are those based upon the concept of Momentum or Rate of Change. Thus in the graph composite alongside I have compared one of the earliest-signalling moving averages, that is a 50-day Complex Weighted Moving Average with the very oldest of the graphic indicators; the Simple Momentum Indicator. It is calculated by the simple process of sequentially dividing the current price of a security by the price n days in the past.

Note that whereas the 50-day Complex-Weighted Moving Average turned upwards on May 6, the 50-day Simple Momentum Indicator shown in blue in the lower graph turned upwards over a month earlier on March 28 while the 50-day Smoothed Simple Momentum indicator shown in red in the lower graph turned upwards on April 3. Best of all the 50-day Ultrasmoothed Simple Momentum Indicator turned upwards almost two months ahead of the event on March 11.

Note, however, that the same sequence order of early-signalling was not evident when the rate at which the JSE Industrial Index was rising began slowing on June 10 and this fact was first detected by the Simple Momentum Indicator followed by the Smoothed Simple Momentum Indicator on July 15 and by the Ultrasmoothed Simple Momentum Indicator on July 28.

Double Momentum (DMOM)

This unreliability of the Simple Momentum Indicator explains why investors have over the years searched for more accurate and reliable indicators. One of the earliest attempts at this is the Double Momentum Indicator which, quite simply, is created by calculating the momentum of the momentum of the chosen security.

In the composite alongside, I have created a Double Momentum Indicator and coloured it mauve. Note that its principal characteristic is that it exaggerates the trend of the Simple Momentum Indicator but changed direction at precisely the same time, actually taking us no closer to an indicator of greater reliability.

Neither is the Smoothed versions of the Double Momentum Indicator which appears in blue in the next graph particularly more helpful. However, in this example it is evident that the Ultra-smoothed Double Momentum Indicator was earlier than the other versions in signalling both the pending upturn of the market having turned upwards on February 24 and having peaked on May 26.

Mass and Velocity Indicators

Technical analysis is based primarily upon two measurement concepts: volumetric and momentum analysis.

Volumetric studies enable the technical analyst to evaluate whether investors are accumulating shares whenever prices fall, or getting rid of them whenever prices rise. Successive testing has shown that the Mass indicator, the result of many years of research and development, dramatically improves on all known volumetric indicators in both reliability and early anticipation.

Similarly, the Velocity indicator significantly refines the Price Momentum concept in both accuracy and early anticipation.

Both indicators range in value from zero to 100. A value below 10 with an upward direction change indicates a strong probability that a market bear phase has ended. Conversely, a value above 90 and changing direction downwards indicates a strong probability that a market bull phase has ended.

Mass

The Mass indicator is a smoothed and indexed measurement of share volume accumulation and distribution. Accordingly, a rising Mass graph will indicate that professional investors are accumulating shares. The higher the Mass indicator rises, the more vigorous share accumulation is becoming. The converse is equally true: The lower the Mass indicator falls, the more vigorous share dispersal selling is becoming.

The Mass indicator is an extremely sensitive long-range indicator that has been known to peak and subsequently begin falling as long as three months before the market as a whole turns down.

Velocity

The Velocity indicator is a smoothed and indexed measurement of the speed at which share prices are rising or falling. The steeper the angle of the graph the more entrenched and enduring the process has become.

Creating a New Portfolio

To create a new portfolio go to the Portfolio Manager, click the Portfolio menu and choose New Portfolio, or click on the tool bar, then type the name of the new portfolio and press Enter.

The new portfolio will appear as a new entry at the bottom of the Portfolio Manager list. To start entering transactions into the portfolio, double-click it to open the portfolio editor window.

You can record arbitrary notes related to this portfolio, such as the account number and stockbroker’s contact details, by right-clicking the portfolio and choosing Notepad. You can save any information that is of interest in the notepad. The first line of the notepad will be displayed in the rightmost column of the Portfolio Manager.

On Balance Volume (OBV)

One of the most beguiling of the early generation of technical analysis indicators was the On Balance Volume indicator which is generally attributed to US analyst Joseph E Granville. To construct it one creates two columns of volume data. On days when the closing price of the share is less than that of the previous day it is concluded that the principal sentiment of investors was to dispose of the share and the traded volumes are thus recorded in the negative column. On days when the closing price is higher than that of the previous day, it is considered that investors are accumulating the shares and the associated volume is thus recorded in the positive column. A moving average is then created of each column and these are subtracted from each other.

The resultant graph is plotted alongside in brown. I have also plotted the Positive and Negative volume totals since they on their own can be used as indicators. Note that when the JSE Industrial Index turned upwards on April 1 2003, the brown OBV line turned upwards in confirmation of this event on April 25. As the graph composite clearly indicates, however, the simpler Positive Volume Index was able to give an earlier confirmation of the market direction change, also turning upwards on April 1. Furthermore, where the OBV Indicator turned quite sharply downwards on June 20 seeming to suggest that the bull phase of the market might be over, the Positive Volume Index continued rising fairly steadily.

The Negative Volume Indicator which appears in blue in the second graph of the composite failed to offer any effective guidance at all. Readers' attention should meanwhile note the third graph panel in which I have depicted the daily traded volume of the JSE Industrial Index as a red bar graph, overlain with a blue simple moving average to underscore the point that a direction change from a bear to a bull market is usually accompanied by rising volumes.

It should be noted, however, in the second example which depicts the closing stages of the bull market of 1999, that the OBV and actual volume traded were the most effective indicators while the Positive Volume Indicator again lagged events by a considerable extent. What is particularly evident in this end of the bull market situation is that daily volumes varied dramatically as pessimism and optimism alternatively gripped the market.

Relative Strength Index (RSI)

Attributed to US analyst J Wells Wilder, the Relative Strength Index was long the darling to technical analysts because of its seeming ability to overcome the problem of erratically-moving graphs resulting from some dramatic price spike many months in the past. The calculation is a little complex for it involves first of all the calculation of positive and negative price changes by sequentially subtracting the previous closing price from the current one to determine the Positive Price Change and by subtracting the latest closing price from the previous one to calculate the Negative Price Change. Thereafter the following formula is applied:

RSI = 100 - (100 / (1 + RS))

where RS is the exponential average positive price change divided by the exponential average negative price change. However, as can be seen in the graph, the RSI Indicator actually proves to be no better than the Overbought-Oversold in providing on March 10 an early-warning of an impending market direction change that actually occurred on April 1 and on June 19 signalling the end of the short-term bull phase that occurred on that day.

The Smoothed RSI turned upwards sometime later on April 7 and was similarly late in signalling the end of the up-trend. The earliest signal came, however from the ultra-smoothed RSI which turned upwards three months earlier on December 24 but was six weeks late in signalling the end of the short-term bull market.

Optimising the Database

Over time the contents of ShareFinder’s database gradually becomes less efficient. The database optimisation function improves efficiency by rearranging information in the database. The result is that wasted redundant space is eliminated and recommendations and graphs load faster. For best performance optimisation should be performed at least once every three months.

How to optimise the database

1.Make sure the catalogue is visible: Click the View menu and choose Catalogue if necessary, or click the corresponding button on the tool bar.

2.Right-click on the database, then click Optimise.

Optimisation make take several minutes to complete, and needs a fair amount of free disk space while it works. If the process is cancelled before finishing, the original database will be left unchanged.

Removing old data

The database optimiser can be instructed to remove old share price data at the same time. Doing so will reduce the amount of disk space used by the database, but means that the older historical prices will no longer be accessible. Old data that has been removed can only be recovered by replacing the database; there may be a charge to replace the database.

The normal action is to keep all the data in the database. To remove old data, click Remove data prior to… and type the date from which data should be retained. The date should be entered in the day-month-year format (e.g. 18-4-2002). Everything prior to this date (excluding the date itself) will be removed.

ShareFinder requires at least 600 days (2½ years) of data for its calculations. Be sure not to remove too much data.

If you remove old data, it might change the outlook message that appears at the top of the standard graph.

Optimum Future Gain

ShareFinder's expectation of a share's future gain assumes that the share will recover from its present undervalued situation, and that it will enjoy additional price growth in line with its long-term average dividend growth rate.

This calculation is a relational rather than an absolute prediction, and could only happen in an absolute sense if all other shares in the market were to remain static. If most shares were to rise significantly in price, the predicted gain would underestimate the actual, whereas if the majority were to fall in price, it follows that it would probably overestimate the actual price growth of the share in question.

Outlook Messages

The outlook message that appears at the top of a standard graph window, is a verbal interpretation of the Mass and Velocity indicators. The message comprises four sentences based on the information presented in the graph window.

The first sentence is based on the smoothed price graph:

The market is static.

The market is in a rising trend.

The market is in a falling trend.

The second sentence is based on the Mass indicator graph. Since this is derived from volumetric accumulation/dispersal pressures, this sentence will be absent for shares which do not have any volume data.

Strong accumulative buying is taking place.

Very strong accumulative buying is taking place.

Distribution selling is beginning.

Distribution selling is increasing.

Distribution selling is accelerating.

Strong distribution selling is taking place.

Very strong distribution selling is taking place.

Distribution selling is slowing down.

Distribution selling is nearly over.

The third sentence is based on the Velocity indicator graph.

Price velocity is rising slowly.

Price velocity is accelerating.

Price velocity is rising fast.

Price velocity is rising very fast.

Price velocity is nearing maximum.

Price velocity is beginning to slow.

Price velocity is nearly at a peak.

Price velocity is beginning to fall.

Price velocity is decelerating.

Price velocity is falling fast.

Price velocity is falling very fast.

Price velocity decline is nearing maximum.

Price velocity decline is slowing.

Price velocity decline is nearly over.

The fourth sentence is a strategy message based on the other three.

The optimum buying point has passed.

It's too late to buy now.

Wait.

A sell signal might be imminent.

Prepare to sell.

Sell.

Sell! Sell! Sell!

Your selling opportunity is nearly over.

The optimum selling point has passed.

It's too late to sell now.

Overbought/Oversold (OVER)

One of the great favorites of yesteryear, the Overbought-Oversold indicator is calculated by measuring the extent to which the price of a security has risen above or fallen below its simple moving average.

In the example I have created a 50-day Overbought-Oversold Indicator in red which turned upwards on March 10 to predict the upturn of the JSE Industrial Index on March 31. In this case the Ultra-smoothed version proved a later signalling indicator turning upwards on March 18 and the Smoothed version turned upwards on April 1. Note also that the Overbought-Oversold indicator was the first of the three to turn downwards when the rise of share prices began slowing.

Underpriced/Overpriced

This is a relational value which notes that if all other quality shares in the marketplace were currently correctly priced, then the share in question would be either under- or overpriced by the indicated percentage.

A negative value indicates an underpriced share with latent buying opportunity, while a positive value indicates an overpriced share.

How to use the ShareFinder Portfolio Analyser

Owners of the ShareFinder Professional programme are now able to see at a glance how they are doing thanks to our new Portfolio Analyser. It is activated by clicking the 20th icon from the left which looks like this:

Activating the icon opens a task panel which looks like this:

Choose any of the portfolios you have stored in your database, left-click on it and then click on the “OK” button. A graph composite like the one below will be opened.

Note that if you have held this portfolio for some time and have actively traded it, it could take a few moments to load.

The message on the upper left hand side of the graph composite which, reading the slope of the red least squares fit line, indicates that this particular portfolio has been growing at a compound annual rate of 43.2 percent which is compared with the JSE All Share Index growth rate in the lower graph. The latter grew by 33.8% during the same period.

It is important to recognise that what we are measuring here is NOT the actual growth rate of the portfolio itself, but rather the mean of its value movement over time as traced out by the red least squares fit lines on each graph. This is a line about which the portfolio value has oscillated throughout its life. Were one to simply compare this week’s value with that at the starting point one would achieve a line like the green one in this example. The green line is actually rising at 40.9 percent.

Similarly, within the same period, the JSE All Share Index actually grew in value by 36%. It is wiser, however, to base portfolio growth performance estimates upon their value mean for, it follows that, if values are fluctuating constantly, the mean of those fluctuations is logically the more reliable constant.

