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Not Investing Because It’s ‘Risky’?

Too often we hear of people or even peers who have not begun to explore the idea of investing because they’ve been told that it is ‘risky’. Wait, did you say ‘they’ve been told’? Does that mean that they never even tried their hands on it and come to the false conclusion that investing is risky? Sure, investing entails risk because there’s the possibility of losing money doing it. But do you really know what ‘risky’ mean? Does not losing necessarily equate to ‘no risk’? No.

True risk lies behind what is seldom seen. Having only one source of income is a really big risk. While the money is coming in from your monthly salary, it’s easy to feel safe and secure because you can settle your credit card debts, mortgages and bills. However, it’s this very framed up mindset, that money only comes from working (1 Income Source) that blinds us. We become so comfortable with receiving one paycheck per month that we fail to see the possibility of having multiple paychecks coming in.

Have you ever thought about “What happens if I got fired?” With layoffs becoming more and more common these days, it is a very real question. Is it simply just a time to go look for a new job to fix that broken stream of income? Or is it time to think about a greater issue at hand? This is the kind of risk I’m talking about, unforeseen risks. Who knows if another massive labour cut happens and you’re one of the unlucky victim? What would you do without 3-6 months of income? How are you going to pay for the bills now? Now, is having a job truly risk-free?

Consider this, what if you had a job while your investments were paying you cash dividends (Sharing profits with shareholders). Now you would have multiple streams of income, depending on how many different companies that pay out dividends consistently you have invested in. Even if you had lost your job, you still have a couple of income streams that does not even require you to do anything to make sure that money keeps coming in. This in turn creates a buffer for if in the unfortunate event you lose your job temporarily. On the even brighter side, you could have income from your job while your investments continue to pour even more income into your bank account!

Is investment still ‘risky’ when you see this side of the picture? Wouldn’t the risk of having only one source of income be even greater?

Just because you don’t know how to invest, doesn’t mean you can’t learn how to invest! There are many articles here on MoneyDigest and on the internet that can teach you how to invest. Just remember, which is more risky? Having only one source of income or spending some time to learn how create multiple sources of income.

Free Investment Resources Singaporeans Can Benefit From

1. BORROW BOOKS FROM THE PUBLIC LIBRARIES

The best way to fish in an unfamiliar territory is to research about it first. Know the basics in investing and trading by visiting your local or regional public library and borrowing their books. A few examples of the books you may find are “The Resilient Investor”, “Trading Options for Dummies”, and “7 Simple Strategies of Highly Effective Traders”.

The National Library Board (NLB) ensures that the information given in the public libraries are trusted, accessible, and comprehensive. Their genuine aim is to build a knowledgeable nation with generations of readers.

What is great about NLB’s website is that you can browse the availability of the book as well as find the list of libraries where it is located. This way, you do not have to go to a nearby library only to find out that what you are looking for is not there. For instance, you can find the 7 Simple Strategies of Highly Effective Traders book in 12 public libraries including Toa Payoh Public Library – our nearby library. Start searching by yourself, here.

2. ATTEND A NO-COST WORKSHOP ABOUT INCOME INVESTING

Last Tuesday, I had an opportunity to attend a workshop named: “Get Rich Slowly, The Income Investing Way”. Terence Tan led it. Terence Tan is the creator of the first Income Investing Programme in Asia-Pacific called Income Mastery Programme (IMP). Also, he is the chief investment strategist in Giants Learning Technologies as well as the founder of First Traders Network.

With a guy whose experience in stocks spans over 16 years, I thought to myself that I could certainly learn a thing or two. To get things straightened out, if you are looking for a method to get rich quickly through investing, this talk is not for you. Instead, this is for people who seek financial freedom by patiently and diligently pouring their resources for years on end.

Image Credits: facebook.com/IncomeMasteryProgramme

What you can expect from this free 2-hour workshop is to gain a glimpse of the mindsets of some investors such as the renowned Warren Edward Buffett, to uncover the principles of income investing, and to determine the right stocks in 15 minutes or less. Furthermore, he will introduce you to his own methodology called the Income Mastery Programme. My impression of IMP after the workshop was it was a feasible yet gradual way to generate profits while in the midst of low-risk trades. By lowering down the risk, you will be confident that the stocks make money over time. If you are interested to know more, you can register for their upcoming talk on August 18, here.

3. TAKE PART IN A HUGE INVESTMENT FAIR – FOR FREE

Dating back from 2007, Invest Fair Singapore is ShareInvestor’s annual event for investors and traders alike. Enjoy the presence of world-class speakers, key stakeholders, and other experts in the financial industry by registering here.

The list of featured speakers include Marc Faber (Investment Expert and Best-Selling Author), Kathy Lien (World-renowned Currency Strategist and Best-Selling Author), Roger Monthomery (Chairman and CIO of Montgomery Investment Management), and one of Forbes’ 2014 list of Singapore’s 50 Richest men – John Lim.

