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A set of rules established by an investor to eliminate shares which are for one reason or another unsuitable. Private investors need to create their own selection criteria, but some criteria are obvious and essential. (1) For example, the average daily volume traded on a share is very important because it determines whether a share can be easily sold. We suggest that you make sure that the share trades at least three times what you want to buy every day, on average, so that you can be sure of being able to sell it when you want to. Thus if you want to buy R20 000 worth of a share you ensure that there is at least R60 000 worth of shares changing hands in that share each day on average over the past 30 days. (2) Your next criteria could be the absolute size of the company measured by its market capitalisation (i.e. you could eliminate shares with a market capitalisation of R100m or less). The size of a company is an indication of past success and conveys a certain amount of security. Large companies generally fail less often than small ones. (3) Then you should consider the company's historical profitability. Companies which have been profitable in the past are more likely to be profitable in the future. You could say that you want to see the company's headline earnings per share (HEPS) rising by at least 10% per annum over the past three years. (4) The nature of the company's business: you might want to focus on service companies which have a high percentage of annuity income. This eliminates companies with substantial working capital problems such as a large debtors book or a need to carry significant stock. Or, you might think that it is best to stay away from companies which generate their income by selling a commodity. (5) You could also frame a criteria around the companies labour force. A large unskilled or semi-skilled workforce usually means that the company is vulnerable to union action. (6) You could have a criteria which considers a company's exposure to the strength of the rand. Some companies (known as rand hedges) receive most of their income in an overseas hard currency such as US dollars, euros or British pounds. These companies are protected from any fall in the rand's exchange rate. There are any number of criteria that you could establish to narrow down the field of listed shares that you spend time investigating. This process is worthwhile because in the share market time is your most important resource, not money. How you spend your time will determine how you spend your money.

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