Printing

Some of the information produced by ShareFinder may be printed to any suitable printer. When you are working with information that can be printed, the appropriate menu options and tool bar buttons will be accessible. If printing facilities are not available for the information you are working with, the menu options and tool bar buttons will be “greyed out” (inaccessible).

Setting up the printer

To set up a printer for use with ShareFinder, click the File menu and choose Page Setup, then choose the printer you would like to use, paper size, margins and so on. The changes you make here will be saved and used every time you print a document from ShareFinder. These settings only affect documents that are printed from within the ShareFinder program.

Printing the current window

To print information from the current window, click the File menu and choose Print, or click the corresponding button on the tool bar. ShareFinder will use the printer and settings that you chose in the Page Setup window or, failing that, the default system printer. If you make any changes here they will only be applied to the current print job. The next job will revert back to the original settings.

Printing facilities are not available in the ShareFinder Starter.

Using the ShareFinder Fundamental Quality List

The new ShareFinder Fundamental Quality List was developed in recognition that the added burden of taxation upon share transactions has stripped away the previous profitability of short and medium-term trading. Since investors are as a consequence turning more and more towards ultra-long-term portfolios, it was necessary to re-define the old Royals and Blue Chips gradings in order to isolate companies with the safest investment credentials. All four top categories enjoy one fundamental attribute; all the companies within these categories have delivered consistent dividend growth over a minimum of ten years, usually accompanied by consistent growth of earnings as well.

The Quality List is intended to provide investors with a simple means to design portfolios of enduring quality tailored to their specific needs. Thusthe most important figures to consider are the Total Return that has been achieved by a company, balanced by the degree of risk. Thus the investor of retirement age, or someone who is unable to devote the time to proper hands-on portfolio management, should weight his portfolio predominantly with shares drawn from the top three categories, choosing those with the lowest degree of risk. Younger investors who can afford a greater measure of risk might on the other hand build a portfolio with a higher aggregate historic Total Return and accept a consequently higher degree of risk.

The Grand Old Favourites

This is the safest category of all for long-term investment. These are the big market capitalisation companies with capital exceeding R10-billion which have delivered consistently high earnings, dividend and price growth rates over extended periods of time. Collectively this group enjoys lower price volatility than long-dated Government bonds and we have accordingly used their mean volatility rate as the benchmark against which the volatility of all investment grade shares is rated in order to create the ShareFinder Risk ratings.

Furthermore, these have in addition also experienced exponential rates of dividend growth which can be seen by comparing the five year compound annual average dividend increase percentage with the compound annual rate of increase for the previous ten years.

Here, it is obviously desirable that the latest dividend rate of increase exceeds the five-year rate in which this figure will be coloured bright green. Should it be coloured red, this might offer an opportunity to buy these shares at a lower than usual price. It should, however, be taken as a warning that problems might lie ahead. Should further rate reductions occur, there will in all probability be a sharp reduction in the future share price growth rate.

Though this category often produces lower share price and dividend growth rates that the other groupings in the ShareFinder Quality List, these shares offer the quality that should form the backbone of a long-term growth portfolio.

Mid-Cap Companies

These are companies with a market capitalisation of greater than R1-billion that have also delivered consistently high earnings, dividend and price growth rates over extended periods of time. Like the Grand Old Favourites they normally enjoy both extremely low rates of price volatility and high dividend and share price growth rates. Furthermore, these have in addition also experienced exponential rates of dividend growth which can be seen by comparing the five year compound annual average dividend increase percentage with the compound annual rate of increase for the previous ten years.

Here, it is obviously desirable that the latest dividend rate of increase exceeds the five-year rate in which this figure will be coloured bright green. Should it be coloured red, this might offer an opportunity to buy these shares at a lower than usual price. It should, however, be taken as a warning that problems might lie ahead. Should further rate reductions occur, there will in all probability be a sharp reduction in the future share price growth rate.

Tightly-Held Mid-Cap Companies

This category enjoys all the attributes of the Mid-Cap Companies with one exception, that relatively small numbers of the shares are available to ordinary investors. This makes them comparatively hard to obtain and in theory renders them liable to severe price volatility. In practice, however, they are tightly-held precisely because they return such consistently high dividend, earnings and price growth rates that the voting blocks that control them are unlikely to sell. Furthermore, these have in addition also experienced exponential rates of dividend growth which can be seen by comparing the five year compound annual average dividend increase percentage with the compound annual rate of increase for the previous ten years.

Here, it is obviously desirable that the latest dividend rate of increase exceeds the five-year rate in which this figure will be coloured bright green. Should it be coloured red, this might offer an opportunity to buy these shares at a lower than usual price. It should, however, be taken as a warning that problems might lie ahead. Should further rate reductions occur, there will in all probability be a sharp reduction in the future share price growth rate.

Blue Chips

These are the companies that remain when the above three categories have been stripped out of the list of companies that have consistently delivered rising dividends over at least the previous ten years. As a rule these are all extremely safe investments but they tend to deliver relatively lower total returns than the other three categories. Furthermore, some of these have in addition also experienced exponential rates of dividend growth which can be seen by comparing the five year compound annual average dividend increase percentage with the compound annual rate of increase for the previous ten years. However, in many cases this is not so and this should be taken as a warning that problems might lie ahead. Should further rate reductions occur, there will in all probability be a sharp reduction in the future share price growth rate. Should dividends at any time fail to either equal or exceed those of the previous year, these shares will fall out of the blue chip category and will not regain this status until they have again achieved a minimum of ten years of rising dividends.

Dawn from a list of companies whose primary fundamental quality is that they have paid constantly rising dividends for a minimum of five but less than ten years, these have in addition also experienced exponential rates of dividend growth which can be seen by comparing the latest dividend increase percentage with the compound annual rate of increase for the previous five years.

Usually this category of companies will provide the highest share price increases, making them the market darlings for a while. Few, however, ever manage to maintain these very high growth rates for extended periods. The best of them subsequently end up in the Grand Old Favourites, Mid-Cap or Blue Chip categories if they are able to sustain their exponential dividend growth rates for at least ten years, but usually by this latter stage the dividend growth rate will have slowed to a more measured and sustainable rate. The majority, however, run out of steam and quite often fall from grace. It would accordingly be unwise to weight too many of these into a long-term growth portfolio.

Rising Stars

These are companies whose primary quality is that their dividends have remained unchanged or risen for a minimum of five years. Most, however, will have been subject to a dividend growth rate reversal in the latest year of reporting. Should the subsequent dividend represent an actual decline over that of the previous year, such shares will normally experience a sharp share price reduction and will be dropped from this category, not to be restored until they have rehabilitated themselves by achieving a minimum of five years of steady or rising dividends.

This is a category of companies with very few claims to fundamental quality. They are displayed in descending order of compound annual average share price growth rate and those topping this list will, despite their uncertain credentials, have achieved very high rates of share price growth. Some might in time achieve the fundamentals that might elevate them to the six quality categories. Here, it is worth keeping an eye on those companies which have achieved exponential dividend and earnings growth rates. Often these are cyclic profit companies of good reputation which are enjoying one of their periodic phases of profit growth which will often be reflected by rapid speculative share price gains. Sometimes it will be a sign of improving fundamentals which might in time lead to such companies being elevated in status to one of the higher categories.

Renaming a Portfolio

To change the name of a portfolio go to the Portfolio Manager, click the Portfolio menu and choose Rename, then type the new name of the portfolio and press Enter.

Press F2 on the keyboard to rename a portfolio.

Sector Strengths Window

The Relative Sector Strengths analysis calculates the strength of each of the sector indices relative to the overall index, and displays the list of indices in order decreasing relative strength. Access this window by clicking the Analyse menu and choosing Relative Sector Strengths, or by clicking the corresponding button on the tool bar.

Information shown

The reference sector is the sector with which all the others are compared, and is marked with a blue arrowSymbol. Usually the overall index is used as the reference, but this can be changed to any other sector index by right-clicking on a sector in the list and choosing Relative to This Sector from the context menu.

A relative strength of 1 implies that the sector is level with the reference sector. Sectors that are stronger than the reference sector have relative strengths greater than 1 and are marked with a green arrow symbol. Weaker sectors have relative strengths less than 1 and are marked with a red arrow symbol.

The momentum column gives an indication of the direction of the sector, and is closely related to the relative strength value.

Examining a sector

To open a graph of any sector index in the list, right-click on the sector name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the sector name. To see the sector price history, right-click on the sector name and choose List from the context menu.

Sorting the columns

Click any of the column headings to sort the list by the information in that column. Click again to sort in the reverse order.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the View menu, then choose Reset Columns. This does not change the order of columns when printing.

Printing the list

To print the Sector Strengths list, click on the File menu and choose Print, or click the corresponding button on the tool bar.

ShareFinder Mobile

The long-term share market investment system for people on the move

Welcome to ShareFinder Mobile; the stripped down version of the renowned ShareFinder share market analysis system. Designed for simplicity, efficiency and speedy decision-making, ShareFinder Mobile offers you:

   The tools to help you draw up an investment plan tailored to your personal needs.

   A systematic portfolio builder that enables you scientifically minimise risk and maximise capital and income growth rates.

   A weekly overview of leading world markets accompanied by a graphic commentary of changing trends.

   A personal portfolio analyser which will keep watch over your investments and suggest periodic changes.

   A round the clock seven day a week alert system which will signal you by e-mail if emergency action is called for. Shortly we hope to add a facility that will also send you a cell phone SMS so you will be alerted to the need for action wherever you are during the day.


The ShareFinder Mobile system operates from the RCIS servers where your portfolio is subjected to a daily automated analysis. Should the need for action occur, you will be sent an immediate e-mail. In addition, at the end of each week your ShareFinder Mobile will automatically update itself via e-mail.

• If you want to use this software to its maximum advantage, it is highly recommended that you read Richard Cluver’s book “The Philosophy of Wealth” ISBN No: 0 9583067 61 which can be ordered from Richard Cluver Investment Services at a cost of R120.

Getting started

Designing an investment plan for yourself assumes you have already taken the practical steps of ridding yourself of as much debt as possible in order to be able on a sustained basis to set aside around a tenth of your income towards the development of a capital sum. If you have not, pause for a moment to consider the Snowball effect:

List of all your debts other than your household bond in descending order of interest rate charges. Pay the absolute minimum on accounts with the lowest rates so as to divert as much as possible towards liquidating your most expensive debts one at a time working from the top of the list down. As you clear off each debt you will have more and more with which to tackle the next….and the next…and the next. Its called the snowball effect!

Designing an investment plan for life

There are two elements that will ensure you achieve high capital and dividend income growth rates:

1) Choosing the highest quality investment

The ShareFinder Mobile contains a simple interactive questionnaire which will help you develop your wealth goals and a systematic savings and investment plan that will ensure that you get there. If you click on the ShareFinder Mobile Portfolio Builder icon on the tool bar which looks like this:

The Builder window will open up. It will look like this:

And it will be overlain by an action panel that looks like the one on the right. By left-clicking on the down arrow alongside the “Risk Profile” you will be able to select a definition that best describes yourself at each phase of your life. Note in the example, the young investor who is just getting started in life can afford to take a considerable amount of risk by choosing shares like the Medium-Term Market Leaders and the Mavericks in order to achieve high levels of capital growth. Nevertheless he was at this point urged not to allow his aggregate portfolio risk rating to exceed 85.25%.

Now left-click on the “More” button and a window looking like the following will open up which will help you develop your personal investment guidelines. The information will be stored so that you can re-visit it periodically in order to update your investment priorities

Once you have answered the questions, left-click on the “Analyse” button and a message will appear in the space below the button. It will take a similar form to the example below.

So now you have the basis of an investment plan and confirmation that if you continue to save at the same rate…and assuming that your inflation guesstimate is correct…you can look forward to a comfortable retirement. We would suggest that you re-visit this exercise at least once a year to ensure that you remain on track all the way to retirement and beyond.