The seminars start with “Simple Trading Strategies for Fast Profits” on August 15 and ends with “Portfolio Allocation” on August 16. Best of all? You can get exclusive promotions from their exhibitors and stand a chance to win prizes at their lucky draw.

Image Credits: facebook.com/ShareInvestorSG

World Value Invest Fest 2015 Power Lessons [David Kuo]

Previously we explored into the mind of Warren Buffett through Mary Buffett’s invaluable lessons on Mr Buffett’s Value Investment Methodology and some of the power pointers on how to select a company to invest in. This time, let’s draw from David Kuo’s experience on Managing Risks In Stock Investing!

What is ‘Risk’?

A term we hear too often, yet never really having a perfect definition of what risk is. There are so many types of risks out there and how do we effectively manage all of them at once? Almost impossible! At best, we can mitigate them, but probably not completely eliminate them. But what good is identifying all the various types of risks affecting you, when you fail to know yourself? Risk profiling. If we don’t even know what is our risk profile, how can we select investments that have risk profile that is aligned to our own? Is it important for them to be aligned? Definitely! Say a 65-year old man who wants to invest his retirement fund for income, would you recommend him to buy speculative stocks with P/Es in the hundreds and no fundamentals? Of course not! Similarly, have we overlooked the risk of not a comprehensive risk profiling of ourselves and check if our investment decisions are aligned?

Different Strands of Investing for Different People!

There are so many different strands of investing:

Growth
Income
Blue Sky (Start-ups)
Sideways
GARP (Growth At Reasonable Price)
Bottom-Up
Top-Down
Value
Index Trackers

You don’t have to be afraid that you won’t find one that doesn’t suit you! First you need to identify where you are in life, what your investment goals are, and how much risks are you willing to take on to achieve your investment goals. Different strands of investing entails different risks and requires different investment mindset and strategies. Identify the strand that you want to focus in, read up on the skills and mindset required for the different strategies. For example, Index Trackers would adopt a very different mindset require a different skill set from Value or Growth investing. Index Trackers take on a more passive approach towards investing while gladly accepting the diversification it provides. Growth and Value Investing however requires the ability to not just read financial statements, but also, understand business as a whole and consider it from the point-of-view of a businessman. Both method works, but it depends on your investment goals. Are you trying to get from rags-to-riches? Or do you want to simply take a back seat and enjoy the ride? There’s no right or wrong, but it’s worth exploring and knowing yourself a little more.

How To Avoid Panicking

David Kuo shared this very powerful quote which many of us tend to forget – “Do not confuse the price of the stock with the story behind the stock.”

Indeed, does the price of the stock dictate the story behind the stock, or is it the other way around? If you only knew the price of the stock and not the story behind the stock, you would definitely panic because you have nothing to fall back on! David emphasises on the importance of knowing why you bought your stocks in the first place. If you knew the story behind the stock, would a falling price cause you to panic or would you see it as an opportunity to buy more at a cheaper price? If you knew the story, you would at least have the mental and emotional capacity to ride out the rough patch, having quiet confidence that the company’s results will show for itself in the long-run. “There will be delays in our investing journey”, so ALWAYS have a margin of safety! If we can’t eliminate, at least mitigate the temporary losses! Lastly, ask yourself, do you have the courage to invest when times are bad? 🙂

A Simple Guide to Analyse Companies

“How to analyse a company?” – This is a question that almost every new investor will ask. Especially for first-time investors, this can be a very daunting task, where does one begin? Without proper financial education and experience, it is definitely hard to know what are the signs of a good or bad company.

There are 2 ways to analyse a company.
1) Fundamental Analysis
2) Technical Analysis

Fundamental Analysis

What are the differences you may ask. Fundamental analysis looks at both the macro and micro economics. We look at the prospects of the industry and the way the business positions itself to grow. Fundamental analysis looks into the financial statements (Income statement & Balance sheet) and dives into all the nitty gritty details of the company such as management, business model, etc. This the type of analysis that Warren Buffet and many other value investors subscribe to. A company with good fundamentals will stand strong through the test of time and be able to ride through the market cycles. Couple a company with good fundamentals and at the right valuation, you’ll be paid off handsomely for your labour. When you do your research, you are taking calculated risk and you avoid exposing yourself to taking on unnecessary risks that may not want to take on. Investing is not simply buying or selling, it requires making sense of the ocean of numbers you see. When first starting out, I can assure you that it’s information overload and all you see are numbers that do not make sense. Give yourself time, start with one set of numbers at a time and with practice, you will eventually be able to make sense of everything!

