This caution is warranted because it is not outside the realms of possibility for a share to plummet 50 percent in one day if the news is bad enough about a given company. But in spite of the risks we cannot ignore the value of investing in good quality stocks.

Many of us are unaware that most investments have a listed shares component. For example, a large portion of the money you invest in endowments and retirement annuities ends up in the stock market. The reason you often get less than desirable returns is because between your money and the stock market are hefty sales commissions, administration and management fees.

Getting into the market
If you are ready to take the plunge the first thing you need to do is to learn as much as possible about the science of stock picking. There are plenty of books on the subject and the PR department of the JSE has lots of information for beginners.

Once you have gained some knowledge you should have saved at least R20 000 to invest. Very few stockbrokers will open an account for less than that and the costs (up to 10 percent of the value of the shares) would make your investments inefficient. If you have a small amount of capital, consider using an online brokerage, which are generally cheaper to use than a full service stockbroker.

Join the club
Forming a syndicate or an investment club is a great way to get R20 000 together. You should agree to put in a regular amount each month after the initial investment. To ensure the performance of the portfolio a monthly meeting should be held to discuss your holdings and to choose new shares.

The big question of course is how to choose a winning stock. If you were buying a home for the first time you would probably look for value for money and resale potential. The same applies to shares. Choosing the right stock is a simple process, but it does require some effort on your part. Look for stocks that represent value and have grown their earnings by at least 25 percent per year for the past three years. Then see if their price is rising faster than the market average. The industry sector also plays an important role and it must be in an upward trend when you buy.

Keep it diverse
You should choose between five and 12 stocks: any more than that could become difficult to keep track of. If you have R20 000 to invest you should look for shares priced between R4 and R40. The risk should be spread evenly throughout your portfolio, so it is necessary to invest a similar rand amount into each share. Setting up a portfolio in this manner could mean that you have the same amount of risk as investing in a stock unit trust.

Before you buy a share, always do some homework. Firstly look at the sponsoring stockbrokers record. If the brokerage has a string of failed listings behind them, look very carefully at any stocks that they recommend. Do a search on the internet and find out what they do and how well they do it.

When investing in shares a 'stop loss' strategy is not just sensible; it's vital. A 'stop-loss' is a predetermined loss that you are prepared to take on any share. This approach limits your losses to your 'stop-loss' level on bad decisions and locks in the profits of shares that have performed well.

If, for example, you set your 'stop loss' level at ten percent and you buy a share at R10. If it drops to R9 — when it has lost ten percent — you will execute your stop-loss and sell out. Also, however, if it goes up and peaks at R15 then turns and hits R13.50, you will sell it as it's lost ten percent off the high of R15. The ten percent trails behind the market price so it can move upwards but is never adjusted down. This strategy allows the winners to run and for you to cut your losses.

It is often said that the price fluctuations of the stock market are a culmination of investor's emotions. A clear head plays an essential role in how successful you are. Use this in conjunction with facts and figures and you will build up an investment portfolio that will take care of you for life.

A warning
Never take a gamble on a tip in the hope of making a quick profit, especially if it is in the hope of paying off debt. You should not need the money you invest for day-to-day expenses. The stock market is not for those desperate to make a fast buck or to shore up an ailing retirement plan. It is for those with a level head, little or no debt and a long-term view to making money.