Aware now of what proportion of your income you need to save and what level of capital and income growth you should be aiming at, you are now ready to start building an investment portfolio. Creating a portfolio

The easiest approach is to ask ShareFinder to construct a portfolio tailored to your personal needs. Alternatively you are able to go the trial and error route by setting up a test portfolio into which you can cut and paste as many shares as you like. Practical observation of the performance of a series of share portfolios constructed by selecting the top performers in various ShareFinder Quality List categories has shown that these portfolios are able to consistently outperform the share market average while at the same time offer specifically desired characteristics such as superior dividend growth or greater than usual protection from price volatility.

For example, compared with the 43.5% compound annual average growth rate of the JSE Overall Index, a portfolio derived by selecting the top five performers in the Total Return category grew by a compound annual average rate of 76.8% between the beginning of the bull market that began in April 2003 and October 9, 2007. Meanwhile a portfolio of 12 shares that had achieved both the highest compound annual average price growth over the past ten years as well as consistent dividend growth throughout that period achieved a compound annual average growth rate of 76.1% while a portfolio of ten shares selected by reviewing all the Quality List categories in order to isolate the ten shares that had achieved the highest compound annual average price growth over the past five years grew at a compound annual average rate of 100%.

A portfolio consisting of the five highest-graded Grand Old Favorites, by definition the safest widows and orphans portfolio constituents, achieved a compound annual average price growth rate of 57.8% while a portfolio of the ten shares that had been consistent dividend payers over the previous decade and simultaneously scored the highest dividend growth rates over the past five years, achieved a compound annual average price growth rate of 44.1%.

It needs to be noted, however, that there is a price to pay when one selects portfolios which consistently achieve very high capital growth rates for these top performing shares tend also to be distinguished by very high rates of price volatility. In the event of a market down-turn such portfolios are likely to fall further and faster than those selected using other criteria.

The ShareFinder Portfolio Builder will now automatically generate such portfolios taking into account investors’ individual ability to handle risk, their requirements for capital or income growth and so forth. Asking ShareFinder to create a portfolio

To activate this process all you need do is left click on the Portfolio Builder Icon that looks like this:

The now-familiar window that looks like this will open up.

Left-click on the “Recommend Portfolio” button and a questionnaire panel will open up that looks like the one below:

Now all you need do is tick the appropriate goal: i.e. do you require the highest possible income growth rate or the highest possible capital growth rate?

Next decide which of the four risk profiles most appropriately describes your personal circumstances and left-click on that one. We decided to chose to grow our wealth as quickly as possible and simultaneously decided we could afford to take “reasonable risk” in the process. ShareFinder accordingly generated the portfolio on the right. Finally, note that you need to fill in the panel which asks how much money you have available for investment. Here you should note that you might either have a lump sum ready to invest or alternatively plan to invest such a sum by instalments over the foreseeable future.

Note in the example on the right that as nearly as possible, ShareFinder has divided that available capital in equal sums since it is desirable to do this in order to ensure a reasonable balance of safety. Obviously, however, it is preferable to buy shares in lots of 100 or more since brokerage charges can be prohibitive when you buy in smaller quantities and so these quantity selections need not be rigidly adhered to.

Note that a portfolio of ten shares has been selected which on an historic basis has offered an aggregate weighted compound annual average dividend growth rate of 47.64% over the past five years.

By right-clicking on any of the shares, you can adjust the quantities, inject additional cash etc as you mould this basic portfolio to your own satisfaction. You can add or removes shares as well. (This is explained in the following section) Note, as a general rule you should try to have approximately equal amounts invested in each share, incrementing your holdings in blocks of 100 shares.

The Projected Growth panel, which is coloured blue below, projects the likely growth of this portfolio’s capital value and aggregate dividends in future years assuming that the compound annual average rates of the past five years are maintained.

Doing it yourself

If you decide to shun the automatic portfolio building tools and wish to experiment with building your own trial portfolio, your first step in is to create a blank portfolio and inject some money into it. Start by activating the Portfolio Builder system by left-clicking on the icon that looks like this:

A window will be opened which looked like the example on the below:

Note that alongside the heading “Portfolio” the name “New Portfolio” occurs. Left-click on the OK button to accept this

A blank portfolio will be created which looks like this:

Injecting Cash

Now you need to inject a cash lump sum. We will inject R1-million by laying our curses over the line headed “Cash” and left-clicking. A box like the one on the right will open up:

Left-click on the heading “Adjust Value” and a box like the one below will open”

Now type in the amount you plan to inject into this portfolio. We will type 1 000 000.

Next, left-click on the OK button

Note that the portfolio window will now display this sum:

And it will also be reflected in the annual projected growth column.

Now it is time to start designing a portfolio which will meet your own specific needs.

ShareFinder has offered you the suggested ratios of the various classes of investment grade shares you should be choosing. Now the cut and paste ability of the Portfolio Builder comes into play, enabling you to create a mix of low and higher risk shares which together can offer you differing dividend and capital growth rates which, when averaged together meet your own long-term objectives.

For optimum portfolio diversification, the safest portfolio is one consisting of + - 12 different shares bought in more or less equal value quantities. These need not all be bought at once, Indeed for the newly-starting out investor who is saving income month by month, it is obviously desirable to be able to gradually put together a balanced portfolio over several years. Bear in mind, however, that brokerage rates fall as the sum invested rises so it is generally not a good idea to buy in very small quantities.

The ShareFinder share Categories:

All investment grade shares are slotted into seven distinct categories. The safest to invest in are the Grand Old Favourites (GOFs) which by definition will be found to enjoy an average risk ratio equal to zero. The price of this relative lack of risk is a somewhat lower Total Return: total return is the sum of the five-year compound annual average share price growth rate and the current dividend yield. Notice in the table below, as the category risk rises, so there is a tendency for the Total Return to rise commensurately.

That is why, for example, people who have retired with limited capital resources and a pension that is barely adequate for their steadily-rising expenses are frequently tempted to invest in risky shares in order to secure a higher income. In the process, however, they risk losing most of their money in the event of a share market crash. That is why the ShareFinder Portfolio Builder strongly urges such investors to confine their investments to the Grand Old Favourites. If such an investment yields insufficient income, they should rather invest a portion of their money in long bonds at times when the nation’s interest rate pattern is at its highest, thereby locking themselves into a relatively high income stream and looking towards to some capital growth as interest rates fall. The remaining portion of their money invested in GOFs would in the meantime be growing in value, thus negating the erosion of their buying power as a result of monetary inflation.

=Selecting suitable shares

The secret of balancing a portfolio is to seek out, within the recommended share category ratios, those shares which have over the longest periods of time offered the highest Total Return in return for the lowest degree of risk.

In the example above it can be seen that ABSA offers the best combination of a relatively high Total Return” coupled with one of the lowest Risk rating. Conversely, though it offers a better return, Naspers has an unacceptably high risk rating which is why ShareFinder has coloured it red. Indeed, the most desirable choices are those where most of the numeric data is coloured green.

So let us choose ABSA as a first choice. Noting that it is priced at R140.40 as the last “Closing Price” and assuming that we had a total sum of R100 000 available to invest and were going for a ten share portfolio, we would see that to buy in equal value proportions we could afford to buy 71.22 shares. Since it is desirable to always buy in blocks of 100, we would accordingly go for 100 shares.

So let us start by including 100 ABSA in our trial portfolio. To do so, right-click on the share name in the Portfolio Builder. A dialogue panel like the example below will immediately appear. Next, left-click on the heading “Add to wish list” and a panel like the one below will appear.

Change the number 600 to 100 and left-click the OK button.

Note in the illustration that 100 ABSA shares will appear in the trial portfolio.

Now keep on adding shares in equal value amounts until you have built up a trial portfolio and you will obtain a portfolio looking something like the next example.

Note the aggregate values in bold type which indicate that you have created a trial portfolio that, on a five-year historic average basis, might be expected to continue growing at 42.3% annually and which possesses an aggregate risk rating of a very low 4.33%. In ten years time, assuming these companies continue to grow their profits at the same rate as they did over the past five, your portfolio will ( Note the Projected Growth table) have grown to R20 073 875.80 in value and be then yielding annual dividends totalling R587 214.

Note: If you have an existing share and or unit trust portfolio, you can add these into the portfolio you are building. All the shares and unit trusts in this portfolio will be analysed by the ShareFinder Portfolio Analyser each day within the ShareFinder Professional module and weekly within the ShareFinder Mobile system

The blue “Projection Panel” below the portfolio you have created illustrates what your capital investment and dividend income is likely to grow to year after year if the compound annual average share price and dividend growth rates of the past five years remain constant in the years ahead. It should be noted, however, the five years prior of the capturing of this example had been a period of unusually high growth and it would be wrong to assume that such high rates are likely to continue in the future.

The “Historic” dividend figure is the sum of the dividends that were paid out on the shares in this portfolio in the 12 months just passed. The second line of the display takes the assumption that dividends will rise in the current year by the same extent as they have risen in the past five years. The portfolio value, of course, is the total you have just captured while the figure in the “Next Year” line is what the dividend is likely to be in the year starting 12 months from the present date if the compound annual average dividend growth rate of the past five years holds true in the next 12 months. Similarly the total value assumes that share prices will continue growing in the same manner.

If you attempt to close the Builder window without saving your experimental portfolio, it will be saved automatically and be there next time you open it up. Ideally, however, you should save your work by left clicking on the “Save Changes as Pending” button on the extreme right of the tool bar. It looks like this:

When you click on it a box like the one below will open up.

Simply type in a name that best characterizes this portfolio and it will be saved under that heading. I have chosen the name Testing 1.

Retrieving a saved test portfolio

Open up the Portfolio Builder as before by left-clicking on the

Icon and the Portfolio Builder will open up as before with the trial portfolio presented just as you left it.

You can, of course, save as many portfolios as you wish. If you wish to open any of them, you will be able to do so via the same Base Portfolio selection window. Once the Builder icon is activated An action window like the one below will open up.

Left-click on the portfolio you would like to work on in order to highlight it as in the example. Finally left-click on the “OK” button and your saved test portfolio will open up enabling you to do further work on it.

Converting a test portfolio into a real portfolio

Now you need to recognise that at this stage your test portfolio exists only as a hypothetical entity. To make it real, you need to actually buy the chosen shares. To do so means appreciating that the vast majority of shares move through price cycles that are normally of an annual nature. It would not do to buy your chosen shares at a time when the price is peaking. Clearly it would be better to wait until prices have bottomed just ahead of a new up-cycle.

With the ShareFinder system, you are able to set alerts so that your computer can watch over these price cycles and alert you when the optimum buying and selling opportunities arise.

Choosing the best moment to buy

All shares and the markets within which they operate are subject to price cycles and so it makes sense to buy when prices are low and, if you ever need to sell, to only sell when prices are high. The problem, when prices are falling, is how to determine when prices have reached the bottom. We at RCIS have accordingly developed a series of technical tests which are aimed at offering some guidance in this decision-making process. Each of the graphic tests that we apply is based upon a different set of market data and we would never buy or sell unless at least two indicators were in agreement. Ideally, we prefer to see all four indicators moving in the same direction for then we can say with something of the order of 82% accuracy that the predictions will really come true.

The example below in respect of Reunert shares is a typical ShareFinder technical analysis composite. Note the smoothly-curving green line in the upper graph which is known as a Fourier Transform; a line which summarises and replicates the ten most dominant repetitive price cycles of this share over the entire price history in the ShareFinder database. On the right, in red, it is forward-projected for one year, suggesting the probability that the upward price trend is likely to continue. The second, more erratic, red line in the upper graph is a forward-projection of ALL the price cycles. It is, furthermore, overlain by a light-green oscillating line which is a summary of all price oscillations of the past six months forward-projected for a period of six weeks.

The trick with Fourier projections is to trust those where all three are trending in the same direction as is more or less the case here. In this example the green and red projections in the topmost graph suggest agreement that some short-term price weakness is likely to be followed by a steady recovery.

In the second graph panel the green bar graphs represent the daily traded volume of this share while the smoothly-curving red line represents a forward-projection of the sum of those volumes associated with dispersal selling and those associated with accumulative buying. Here, on average, accumulative buying is outstripping distributive selling and hence the “Mass” line is trending upwards suggesting the probability of continued price gains for the foreseeable future.

