Thread by @chrisfromuwi

A bit generalised for simplicity so a google search or YouTube video helps.

Disclaimers are starred and addressed at the end for the stock gurus *

🤔 What is an index? 🤔

An index is a collection of stocks. It's made to follow stocks based on a particular criteria.

So this means your portfolio is an index! It's made up of a criteria that you decided on:

- I personally like the companies
-I like the price of the stock
-I like the management
-my financial advisor recommended them
Etc.

(learned this from @Earnings_Season podcast 😀)

Another example of an index would be the Manufacturing and Distribution (MD) index .

The criteria is in the name: manufacturing and distribution. Therefore it's made up of manufacturing and distribution companies.

(other indices: jamstockex.com/market-data/in…)

Why an index?

Because the MD index isn't made up of all the companies on the JSE, it is only exposed to the movements in price of the manufacturering and distribution companies.

Why would they make an index?

It allows you to observe the performance of a particular grouping of the JSE independent of the other companies.

Eg. In the winter , dolphin cove may perform better because tourists are running from the winter so more tourist, more revenue.*

However because they're averaged in with other stocks , you can't tell.

So the index separate a group of stocks from the negative —and also the positive —results of the overall stock exchange

Also...

It helps with jumping to conclusions too 😅

"Financial index performing better than the JSE index ? Then I will buy all the affordable finance stocks! "

*laughs in ncb*
(scroll to the disclaimer section for this)

The index i was speaking to were actually ETFs(exchange traded funds).

For the sake of my thumbs getting a rest from typing, we're gonna just say they're indexes made by companies that you can buy into by buying the stock*

Some ETFs have a similar makeup as the JSE so when there was a dip from july to sep, their value is expected to have dipped too

That lead me to believe that their financials to be released based on that point in time would be underwhelming.

Disclaimers :

*Not everyone defines criterias the same. JMMB, the financial institution, is in the index. Some would question what is meant by "manufacture" for it to qualify JMMB

*NCB makes up 30+% of the JSE so if them sneeze, the index cough.

*revenue isn't a guaranteed driver or indicator of a stock price. The stock price is market driven—people decide the value of the stock based on... You guessed it? Their own criteria 😉

* buying an ETF stock isn't really buying into it. Even if an ETF holds shares and is doing really well, it doesn't mean it will be priced as well as it's performing . Again, it depends on the markets view of that ETF

*Most indices give NCB the largest share of their makeup. So it's quite likely a shift in price is solely ncb. It's important to compare and track before coming to conclusions on why an index moved.

Hope this helps. I'm not a stock guru! I just had this answer lol. If you want much better stocks 101 threads, follow @JCKNIGHT2 and #FinanceTwitterJa

*NCB is just the talk of the town and Michael Lee Chin is a billionaire so it's used often. It's not a recommendation, I'm not a financial advisor, yada yada.

* life tip:

If you ever sign a prenuptial agreement, ensure your stocks aren't on the table! Let the car go and hold onto your NCB shares!

NCB shares > 🚗

Don't mistake knowledge about stocks for a source of advice for stock picks.

I'm learning too

My portfolio is currently auditioning for the role of Ship in the Titanic movie. It's rehearsing the sinking scene 🛳 🙃