Technical Analysis

Technical analysis on the other hand, is more focused on the entry and exit timing when trading. Pure technical analysis will ignore the fundamentals of a company. These are the people who looks at charts, chart patterns, price-volume action and technical indicators. They also tend to enter and exit a trade very quickly because they are riding on the hype of the market. A company without solid fundamentals may rise due to speculators buying up the share prices hoping the next fool buys it higher. But these stellar movements will not sustain without fundamentals just like how a skyscraper needs a solid foundation. They will not stand the test of time and will come crashing down as shown by the not-so-recent crash of the trio (Asiasons, Blumont, LionGold). However, let’s not discredit technical analysis just yet. Technical analysis has a lot of advantages and can give you hints of when the stock will move in a certain direction. Every single bit of information in investing is important and the one who has the most accurate information is the one who profits. I urge you to keep an open-mind about technical analysis because although it starts off confusing, just like with every other thing, it will reward you just as well.

Combining the best of both worlds

Allow me to introduce you the third style. This combines both technical analysis and fundamental analysis. This is perhaps a more mixed up approach, which attempts to take the best of both worlds of investing and trading. Personally, I subscribe to this style of investing because I believe that a company with good fundamentals can get cheaper for external reasons such as poor market sentiments, short-term fluctuations, etc. This is when good fundamental analysis meets good technical analysis; to be able to buy fundamentally good companies at the cheapest price with the given opportunity. This style of investing is especially useful when investing in companies for their dividend yield. Dividend yield can be affected by two factors, the dividend payment and the share price. Take for example a company like SingPost, it gives out the same dividend year after year since 2006, 6.25c. The only way to get a better dividend yield out of it is to purchase it at a lower share price. This is where I feel having good technical analysis skills come into play. To be able to spot the bottom of price movements allows you to get better yield. I believe that even good companies can get even cheaper due to external reasons which are short-term in nature. You would effectively be able to apply the “Buy low, sell high” concept as well as value investing. Take time to learn and understand both ways of analysis and you will come out a better investor at the end of the day!

4 Great Things You Learn Indirectly When Investing

Like you, I was young and fresh to the world of investing. I was 18 and finally eligible to invest! I remember thinking to myself; I can finally put everything that I have learnt into practice! Along the way, I have learnt so much more, directly and indirectly, about investing.

1) Saving

The first obvious thing about investing is that you can’t even start it when you have nothing to start with. My growing interest in investment was a very strong motivation for me to save. I knew I had to have enough to get into the playground of the rich. Diligently, I put aside half my allowance every week and continued that way for months. Eventually, I had enough to make my first investment. From there on, I never stopped the habit of saving at least half my allowance to put into investments. You’ll be surprised how little you actually need once you begin on this journey of budgeting your week. Also, I advocate cash payments instead of credit cards because it is easier to track how much you have left and be less likely to overspend or spend unnecessarily.

2) No more reckless purchases

Having begun investing and seeing the kind of return it can give, I learnt to forsake a lot of luxury purchases just because my friends around me have it. A $1000 investment can make me $100 or it could buy me some stuff that I don’t really need and impede on my investing journey of creating a sizable portfolio. I chose to focus on growing my investment portfolio instead of indulging in luxury purchases. Of course, that’s not to say that it’s wrong to indulge. Indulge when necessary, not all the time!

Eg. If I wanted to buy something $100, I would want to make that $100 off the market before buying it instead of using my capital of $1000, depleting it to just $900. If you choose not to spend, you’ll still be rewarded with the compounded growth! This method of spending teaches you to delay gratification and to give you time to think twice before making a purchase. Also, you will cherish and enjoy your purchase even more, knowing that it comes from the fruit of your investment. You not only get what you want, you learn valuable lessons about investing as well!

3) Investing shows your true self

Investing will show you your true self and what kind of a person you truly are when money is involved. Are you the same person when you make a lot of money or lose a lot of money? When I first started investing, I definitely did not expect that I would be in for an emotional roller coaster ride. One moment I was feeling good about myself for making the right decision to buy a particular stock. The next moment I was feeling angry at myself for being greedy to want more instead of taking my profits. From profits, they turned into losses. Over the years, I have grown to stabilise my emotions and accept that market swings are normal. I was then able to embrace them and learn to see the bigger picture instead of allowing my emotions to get in the way over short-term market noises.

4) How well can you tolerate risk?

When it comes to risk tolerance, it is all about discipline. When the share price hits your target, are you willing to stick to your target and take your profits? Or, will you continue to let it run hoping that it continues to go further up and disregard your primary research on the existing resistance level? Too often, traders in the market lose money due to the lack of discipline to take profit or to cut their losses. We all know that it is best to ‘Buy low and Sell high’. However, when real money is involved, greed and fear often overcome logic. Discipline is what will keep your rationality and nurture emotional stability. This would eventually translate into profits that you put into your pocket!

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