In the third graph panel ShareFinder has identified the alternatively rising and falling price velocity cycles – that is the rate of either price increase or decrease - and forward-projected them. Here too it is clear that a cyclic rise in the velocity of price gains is anticipated; an indication that reinforces the upward trends identified by both the Fourier transforms and the Mass indicator.

Finally, in the fourth panel we have projected the average trend of price volatility. Here the trend to look out for is a rising line indicating that there is steadily-increasing price volatility which is usually a sign that investors are becoming nervous of the price trend. Here the Volatility line is rising gently which is in keeping with a share price projected to gain ahead of the rest of the market. However, if the Volatility line starts rising much more sharply, watch out for market jitters and a price trend direction change.

Finally note the verbal analysis of this graph composite which appears at the top of the composite. It concludes that the price decline that has been taking place is nearly over and warns that if you had been planning to get out of this share because of the falling price trend, you have probably left it too late. By implication, an optimum buying point probably lies just around the corner.

These messages will be accompanied by ShareFinder fixed window technical analysis charts which are far more meaningful than the simple messaging system and which you should over time become experienced in understanding.

If you right-click on the wish list you have created, an action box like the one below will appear.

Now left-click on the “Export Wishlist” heading and the following message will appear:

Now simply follow the instructions and attach the file C:\Wishlist.sfp to an e-mail and transmit it to portfolio@rcis.co.za with your name and surname as the subject and our servers will take over the task of watching over your portfolio. You will receive by return a confirmation message that it has been received and your alerts have been activated.

The ShareFinder Professional offers users the facility to set share alerts which will be triggered either when a share price falls below or rises above a desired level or when “Prepare to Buy”, “Buy” or “Buy Buy Buy” signals are generated by the automatic analysis system.

To set up your alerts, left-click on the Catalogue icon that looks like this:

This will open up the Catalogue which will look something like this:

Now left-click on the + sign immediately to the left of the “Lists” heading and a panel will appear listing all the portfolios you have so far created. It should look like this:

Now right click on the name of the portfolio that you would like to activate and a dialogue box will open up that looks like this:

Next, left click on the heading “View Outlook Messages for this list”

You may click on as many portfolios as you wish.

Alternatively, if you would like all of your portfolios to be activated every time, after left-clicking on the heading “Lists” and the following dialogue box has appeared, leave all the headings un-ticked.

You should now left click once more on the Catalogue icon to take you back to a clear screen.

Finally, left click on the Alerts icon which looks like this:

A display similar to the one below will now appear.

Ideally, you are looking for a situation similar to that in respect of Absa and Astral where these shares have entered a medium-term “Prepare to Buy” which is echoed in the short-term outlook as a similarly positive Wait Pending“Buy” “Buy” or “Buy Buy Buy” phase. Experienced ShareFinder users will well understand the need for this medium and short-term similarity of signals but many programme newcomers are confused by the issue. It is thus important to understand that although a share might be approaching the end of a long-term price down-trend and technical analysis indicators are sensing that an up-trend is beginning, periods of short-term weakness are extremely likely at this stage. Thus the ideal buying moment would be when a “Buy” message occurs in both the medium and short-term columns. The reverse occurs when the long-term trend of a market is peaking and ShareFinder issues “Prepare to Sell” signals. Short-term signals suggesting further market gains are at this stage very likely but these should be used as opportunities to sell at optimum prices.

Left click on the + alongside the portfolio containing the shares you are interested in. This will give you a display of all the shares in the portfolio.

This will open up a dialogue box that looks like this:

And a dialogue box will open that looks like this:

Now just follow the instructions and left-click “OK”

The Sharenet Download utility is produced by Sharenet and may be downloaded free of charge from their Internet website. It is also included with the ShareFinder historical database for Sharenet as a courtesy to clients of Richard Cluver Investment Services. Please contact Sharenet Support for assistance and queries.

Share Properties

The Share Properties window displays information about the chosen share.

Sector

The name of the sector in which the share has been placed. Following the name is the internal sector number which ShareFinder uses to identify the sector. It is not directly related to any official sector number that may be used by the stock exchange.

Decimal Places

Share data from the data provider typically does not include any decimal information so ShareFinder assumes a decimal position for all shares and securities in the database. This option allows the number of decimal places to be modified for an individual share. A positive value moves the decimal point to the left, while a negative value moves the decimal to the right.

Short Term Recommendations Output Window

The Short Term Recommendations window displays the results of ShareFinder’s short-term analysis of shares. Access this window by clicking the Analyse menu and choosing Short Term Recommendations, or by clicking the corresponding button on the tool bar. ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later. If necessary you can force a refresh.

ShareFinder’s short term recommendations are determined according to a set of parameters that are optimised for the short term investor, typically a few days. Selections are made from the entire market, and are arranged in groups of similarly-priced shares.

Information shown

Column - Description

Name - Name of the share. (Share names may differ from one data provider to the another.)

Close - Price at which the share last traded.

Volume - The average volume of shares traded recently (typically 20 days).

High/Low - In the case of buying recommendations, the highest expected price within the next 30 days. In the case of selling recommendations, the lowest expected price. This is determined by a short Fourier projection.

Days - The number of days until the expected high/low price is likely to be achieved.

% Change - Percentage gain or loss assuming the share were to reach the expected high/low price.

Quality - An indication of the share’s underlying fundamental quality, determined from the share’s Index of Value, expressed as a sequence of asterisks from five (very high Index of Value) to zero (not rated).

Strategy - Recommended buy/sell strategy. This is equivalent to the final part of the outlook message that would appear on the share’s graph in short term mode.

Examining a share

To open a graph of any share in the list, right-click on the share name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the share name. Graphs opened from here appear initially in short term mode. To see the share price history, right-click on the share name and choose List from the context menu.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the List menu, then choose Options and Reset Columns. This does not change the order of columns when printing.

Printing the list

To print the Recommendations, click on the File menu and choose Print, or click the corresponding button on the tool bar.

Sharenet provides market data for all shares on the Johannesburg Stock Exchange, unit trusts, gilts, warrants, and others, within an hour of the close of market each trading day.

Sharenet provides a utility program that connects via your Internet connection to their server in order to download the latest price updates. The download program, SNETDN.EXE, is installed automatically when you install ShareFinder. All that is required is that you have a suitable Internet connection.

Sharenet Preferences

The Sharenet Preferences window allows you to change the folders that ShareFinder scans for new update files. To access this window, click the File menu and choose Preferences, then click the Sharenet tab.

It is strongly recommended that you do not change these settings unless you know what you are doing or have been instructed to do so by a ShareFinder support technician. If these are set incorrectly ShareFinder will not be able to update its database properly.

Database folder

This is the location of the database files, and is normally a subfolder of ShareFinder’s program folder, for example, C:\Program Files\SF4\Sharenet.

Update files

This is the name of the folder that ShareFinder searches for update files that were downloaded from the data provider service. This should normally be C:\SNET.

Temporary files

This if the name of the folder that ShareFinder uses for temporary files during the update process. This may be left blank, in which case the Update files folder will be used.

Archived packed and unpacked files

These are folders to which ShareFinder will move packed and unpacked files after it has finished processing them, if you have chosen not to have them deleted automatically. Archived files are normally kept for 60 days before being deleted; if you wish to keep them for longer, you should move them to another location yourself. These may be left blank, in which case a subfolder named \Archive under the Update files folder will be used.

Log files

This is the name of the folder in which ShareFinder will save daily update log files while it is updating the database. Log files are useful for troubleshooting, and may be requested by the support technician if you contact technical support for assistance with a problem. The log folder is normally C:\Program Files\SF4\Sharenet\Logs.

Keep packed files

If this option is checked, ShareFinder will move packed files that have been processed into an archive folder instead of deleting them.

Keep unpacked files

If this option is checked, ShareFinder will move unpacked files that have been processed into an archive folder instead of deleting them.

Update at startup

If this option is checked, ShareFinder will look for database update files every time it starts up. If any are found, the database update procedure will begin automatically. If this option is not checked, ShareFinder will only update the database when manually started. To start updating manually, right-click Sharenet in the Catalogue window and click Check for Updates.

How to Update ShareFinder’s Database

It is important that ShareFinder’s database be kept up-to-date with the latest share prices and other information. This is usually done on a daily basis by using the Sharenet Download Service to fetch updates from Sharenet’s database server on the Internet.

When you install the historical database, a new icon titled “Sharenet Download Service” will be created on the desktop and/or in your Start menu under Programs | ShareFinder. This icon starts the Download utility program that takes care of connecting to Sharenet’s server and fetching the required data. The first time you do this you will be asked to enter your username and password, as supplied by Sharenet when you joined their service.

When ShareFinder starts up, it first determines whether any new files have been downloaded by the Sharenet service, and loads them into its database. If there are no new files, this step is skipped.

Update procedure

1.Connect to the Internet in whatever manner you normally do so.

2.Click either the desktop icon titled Sharenet Download Service or the same item in the Start menu under Programs and ShareFinder.

4.If necessary, type the range of dates that you wish to download. The program normally remembers and updates these dates automatically. Remember that the latest price data is normally only available a few hours after the close of market. Click OK to begin the download.

6.You may now disconnect from the Internet.

7.Start ShareFinder by clicking the ShareFinder icon on your desktop or in the Start menu.

8.ShareFinder will find that there are new update files waiting to be processed, and will ask if you wish to process them. Choose Next to allow the update to begin. The update procedure takes several seconds to finish. If you click Cancel instead, the update will be postponed until later.

9.After all the files have been processed, ShareFinder will continue loading. Depending on the Preference settings, the update files will either be moved to an archive folder or deleted.

If there are no update files, ShareFinder simply skips this update procedure and loads normally.

A username and password will be supplied to you by Sharenet when you subscribe to their service. The first time you use the Sharenet Download utility program, you will be asked to enter this information.

Your password will be displayed as a series of asterisks, so in order to confirm that you have typed it correctly, you must type it twice. You will be warned if the two attempts do not match.

Daily Message Displays any messages that Sharenet needs to send to you. The message, if available, is downloaded first so that it may be read while the download of share data is happening.

Download Starts the download procedure. You will be prompted to enter the range of dates that are required. Under normal conditions you will not need to change the dates since they are updated automatically by the software, but this may be useful if you need to re-download a file, for example, to replace a previous file that was corrupted.

Files Displays a list of the file types that are available from the Sharenet service. ShareFinder only makes use of .DN files, so you would normally only select these.

Contact and Support Information

Sharenet Support is able to assist you with any matter relating to their data service.

Telephone:021 7105700

E-Mail:support@sharenet.co.za

Please note that Sharenet Support cannot assist you with issues relating to the ShareFinder program. For help with your ShareFinder program, contact Richard Cluver Investment Services or your nearest ShareFinder agent.

The time after which the download utility will assume that new data is available on the Sharenet server. Enter this as a six-digit number representing hours, minutes and seconds. The default setting of 193000 represents 7.30pm.

The username and password assigned to you when you subscribed to the Sharenet service.

Retype

The password typed in the preceding field is not shown, so to confirm that you have typed it correctly you must retype your password in this field. You will be warned if the two do not match, giving you the chance to retype both.

Hangup modem on exit

Causes the modem to disconnect automatically once a download is complete. This is useful if you use scheduling software to connect to the Internet and automatically download from Sharenet. If you intend to continue browsing the Internet after the download has finished, you should clear this option.

Set Directory

Allows you to choose a new directory/folder into which the Download utility will download files from Sharenet. This may be necessary if you are downloading data for another program in addition to ShareFinder. The usual directory should be C:\SNET. If you change this, you must also change the setting for packed and unpacked files in ShareFinder’s Preferences.

Connect via proxy server

If you are required to connect to the Internet through a proxy server, you can set up the proxy settings here. You should normally leave these settings cleared. Contact your network administrator for assistance if necessary.

This is only required if you are using a proxy server which requires authentication. The username and password specified here will almost certainly be different from your Sharenet username and password.

Files

Sharenet supplies data in a number of different files and formats. ShareFinder makes use of the .DN format only. This format will be selected when you install ShareFinder. If you choose other file formats they will be downloaded but ignored by ShareFinder.

