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Listening to the wrong news will destroy your investment!

by , 10 July 2013

There are two types of news. And I don't mean good news and bad news…

Basing your investment decisions on the one kind of news could cost you dearly…

Whatever you do, you shouldn't listen to this first kind of news. I'm talking about the news that is blurted out to generate newspaper sales.

This is often associated with audacious headlines having bold claims only affecting your and other investors' emotions, instead of helping you make an informed decision.

For instance, I once read in a headline, “Capitec plummets” .

The article sketched a picture of the whole world falling apart for Capitec, yet the share 'plummeted' only 2% on the day. And today it's actually trading 2% higher than it was when this headline aired!

The thing is, you should ignore a headline like the Capitec one because it was used to create shock. The people who write the news make more money the more sensational it is. And a less competent investor would read what the news is saying and immediately sell the share without looking at anything else.
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The other type of news,
is the one you should keep your eye on…

The best way to find the cold hard facts about companies is to read the SENS (Securities Exchange News Service) announcements.

You see, by law, the company has to announce certain things. I’m talking about things like new listings, an intention of a corporate takeover, or dealings by directors. This is the stuff that really matters.

For example, on the 06/06/2013 Pinnacle announced they would acquire a significant stake (30%) of Datacentrix. The SENS would show this announcement as well as management’s reasons for the company’s purchase.

This will show you important information and you’ll be able to make a more informed decision on whether to buy the shares of the company.


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So what exactly you should look out for in the SENS

The SENS announces many things about companies, especially the big ones. With such a large influx of information it can be difficult to know what to look for.

So to help you along with this, I’ve created a list of the things affecting SENS:

1. Director Dealings – This is where people like the company’s directors buy or sell the shares of the company they’re in charge of. Although some trading strategies make use of this information, in general you shouldn’t read too deeply into this.

The reason a director would sell some portion of his shares could be because he’s low on cash. In fact, in some companies it’s not unheard of for the director to only get paid with shares – and not have a salary! So by selling some shares he could essentially be giving himself a salary.

2. Trading Statements – This is perhaps the most important SENS announcements. It contains up to date information about the profitability of the company.

It could also contain information regarding the company’s future prospects, giving you further indication of where it’s headed.

3. Cautionary Statements – Often the term ‘cautionary’ is misinterpreted. People often assume automatically that a cautionary statement is a problem for a company. However this is not always the case!

It could be that the company is just telling investors that negotiations for an agreement are underway or have been extended. Something like this will probably have no impact on its share price.

You can easily find the SENS about companies on many websites. Best of all, it’s for free!

Simply visit MoneyWeb to find the truth behind the shares.

Listening to the wrong news will destroy your investment!
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