To change the download file settings, start the Sharenet Download utility by clicking its icon on the desktop or in the Start menu, then click the Files button. Click the items in the list that is presented to select or deselect file formats that you require. Each time you click an item it changed from selected (highlighted) to deselected. Only the selected items will actually be downloaded.

Fundamental Data

Sharenet does not provide the fundamental data that ShareFinder uses to calculate recommendations. This is generated and sent separately from Richard Cluver Investment Services on a regular basis to everyone with a fundamental update subscription.

ShareFinder will warn you if the fundamental data has not been updated for some time (usually a few months), but you will not usually see this warning unless something has prevented the regular fundamental updates from reaching you.

If you receive a warning that your fundamental data is out of date, you should contact Richard Cluver Investment Services or your nearest agent to arrange for an update. Out-of-date fundamental data does not invalidate ShareFinder’s recommendations, but it does adversely affect ShareFinder’s accuracy

Other Products from Richard Cluver Investment Services

Believed to be South Africa's biggest private circulation investment newsletter concentrating particularly on the Blue Chip share market, Golds and Gilts, Prospects is delivered monthly by mail or Internet.

Email Investment Service

The Email Investment Service takes ShareFinder’s short- and long-term recommendations and sends them daily or weekly to subscribers by email, obviating the need to own the ShareFinder program itself. This service is ideally suited to people who do not own a personal computer but have access to their own private email by some other means. Included are two free information services:

-Richard Cluver’s weekly market commentary

A weekly email service that provides answers to questions submitted by ShareFinder users and others. Topics covered include specific help for the ShareFinder software range and more general investment queries. This service is freely available to anyone with an email address.

Books

Footsteps To Fortune: A new book from Richard Cluver that deals with all aspects of the investment world, analytical and charting techniques.

Investment Without Tears: A complete approach to share market investment and trading embracing all that is needed to know about the twin techniques of fundamental balance sheet analysis and charting and how to put them together into a safe and highly profitable investment strategy.

How to Profit From Share Market Charting: A detailed evaluation of all the main charting indicators in common use world-wide as well as how to construct and interpret them. (Out of print)

How To Make a Million: Beginning with simple outlines of how to create the necessary seed capital with which to begin an investment portfolio, this book offers a detailed overview of the main investment instruments available to the man in the street and explains how to employ a combination of them to create a comprehensive and safe wealth-creating strategy.

300 Ways to Make Your Money Grow: A distillation of the best of the "Write to Richard Cluver" columns that appeared in the nationally circulating Sunday Tribune newspaper.

Making Money With The Mutuals: A comprehensive strategy that assists unit trust investors to significantly boost the long-term growth of their unit trust portfolios.

Advertising For Free: Explaining how to exploit the power of the media to get a personal or corporate advertising message across to the public in the most cost effective way, this crisply written volume has become a standard text book of the public relations industry.

Other Services

Foreign Fund Management: We offer a fully confidential Channel Islands tax haven and professional management service for client with funds abroad.

Stochastic (STO)

Attributed to US analyst George Lane, the Stochastic indicator introduces the element of Disparity, i.e. the difference between two moving averages. The formula for its construction is:

%K = ((C - L) / (H - L))) × 100

where C is the latest closing price, L is the lowest low for the chosen time period and H is the highest high fro the chosen time period. It proved to be no earlier signalling than the RSI or the Overbought-Oversold indicators in respect of the change from a bear market to a bull, but it possessed the advantage of being the earliest signaller of the short-term end of the bull cycle.

In the example the Stochastic indictor itself was the first to signal a market direction change when it turned upwards on March 11. It was followed by the Ultra-smoothed Stochastic on March 28 and by the Smoothed Stochastic on April 4. The standard Stochastic indicator was also the first to signal the end of the bull run on May 16.

In traditional use the standard Stochastic is teamed with a Smoothed Stochastic and timing points are determined by the intersection of the two indicators.

The Slow Stochastic (SSTO)

The Slow Stochastic is a variation upon the standard Stochastic and here again it is conventional practice to team the standard version with a smoothed version to provide a timing signal. Thus when the Slow Stochastic indicator turns upwards, the analyst waits for the smoothed version to turn upwards and intersect the rising line of the standard version, taking tis event as a Buy signal.

Formula for creating the Slow Stochastic is:

%K = (C - L) / (H - L) × 100

where C is the latest closing price, L is the lowest low of the chosen time period and H is the highest high of the chosen time period.

Here it can be seen that the Slow Stochastic lived up to its name, not turning upwards until April 14 with the smoothed version only turning upwards on May 16 whereas the ultra-smoothed version did to really get a look in as an indicator.

Subset

The Subset indicator is used to modify the range of dates that are shown on a graph trace. The single argument that it expects is a range of dates that are desired; data outside the specified range are removed from the graph.

Date Range

Give the first and last dates in the format YYYYMMDD (year, month, day), separated by a single hyphen:

20010101-20011231

If the last date is omitted, the selection is from the first date to the end of the database:

20010101- (In this case the trailing hyphen is optional)

If the first date is omitted, the selection is from the beginning of the database to the last date:

-20011231

Instead of the first date you can specify the number of days up to the last date:

100-20011231 (100 days up to 31-12-2001)

Instead of the last date you can specify the number of days from the first date:

20010101-100 (100 days from 1-Jan-2001)

Again if either the first or last date is omitted the selection is from the beginning or to the end of the database respectively:

100- (last 100 days; the trailing hyphen is optional)

-100 (first 100 days)

The trading band is related to the average percentage difference between the price data and the fourier of the data. The calculations of the average percentages of the price both above and below the fourier are taken from the second intersection of the price and fourier lines from the beginning of the share price history to the most recent day.

A trading band needs to have a fourier as it’s reference indicator. If the parameter used is positive, the trading band relates to the average above, and negative relates to the average below. The value then refers to the percentage of the average. For example:

50Half (50%) of the average above

-200Double (200%) of the average below

Due to the nature of the fourier calculation, it can happen the the fourier value falls too close or even under the zero-value line. In such a case, the average above becomes distorted and is no longer accurate. For this reason, attempting to display a trading band which related to a distorted average above is prohibited.

Tool Bar Buttons

Industrial Index

Opens a standard graph window for the industrial index, which acts as a barometer for the overall trend of the market.

Relative Sector Strengths

Analyses sector indices to find the strongest and weakest market sectors. This is available only with the Royals component.

Long Term Recommendations

Calculates and displays long-term buying and selling recommendations.

Long Term Recommendations

Calculates and displays medium-term buying and selling recommendations.

Short Term Recommendations

Fundamental List

Produces a list of all the fundamental data that is used to calculate recommendations, categorised by fundamental quality. This is available only with the Royals component

Unit Trust Analyser

Produces a list displaying growth rates for all unit trusts over different periods of time based on their ages.

Noting that the ideal trade involves a buy and a sell within five stock exchange trading days (within the standard broker settlement period), the ShareFinder Trader has been fine-tuned to deliver optimum results within an ultra-short period. Program users should accordingly not be alarmed if the program's short-term and long-term recommendations differ in the case of individual shares. Thus, for example, if ShareFinder's long-term analysis should yield the opinion that a particular share is likely to continue rising in price while the short-term analysis predicts a short-term price fall, the implication would be that a temporary period of price weakness is likely but that this will be followed by an early recovery and a return to a protracted period of price increases.

Using three different trading approaches, ShareFinder was tested for over a year before its release.

1.Initial testing was on a simulation basis, during which the subsequent prices of shares selected by the program, as likely to either rise or fall in price, were noted. ShareFinder was accurate in better than 90 percent of cases.

2.Next came a series of five actual trades, all of which proved to be successful, yielding returns of between 60 and 290.9 percent. However, one of these trades strictly speaking should have been viewed as a failure because it failed to reach ShareFinder's predicted price horizon before falling back to a loss situation. That share was held as a longer term investment and was finally sold for a modest profit.

3.Finally, ShareFinder was employed to produce tips for Richard Cluver's weekly newspaper column in the Sunday Tribune, tipping a total of 30 short-term trades over the course of a year. The highest gains recorded were by Quicko with 200 percent achieved in eleven days, Kolosus with 143 percent in 22 days and Ventel with 124 percent in 38 days. Obviously, not all the trades were as spectacular and a few losses were recorded, but the average gain achieved across all 30 trades was 44.16 percent per transaction, with 84 percent of the trades proving profitable.

Observations

As a result of these tests, three observations were paramount:

1.The lower the initial price of the share the higher the percentage gains that were achieved.

2.Those few trades that failed, occurred when the overall market tone was pessimistic. It is accordingly better to act upon ShareFinder's trading recommendations only when the Overall Market Strategy is favourable in both the long and short term - that is, when the program is either signalling "Buy" or "Buy Buy Buy".

3.The best gains occurred when we were able to buy enough shares to either equal or surpass the average daily traded volume.

1.You should devote not more than 20 percent of your available investment capital to trading.

2.You should ideally spread this 20 percent of your investment capital over at least five transactions.

3.Though it is not recommended for the average small investor, it is feasible to manipulate the market of relatively low volume shares if you have sufficient funds at your disposal.

This strategy is best operated by a syndicate of traders. The technique requires that you initially accumulate a position in the shares at as low a price as possible when ShareFinder indicates that a "Buy" situation is likely. Subsequently, you begin buying very small parcels of the same shares at increasing prices. The trick is not to be too greedy, but to start selling once the share starts gathering strong upward price momentum.

Before beginning, it is important to consider the inherent risk associated with short term trading, against the obviously enticing returns that are possible. The risk is reduced when ShareFinder’s overall market outlook, which appears on the Industrial Index graph, is either “Buy” or “Buy! Buy! Buy!” (or “Sell” or “Sell! Sell! Sell!” for bear trading recommendations).

As a general rule, the average investor should plan a trading strategy that does not commit more than twenty percent of his investment capital to trading. Furthermore, observation has shown that one in five trading transactions is not entirely successful, so the trading capital should be split five ways or more to minimize the impact of an unsuccessful trade. It may be prudent to work on the assumption that one in three trades will fail, for added security. In any case, there should always be a little capital reserved for the promotion phase (see below), should it become necessary.

The Selection Phase

In the first phase, you determine the amount of capital you have available for trading purposes. As indicated above, for security this should not normally exceed 20% of your total investment capital, and it should preferably be split between five or more trading opportunities, with sufficient reserve remaining to enter the promotion phase if necessary.

With the capital at your disposal, choose the share you would like to trade. ShareFinder's Trading Recommendations conveniently locate candidates for trading and gives an indication of how they are likely to perform over the next few days.

To locate potential trading opportunities, ShareFinder searches in “short-term mode” for “buy” signals, and then ranks them on their quality (the fundamentally-based index of value), projected future gain and average recently traded volume.

The Acquisition Phase

It is important to consider the average traded volume of shares over the last few days. During the acquisition phase, you must assemble your stake of shares without disturbing prices, since buying in large quantities is likely to drive the price up prematurely. Your daily buying value should not exceed half the daily average of traded volumes.

The acquisition phase is completed when your trading capital is expended or when the price has risen by more than 5%. At this point, you should be following the trade on a daily basis, watching the disparity between the actual price and the price growth track plotted by the Mass and Velocity indicators (in short-term mode).

If the disparity increases significantly, because the price is not growing as was expected, you can choose one of three options:

1.Cut your losses and sell out;

2.If this is a quality share (Royal/Blue Chip/Aristocrat/Rising Star), treat it as a medium-term investment and hold; or

3.Move into the promotion phase.

The Promotion Phase

For a trade that is not moving as quickly as one would like, the object of the promotion phase is to buy, at steadily increasing prices, sufficient shares for the transaction to be noticed. The ideal market moving volume appears to be 50% of the daily average traded volume on several successive days.

Provided three days have elapsed since you assembled your holding, you would buy 50% of the daily average traded volume at 5% greater than the ruling asking price, placing your order within half an hour of the close of market. Should this not precipitate an upward movement, on the third day you would again buy 50% of the daily average traded volume at 5% greater than the ruling asking price, and again on the seventh day and beyond if necessary. On each occasion, it may be prudent to re-evaluate the three options:

1.Cut your losses and sell out;

2.Hold on in case of rising volumes; or

3.Continue with promotion.

In any event, your promotional buying should never exceed 30% of the total original outlay. Recognising that on average one in three trades is likely to fail, you should consider cutting your losses and searching for a new trading opportunity.

=Transaction Editor

The transaction editor is used to enter information about a transaction.

Date

Type the date of the transaction or click to pick a date from the calendar. If you change the date of an old transaction, ShareFinder will move the transaction into the correct chronological sequence.

Transaction

Click and choose a transaction type from the list or type the first few letters. The form changes to accept information that is relevant to the type of transaction chosen.

Share/Gilt

Type the name of the share or click to pick one from the drop-down list of shares that are already in the portfolio. Choose Share list from the drop-down list to pick a share from the entire database.

Amount, Quantity, Price/Yield, Total

Type the details of the transaction. These fields vary depending on the type of transaction chosen. In some cases ShareFinder will automatically calculate the value of a field when it has enough information in the other fields.

Note the distinction between a decimal point in numerical values and the grouping comma that is sometimes used to demarcate thousands and millions. Charges

Type the total value of transaction charges levied by the stockbroker and stock exchange. Memo

You may record any information that is relevant to the transaction in this space. Coupon Rate

This field is only visible for the “Buy gilts” transaction type, and is used to enter the coupon rate of the gilt because it is not available in ShareFinder’s database. ShareFinder records coupon rates in a separate file and will look up the rate whenever possible, so you should only need to enter this value once for each gilt purchased. Transaction is pending

This check-box is used to indicate that an order has been placed with your stockbroker but has not yet been completed. The transaction will be shown in the portfolio with an italic font, and will not be included in the Portfolio Manager’s summary list. Once you have received confirmation from your stockbroker that the transaction has been completed, you can edit the transaction and clear this check-box. ShareFinder will then include the transaction in the summary list and update the cash account balance.

Type the details of the gilt purchase into Value, Yield and Total. ShareFinder will look up the coupon rate if it has been entered before, otherwise you will also need to type the Coupon rate.

Be sure to set the decimal point correctly. ShareFinder will warn if you enter a yield that differs significantly from the average yield on that day.

If you have placed an order with a stockbroker which has not yet been completed, set the Pending flag so that ShareFinder will not include this transaction in the portfolio summary list. You can clear this flag later when the transaction has been completed.

Type the details of the share purchase into Quantity and Price. Type the brokerage charges into Charges. ShareFinder will compute the Total. Alternatively type the quantity and total and ShareFinder will compute the price for you.

The Portfolio Manager evaluates all shares in the base currency of Rands or Dollars, so be sure to set the decimal point correctly. ShareFinder will warn if you enter a price that differs significantly from the average price on that day.

If you have placed an order with a stockbroker which has not yet been completed, set the Pending flag so that ShareFinder will not include this transaction in the portfolio summary list. You can clear this flag later when the transaction has been completed.

Records a dividend payment that you have received in the form of cash.

The Amount is added to the portfolio cash account. If there are charges associated with the transaction, type them into Charges. ShareFinder will compute the Total.

Dividend Reinvested

Records a dividend payment that was reinvested by purchasing more shares.

Type the details into Quantity and Price. If there are charges associated with the transaction, type them into Charges. ShareFinder will compute the Total. Alternatively type the quantity and total and ShareFinder will compute the price for you.

The Portfolio Manager evaluates all shares in the base currency of Rands or Dollars, so be sure to set the decimal point correctly. ShareFinder will warn if you enter a price that differs significantly from the average price on that day.

Inject Cash

Adds cash to the portfolio cash account.

Type the amount to inject into Amount. If there are charges associated with the transaction, type them into Charges. ShareFinder will compute the Total.

Records an interest payment that you have received in the form of cash.

The Amount is added to the portfolio cash account. If there are charges associated with the transaction, type them into Charges. ShareFinder will compute the Total.

Interest Reinvested

Records an interest payment that was reinvested by purchasing more shares.

Type the details into Quantity and Price. If there are charges associated with the transaction, type them into Charges. ShareFinder will compute the Total. Alternatively type the quantity and total and ShareFinder will compute the price for you.

The Portfolio Manager evaluates all shares in the base currency of Rands or Dollars, so be sure to set the decimal point correctly. ShareFinder will warn if you enter a price that differs significantly from the average price on that day.

Sell Gilts

Type the details of the gilt sale into Value, Yield and Total.

Be sure to set the decimal point correctly. ShareFinder will warn if you enter a yield that differs significantly from the average yield on that day.

If you have placed an order with a stockbroker which has not yet been completed, set the Pending flag so that ShareFinder will not include this transaction in the portfolio summary list. You can clear this flag later when the transaction has been completed.

Sell Shares

Type the details of the share sale into Quantity and Price. Type the brokerage charges into Charges. ShareFinder will compute the Total. Alternatively type the quantity and total and ShareFinder will compute the price for you.

The Portfolio Manager evaluates all shares in the base currency of Rands or Dollars, so be sure to set the decimal point correctly. ShareFinder will warn if you enter a price that differs significantly from the average price on that day.

If you have placed an order with a stockbroker which has not yet been completed, set the Pending flag so that ShareFinder will not include this transaction in the portfolio summary list. You can clear this flag later when the transaction has been completed.

Withdraw Cash

Subtracts cash from the portfolio cash account.

Type the amount to withdraw into Amount. If there are charges associated with the transaction, type them into Charges. ShareFinder will compute the Total.

Using the ShareFinder Professional Long-Term Strategy

Users of the ShareFinder Professional have the option of three daily investment strategy reports; the Long-Term Strategy report generated by the Professional module itself together with the Medium-Term strategy report that is generated by the Royals Module and the Short-Term trading strategy report generated by the Trader Module.

It is important to understand that these three often seem to generate seemingly conflicting reports in respect of the same security. You need to know why this is and to understand why they in fact complement rather than contradict one another. Thus you need to recognise that different types of investors have very different investment criteria. Thus, while the average short-term trade represents a buy followed by a sale within a maximum of five weeks and often within no more than a day or two, the medium-term investor is usually looking at a better class of share which he expects to hold for at least six months and often longer. Strictly speaking both these former categories of share market operators are traders rather than investors since their primary interest is in achieving a relatively quick profit arising from some relatively short-term change in circumstances of the company they are interested in.

Finally, there is the ultra-long-term investor who will normally seek out the bluest of blue-chip shares: those of companies which have been able to demonstrate the ability to increase their trading profits year after year so as to be able to deliver a steadily-increasing dividend stream which is mirrored by a constantly-rising share price. This latter category is the only one that in the eyes of the Receiver of Revenue qualifies to be known as an investor. Such people will not be troubled at all by the day to day ebb and flow of market prices, by the brief effects of the market rumour mills and so forth. Such investors are usually content with monitoring their chosen company’s balance sheet statements and interim reports together with reports about the operating environment and so on and they will usually opt to continue holding their shares just so long as all of these sources remain favorable.

The attached graph of Standard Bank shares serves to illustrate the point. Note that a trend line automatically fitted by the least squares fit process provides the analyst with an effective means of measuring the compound annual average growth rate of share prices. Here, such a trend line illustrates that for well over 14 years this share has on average risen in price by a compound annual average of 23.5%. Some long-term investors would have been content to have held this share throughout the period, in the process seeing their dividends rise from 13.3 cents a share in December 1990 when the shares were priced at R3 a share to 151 cents in December 2003 when the shares had risen to R40 a share, throughout offering a dividend yield that hovered around 4%. After all, with dividends re-invested, this investment would have taken an initial investment of R3 000 to R90 000.

A slightly more active investor would have sensed that the share price rise in 1998 was unsustainable and would have considered taking some of his profits. Had he been using the full capability of the ShareFinder programme, he would have sold at around R32 a share in April and would have been able to buy back the same shares for R10,50 in September.

How would he have known to do this? The Professional offers a strategy message system together with the graphic example depicted on the right which creates, first of all, a long-term Fourier cycle line that is depicted in heavy black in the example on the right. Next, working through all the available past share price data of the share, ShareFinder calculates how high in an average price cycle the share prices tend to rise above this Fourier line. The average maximum deviation above the Fourier line is here depicted in pale red and the average maximum deviation below the Fourier line is here depicted in pale green. Between the upper and lower extremes, semi-parallel lines are drawn to represent 33.3% and 66.6% of this average maximum deviation and the programme then guides investors in its Long-Term strategy reports to sell off a third of their holdings when the first red line is encountered, another third at the next band, and so forth. Similarly when the price falls below the black long-term Fourier line, finds bottom and then begins to reverse upwards once more, the investor is guided to buy back a third and then another third etc.

Now it is obvious to everyone that, notwithstanding an overall upward trend in the medium term between January 5 and April 22, the price was some of the time falling and some of the time rising. This situation would have posed numerous attractive trade positions for the average share market trader. These short cycles now also become attractive to the ultra-long term investor who is seeking the optimum point to take his profits. Thus he needs to turn to ShareFinder’s trading tools to guide him to the best points to sell his thirds and similarly to guide him to the best point to buy back in. So note in my second graph composite that in October 2004 the share price had already pushed upwards more than a third of its customary distance. And the Long-Term Strategy report was suggesting that shareholders sell a third. When would be the optimum time to sell those thirds?

In the next graph composite, short-term Fourier-projection lines represented in red suggest that the share price is likely to move sideways for the next month or so, but weakness is recognized by both the Mass and Velocity indicators of volume accumulation and price momentum respectively. Clearly, given the available information, if you were planning to sell a third, anytime now would be the best time to do so because, judging by the available evidence, the price might be expected to fall in the short-term.

Both the medium term investor and the long-term investor will, having checked the ShareFinder Fundamental List and determined that Standard Bank shares were continuing to offer value (the shares are listed in green in the Fundamental List and are included in the “Acquire” grouping of the “Long-Term Recommendations”) would nevertheless be confident that they could continue holding their shares for the medium to long-term since the red line of the long-term Fourier-projection in the uppermost graph of the composite was still headed upwards accompanied by an upward-trending Mass Indicator from May 2005 onwards. Here though, there would be some cause for concern going forward inasmuch as the Velocity Indicator projection does not offer confirmation. However, with the majority of indications positive, this latter disagreement would only prompt heightened vigilance in the following few months but would not in itself be sufficient reason for much worry about the shares.

Long Term Recommendations Output Window

The Long Term Recommendations window displays the results of ShareFinder’s long-term analysis of quality shares. Access this window by clicking the Analyse menu and choosing Long Term Recommendations, or by clicking the corresponding button on the tool bar. ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later. If necessary you can force a refresh.

ShareFinder’s long term recommendations are determined according to a set of parameters that are optimised for the long to ultra-long term investor. The analysis begins with a fundamental examination of all the top listed companies’ financial balance sheet information, which is published annually. This examination is performed by Richard Cluver Investment Services, and the resulting fundamental data is sent to all ShareFinder program owners on a regular basis.

Information shown

Column - Description

Name - Name of the share. (Share names may differ from one data provider to another.)

Price - Price at which the share last traded.

ReaVal - Real Value: The sum of the compound annual average share price gain and the dividend yield relative to the yield on a taxed long bond.

ReaVal% - Real Value Percentage: The closing price of a share expressed as a percentage of the Real Value.

Grade - A weighted total summation of all the fundamental data for each share.

Cmp.Rtn. - Composite Return: The sum of the current dividend yield and the compound annual average share price growth rate.

Fund.Und/Ov - Fundamental Underpriced/Overpriced: The Grading of a share expressed as a fraction of the group average Grade relative to the Dividend Yield of the share as a fraction of the group average Dividend Yield.

Long Term Strategy - The recommended course of action for the long to ultra-long term investor. See the usage section for more help on using this strategy.

Medium Term Strategy - Displays a “Buy” or “Sell” if the share features in the related section of the medium term recommendations, or “Hold” if it does not.

Short Term Outlook - The standard short term outlook for the share.

Examining a share

To open a graph of any share in the list, right-click on the share name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the share name. To see the share price history, right-click on the share name and choose List from the context menu.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the View menu, then choose Reset Columns. This does not change the order of columns when printing.

Printing the list

To print the Recommendations, click on the File menu and choose Print, or click the corresponding button on the tool bar.

Understanding Fundamental Analysis Graphing and how to use these tools to trade cyclic profit companies

Truly successful traders tend to fix on a group of cyclic companies whose behaviour they properly understand. Here a good example is the platinum sector which can be expected to do well in times when the world is undergoing one of its periodic phases of synchronised boom. Add to this phases of Rand weakness which enable mining companies to reap a double benefit from firm world prices, and a share like Implats is bound to soar in price. So if you can anticipate such events and get in early, you will profit handsomely. The problem with such cyclic profit companies, however, is knowing when to buy and sell.

The ShareFinder Professional module’s Fundamental analysis comparison graphing tool makes the process relatively simple. How to put up this comparison graph? When you have a graph open, note the icon on the tool bar featuring a green sine wave and a capital F that looks like this:

Click on this to get the following graph display:

If you would like to get actual dividend and earnings figures, right click anywhere on the graph to open up the task box that looks like this:

Next, left-click on “Implats Properties” to open up the properties box that looks like this:

Now, left-click on “Declarations”. In the Implats example……………..

and you will find actual dividend and earnings figures going back to 1996 and Interim figures going back to 2001.

Going back to the Fundamental Analysis comparison graph, it is useful to overlay the price graph with a least squares fit trend line like this:

If you consider the display you will note the red trend line overlaying a 20-year graph of Implats. This line is drawn by the Professional’s Auto Fit process which draws a line that intersects the greatest possible number of graph turning points. To generate it, left click on the Trend Line icon that looks like this:

Using the pointer tool this icon provides, left-click on the furthest left point of the graph – or on any other point of interest – and then drag the pointer to the right. When you release the left-hand mouse button a line will be drawn linking the two points, looking, for example like the following:

Now hover your cursor over that line and right-click to open a dialogue box that looks like this:

Now hover your curser over “Auto-Fit” and an extension diologue box will open looking like this:

Now left-click in the name Implats and you should notice the red trend line snap into a new position. It will in fact have created a Least Squares Fit line which is the line that intersects the greatest possible number of graph turning points.

Now hover your cursor over this Least Squares Fit line and a diologue box will appear which will offer you the compound annual average growth rate which this line represents

You will have determined that throughout the period the line was rising at a compound annual average rate of 17.2%. Add in a dividend yield that had averaged 4% and you have a composite return very comparable with the best investment grade shares such as Standard Bank which has returned a composite 22.6%. So, in a worst case scenario had you got yourself locked into Implats you would not have fared too badly over the years.

Next, consider the second graph in the composite which tracks Implats on a Relative strength basis compared to the JSE Industrial Index which shows that from September 1994 to June 1998 this share was significantly underperforming the market average.

Next, note the green line in the third graph which tracks the growth rate of Implats’ final dividends which accelerated sharply in June 1998 when the dividend rose from 110 cents the previous year to 350 cents. The mauve line in the graph below shows how earnings per share rocketed at the same time, taking the share prices sharply upwards. Now note that although final dividends kept on rising (the green line) the rate of that increase began falling steadily in subsequent years until in June 2002 it fell quite sharply and the shape price immediately began falling both in actual terms and in the relative strength graph. Had you been a trader, that would have been the signal to get out of Implats.

Of course, what I have here been describing is really medium-term trading as opposed to the ultra-long term approach that so many investors have grown to favour since Capital Gains Tax was foisted upon us. To operate a long-term investment strategy, the best approach is to employ the Portfolio Builder approach which begins by invoking the Builder icon that looks like this:

Now click on help to activate the Portfolio Builder help file

Using the ShareFinder Professional Unit Trust Analyser

Newcomers to unit trust investment are generally persuaded to select a particular fund because it has been one of the top performers of the past year or two. This is particularly true of newly-established funds that have no “skeletons in the cupboard” i.e. injudicious investments made in the past at too high a price. The problem, however, is that the performance of so many funds tends to fizzle out within a few years leaving the unwary investor with a poor performer.

The test of a skilful fund manager is whether he is able to deliver above average asset growth over extended periods of time. Thus the ShareFinder Unit Trust Analyser seeks these skilful management teams by searching first for those funds that have achieved consistently high compound annual average unit value increases over the past ten years. Accepting that the best management teams will have got better at the job as time passes, the programme scans these top-performers to extract which of them have in the most recent five years achieved higher growth than was achieved in the past ten years. Finally this latter category is scanned to see which funds managed to achieve even higher growth in the year just past.

This process is repeated in respect of funds for which daily price data exists for the past nine years, with a sequential scan selecting the best performers in the past 4.5 years and the past year, and in turn for funds with eight years of data, seven years etc.

In the example above, it can be seen that the compound annual average of all funds for which data exists going back more than ten years was 6.21% while at the five-year half-way mark this average had risen to 8.75% and in the past year it had risen to 17.79%. Within this ten-years or more category, the Futuregrowth Albaraka Equity Fund achieved the highest sequence of growth rates with 13.22%, 21.95% and 28.88% respectively.

Note, however, that over the past ten years, the highest overall growth rate was achieved by Stanlib Resources with 17.11% and Stanlib Resources also managed the highest overall growth rate during the most recent five years with a gain of 23.74%. However, during the year immediately passed, this fund ran out of steam, coming in at only 24th in this grouping of 38 competing funds. Such consistent performance over such a long period obviously should commend itself to investors should the fund manage to recover its value momentum in the coming years.

In order to determine just how well these top-performing funds did in the past decade it is important to compare their growth rates with that of the JSE Overall Index which, as the graph above illustrates, achieved a compound annual average growth rate of 7.7%. Futuregrowth’s Albaraka Equity Fund clearly outperformed the overall index with its 13.22% gain. Furthermore, over the preceding five years, the Overall Index achieved 11.3% compound compared with the Albaraka Equity Fund’s 21.95%.

Looking down ShareFinder’s unit trust analyser list, we next note that among unit trusts in respect of which only seven years of data is available, the Investec Value Fund achieved a compound annual average growth rate of 18.14% over the past seven years, improving this to 35.81% over the past 3.5 years and ending up with a 43.39% flourish in the past year. Clearly this is another fund to watch.

Note that the performance figures calculated by the ShareFinder Unit Trust Analyser will always be different to those put out by the unit trust industry since the comparisons are made on a buying price to buying price basis, ignoring both dividend and interest payments to investors as well as the up-front commission and brokerage charges and annual management fees.

Unit Trust Analysis Window

For more details on how to use the unit trust analyser, see the usage section.

The Unit Trust Analysis window displays the results of ShareFinder’s analysis of all unit trusts. Access this window by clicking the Analyse menu and choosing Unit Trust Analyser, or by clicking the corresponding button on the tool bar. ShareFinder stores the results of the most recent analysis to save time if you need to come back to them later. If necessary you can force a refresh.

Information shown

Column - Description

Name - A longer, more descriptive name of the unit trust. (Names may differ from one data provider to another.)

Code - The standard code used in ShareFinder

Close - Most recent closing price

Data Since - First date from which ShareFinder has data for this unit trust

Full - Compound annual average gain based on all available (full year) data

Half - Compound annual average gain based on half of available (full year) data

Last - Annual gain of most recent year

The analysis output is broken into year groupings ranging from 10+ years to less than 1 year. For each group, analysis is done on that many years worth of data (10+ group only uses 10 years). Any trust with rising data from Full to Half and Half to Last is flagged. If it happens that a trust remains in the database but does not receive new data for more than 30 days, it is flagged red if previously flagged, or is marked with a warning. In doing so, every unit trust in the database will always appear on this list.

Examining a share

To open a graph of any trust in the list, right-click on the trust name and choose Open from the context menu, or click the button on the toolbar. You can also double-click the trust name. To see the price history, right-click on the trust name and choose List from the context menu.

Rearranging the columns

Click and drag any of the column headings to move the column into a new position. To restore the normal column order, click the List menu, then choose Reset Columns. This does not change the order of columns when printing.

User Defined Lists

A user defined list is a convenient place to create lists of shares that you are particularly interested in. User defined lists are created in the Catalogue under “Lists”. Once you have created a list, you can easily jump to to the graph or history of any share in your list, set high and low price alerts, or look through the entire list with the auto-run feature.

User defined lists and the auto-run facility are exclusive to ShareFinder Professional.

Create a list

Activate the Catalogue by pressing F9 if necessary, then right-click on Lists and choose New List. Type the name of the list and press Enter.

Right-click on a list and choose Add Item, then choose the item you wish to add from the share list. The new item will be added to end of the list, but you can change the order in which the items appear by right-clicking on any item and choosing Up or Down.

Using a graph with a list

Right-click on a list and choose Apply Saved Graph, then browse to locate a previously saved graph, and click Open. This then binds a copy of that saved graph into the list. (Changing or deleting the saved graph won’t change the graph used by that list.) The list accordingly changes its image to reflect this: Opening a graph from that list will now produce a graph using the exact parameters as the graph bound to it, with the exception that the primary share (the one listed first in the graph setup) will change to match the share associated with the list.

The graphs used by the list can be changed at any time by right-clicking on the list and chosing Change Saved Graph. Select the Remove Graph option to revert back to a standard list.

Right-click on an item in a list and choose Set Alerts, then enter the upper and lower price limits that you wish to set. To check for new alerts, right-click on the main Lists catalogue item and choose Check for Alerts. If there are any alerts ShareFinder will display them in an Alert window. Items that have alerts set are shown with a red flag .

Using the ShareFinder sector strengths analyser

Most investors find it useful to check out which sectors of the share market are performing the best, ShareFinder accordingly provides a quick sector performance facility which can be activated by left-clicking on the sixth icon from the left which looks like this:

Once activated it produces a tabulation similar to the one below:

Sectors that are rising at a greater rate than average are ranked with a green upward-pointing arrow in ascending order of relative strength relative to the JSE All Share Index. Sectors that are underperforming the All Share Index are similarly identified by a downward-pointing red arrow, ranked in descending order of relative strength. Thus the best-performing sector heads the Relative Sector Strengths table and the worst performer is at the bottom of the table.

ShareFinder measures the upward (or downward) momentum of the indices by dividing the average of the highest and lowest values of the current day by the average of the same values 15 trading days previously and expresses this as a percentage. It uses the high/low averaging in order to avoid distortions that notoriously occur at the end of the trading day, particularly in the case of futures and options close out days. calculates the relative strength of each sector by comparing its 15-day momentum value with the 15-day momentum value of the JSE All Share Index.

If you right-click on any of the indices, an action box opens up that looks like the example on the right. If you in turn left-click on the “Open” heading ShareFinder will offer you a graph composite of that index which looked like this on the day of writing:

Alternatively you can ask ShareFinder to “List” the daily values of each index.

Finally, if you left-click on the “Relative to JSE-…” heading that index will become the base upon which all other indices are calculated. Thus, for example, if you wished to know how other indices were performing relative to the Banking sector, left-clicking on the “Relative to JSE-BANK” heading you would receive a tabulation like the one below.

Using the Unit Trust Analyser

ShareFinder users are overwhelmingly investors who place their money directly into shares on the JSE and so it is not surprising that one of the least understood features of the SF Professional is its Unit Trust analyser which makes its quality selections in much the same way as it originally ranked quality shares; by seeking exponential price performance.

Thus in the display below one can see those funds that have been the best performers for a minimum of the past ten years. Not surprisingly either, given the commodity boom that has fuelled the JSE for the past few years, the first four top performers are commodity funds led by Investec Resources, Standlib Resources, Nedbank Mining, Futuregrowth Core and Sage Resources.

Compared with an average growth rate of 9.32% for all funds that have been around for more than 10 years, these four achieved a compound annual average of 22.58% over the past ten years. rising to s6.16% over the past five years and 60.76% in the past year. It is this ability to achieve very high compound annual average rates of growth which distinguish the management teams top companies from all the rest and the principle applies equally well to unit trusts.

The equivalent of the Professional’s Medium Term Market Leaders is the category of unit trusts that have been around for five years or more and have similarly achieved an exponential rate of price growth. Here the leader is ABSA General with a compound annual average growth rate of 20.74 over the past five years improving to 33.39% at the 30-month stage and to 33.48% last year. It is followed by Oasis Balanced that achieved 20.21%, 22.76% and 24.97% and by Oasis Property Equity which achieved compound growth rates of 19.25% 25.88% and 26.35%. In fourth place is Stanlib’s Quants fund.

Compare those growth rates with the overall average of 9.61% in respect of all the funds that have been operating for the past five years or more. For the record, the JSE All Share Index achieved a compound annual average return of 19.8% over the past five years…..the reason why I personally do not favor the unit trusts with my money.

Understanding how to put a value on a share

The ShareFinder Professional Quality List provides a series of fundamental analysis tests of company balance sheet statistics. To assist users, these are grouped together in categories highlighted by the use of a pale colour wash. Those relating to share valuation are grouped together with a pale yellow wash.

It makes sense that the smart investor will never normally want to pay more for a share than it is really worth and, as a quick rule of thumb method, analysts usually compare the currently-quoted dividend yield or the price earnings ratio of a share they are

interested in with that of the market average. But most admit that this is a rather

crude measure which usually has more to do with the quality of the share and, accordingly, the demand it is in the marketplace.

Logically, if a share is in demand because of the extremely sound investment quality of the company it represents, the price will have been bid upwards by competing buyers who are prepared to pay a premium for quality. The share market is, however, not

quite the efficient pricing machine that economic theory suggests it is. Market hype and excessive investor enthusiasm will frequently drive the price of certain shares well above their true worth and, just as often, investors will overlook the value of another share;

situations that the alert investor is able to exploit. Furthermore all shares move through cycles that sees them sometimes underpriced and sometimes overpriced. This can to some extent be observed by creating long-term price graphs and taking guidance from the extent that the price is above or below the long-term Least Squares Fit line: the AutoFit line which ShareFinder will generate on request. But it is comforting to the investor to also calculate what the share is really worth using some fundamental data.

Accordingly, within the ShareFinder system the main Fundamental Valuation Tools are grouped together in a block of columns which have been given a yellow colour wash. The user is offered two different valuation methods: the Gilt-Relative Value and the Real Value and, coupled with these is an Underpriced/Overpriced indicator. In addition, as part of the “At A Glance” tabulations on the extreme left of the Quality List, we list the Dividend Yields, Earnings Yields and the Price Earnings Ratios of all investment grade shares along with their group averages and an overall average. Comparing these

yields with their group averages and with the relevant ShareFinder Grade (also in the “At A Glance” section) enables one to make a quick evaluation. Furthermore, ShareFinder also offers in the “At A Glance” section a quick price rating of shares as either Very Costly, Costly, Fair, Cheap or Very Cheap. This valuation is accomplished by comparing the current share price with its long-term Least Squares Fit trend line, so it is obviously a quick technical analysis tool. For greater accuracy we need to turn to the yellow-washed Valuation section where we offer a series of more precise calculations

starting with our Real Value calculation which is a sophisticated evolvement of the more commonly understood Gilt Relative Valuation method of putting a price on a share.

Real Value

To understand its derivation, the benchmark investment return of a country is the interest rate paid by its long-dated gilt edged securities which are by common agreement the safest of all investments. In our view the standard gilt relative valuation method is somewhat crude. Accordingly, in order to more accurately place a valuation upon a share, we compare the total return it offers, i.e. the sum of its compound annual average price growth and its dividend yield, with the yield on a long-dated gilt.

Since dividends in South Africa are not taxed and neither is the growth in value over time of a share investment until such time as it is sold (when capital gains tax is applied), we compare the sum of the former with the taxed current yield on a suitable long

bond to determine its value.

Gilt Relative Value

A more commonly used but, in our view, less accurate method of valuing a share is the one widely associated with US investment guru Warren Buffet. In this instance the earnings yield of a share is compared with the taxed current yield of long bond.

Here, however, we should note that despite our observation about “Real Value” the market nevertheless appears to favour this latter method because prices, more often than not, tend to settle about the gilt relative mean

Gilt Relative Value %

The closing price of the share expressed as a percentage of the Warren Buffet Gilt Relative Value.

Intrinsic Value

This is the breakup value of the company after all loans and other financial commitments have been taken care of. If ever the share price falls below this figure you know you are buying value.

Intrinsic Value %

As with the Real Value % and Gilt Value%, ShareFinder also enables you to see the Intrinsic Value as a percentage of the closing price of the share.

Volume Accumulation (VAR1-6)

As I have explained in detail in my books “Footsteps to Fortune” and “How to Profit from Share Market Charting” none of the early attempts to employ volume as a prediction tool have stood up to subsequent computer optimisation testing. In my consequent search for a more effective means of harnessing this phenomenon, I initially turned to Mark Chaikin's Volume Accumulation Oscillator since the philosophy behind it seemed to overcome some of the shortcomings of OBV, PVI and NVI. Plotted together with my own first evolution of the Chaikin concept, the VAR1 on the graph composite alongside, neither were particularly effective in either predicting or confirming the end of the bear market in April 2003. They might, however, have some marginal value as indicators for short-term traders.

The evolution of this indicator continued through VARs 2, 3, 4, 5 and 6 with increasingly promising results and they have all been retained within the ShareFinder library of indicators because each has shown promise, particularly when they have been smoothed and calculated as disparity indicators. Note that the VAR 5 and VAR 6 both accurately confirmed the market change of direction as early as April 1.

Velocity Indicator

This is a smoothed and indexed measurement of the speed at which share prices are rising or falling. The steeper the angle of the graph the more entrenched and enduring the process has become.

ShareFinder Troubleshooting

General Issues

ShareFinder does not start on Windows XP

If ShareFinder displays a message about a DLL Error:

It is a bug within Windows XP service pack 2. The Windows XP hotfix from Microsoft is uploaded onto our website. You can download from here: http://www.rcis.co.za/anonftp/pub/sharefinder/upgrade/windowsxpupdate.exe

ShareFinder starts but displays an error message

If ShareFinder displays a message about the Fundamental Data being out of date:

Open the Catalogue (F9), right click on your database provider (InvestorData, ShareNet or UKData). Click on Properties, click on Statistics. There should be 2 dates being shown under Database Updates: Last share price update and Last fundamental update.

Make sure the Last fundamental update date is recent (within the last two weeks)

If the Last fundamental update date is old, then you need to save the latest supplemental data file from our email or contact us for a supplemental data subscription.

If ShareFinder displays a message saying it requires data that is in the future then you have to clean out your database update folder of incorrect files. The database update folder is dependent on the data provider you have:

InvestorData – “C:\ID”

ShareNet – “C:\SNET”

UKData – “C:\LSE”

Open up My Computer, Local Disk (C:), then open the relevant folder as per your database above. There should be a Logs folder and maybe some other files. Delete all files with a date as its filename (eg. 20090720 or 20072009), also delete all folder with TMP in its name. Then start ShareFinder and if the message does not come up again, save the out of date data that ShareFinder requires.

If the message comes up again, contact RCIS at support@rcis.co.za.

A particular screen in ShareFinder displays an error message

If the any screen in ShareFinder displays the following error message when started:

“ShareFinder cannot perform this operation because there is a problem with the database.”

Open the Catalogue (F9), right click on your database provider (InvestorData, ShareNet or UKData). Click on Properties, click on Statistics. There should be 2 dates being shown under Database Updates: Last share price update and Last fundamental update.

If the Last share price update date is “Unknown”, then it would seem your database has been corrupted. You can then either download a smaller database from our website or order a CD with the full database from us.

ShareFinder update asks for data for a holiday

To avoid this problem in the future, please make sure you have an active Supplemental Data subscription with RCIS.

Quality Shares List or Portfolio Analyser loads incomplete or corrupt data

If the Quality Shares List or Portfolio Analyser stops loading the data before it’s completed, they may be a problem with the output file:

Close the Quality Shares List, Click on the File menu, click Re-Calculate, click on Fundamental File, the click on File and Re-Calculate again and this time click on Portfolio Analyser, then open the Quality Shares List again. If the problem persists you may have a problem with your database. You could wait for the next supplemental data and try again once that is loaded in, or you could re-install the database from either a download or a new CD.

Important issues with Windows Vista and Windows 7

Windows Vista and Windows 7 requires ShareFinder to run in administrator mode. To do this, follow these instructions:

In your normal Windows Vista login account, right click on the ShareFinder shortcut, click on Properties, click Compatibility, then tick the box that says “Run this program as an administrator”. Now when you start ShareFinder normally from the same shortcut it will automatically run as administrator. This is required for ShareFinder to work on Windows Vista.

Graph Issues

Graph does not have an accuracy box

If a graph screen of a share does not have the accuracy box showing the accuracy details, then it is either that the particular share does not have any accuracy details or the entire accuracy box has been turned off. To turn it on:

Click on the View menu then click on Options, if the option “View Accuracy Details” is ticked then it is already turned on, if it is un-ticked, click on it to enable it.

Projection Graph scaling is incorrect

If the Projection Graph screen of a share has incorrect scaling for the first panel or if it shows a horizontal line either at the top or bottom of that panel, then you need to take out the FFT projection that we have added in. To do this: Click on the View menu, click Options, then click “View FFT Projection” to untick it.

Upon re-opening the projection graph, it should display as normal.

Legal Information

ShareFinder is ©1987-2009 by Richard Cluver and Richard Cluver Investment Services.

Richard Cluver Investment Services allows you, the owner, to install this product on a second computer for your personal use only, provided that you ensure that the product is used by no person other than yourself. Except for this provision and for the purpose of making reasonable backups, copying of this product is prohibited. Publication or redistribution of the results produced by this product, by any means, printed, electronic or otherwise, is also expressly prohibited.

Limitation of Liability

We at Richard Cluver Investment Services are committed to developing financial software, books and newsletters of the highest possible accuracy and efficiency. Users of these products should be aware, however, that to the maximum extent permitted by applicable law, Richard Cluver Investment Services, its employees, appointed agents and agencies shall not be held liable for any damages whatsoever arising from the use, misuse, or inability to use these products. In any event, the entire liability of the aforementioned shall be limited to the amount actually paid for this product.

All recommendations, representations and information prepared, displayed and/or printed by this product, are so done in good faith, and must be evaluated by the user in light of his or her own investment objectives. Richard Cluver Investment Services, its employees, appointed agents and agencies shall not be responsible for the accuracy of the product with respect to the user's own investment needs and objectives.

This product incorporates parameters and settings, which directly affect its performance, that are not intended for the end-user’s use. Responsibility is specifically disclaimed in cases where these parameters and settings have been modified.

ShareFinder is a trademark of Richard Cluver Investment Services.

Windows, Windows 95, Windows XP and Windows Vista are trademarks of Microsoft Corporation.

Other trademarks, where not specifically identified, are trademarks of their respective owners.

ShareFinder incorporates compression code from the Info-ZIP group, however there were no extra charges added to the cost of this product as a result of the use of this code. The original compression source code is freely available from http://www.info-zip.org/pub/infozip/ on the Internet.

Latest from The Investor

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The Investor July 2020

By Richard Cluver July 2020Financial commentators have for some years been warning of the looming “Great Reset” in which the financial and monetary systems to which we have long used, are completely upended. So it is worth starting this column with the observation that in the midst of great change, participants often fail until long afterwards […]

The Investor June 2020

By Richard Cluver                          June 2020 Since it bottomed on March 18 the JSE had been roaring upwards like most other global share markets as investors shrugged off all the gloom and doom of the Covid-19 pessimists and gleefully pointed out that the pandemic […]

The Investor May 2020

By Richard Cluver                        May 2020 Last month I explained how Blue Chip shares offer the man in the street a means of climbing aboard the money express. Screeds have been written and will continue to be written about the world’s ultra blue-chip shares and […]

The Investor April 2020

By Richard Cluver  April 2020 In the March issue I showed how young folk have on average made themselves slaves to the easy credit of our modern economic system. And I illustrated how a young couple who elected to delay marrying, buying a mortgaged home and shiny new cars soon after graduating from university could, […]
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