Investing
Investing means to commit (money or capital) in order to gain a financial return: invested their savings in stocks and bonds. (Source: Dictionary.com)
How to start investing?
First, you must ensure you have enough savings of at least 3-6 months of your monthly salary for
investment before you decide to invest in the stock market. Make sure you have some cash funds
that are not meant for investment in case of emergency.
Convenience
With the advances in technology, you can trade anywhere at any time as long as the markets you
trade in are open. You can also monitor and manage your investment online should you decide to
trade online.
Know your objective for investing
Keep your objective clear – whether it is for your children’s education or for your own future
savings, your investment should be focus on stocks that offers good capital growth. Meanwhile, if
you are investing for your retirement fund, you should focus investing in stocks that offers a
consistent income stream.
Know your risk appetite…
Are you a high risk taker or low risk taker? Investing in stocks that provide high returns tend to
have higher risk while stocks which have steady growth (low risk) may provide with lower
investment returns. You can also diversity your investment by having a mixture of high to low risk
stocks.
Discipline
You must be disciplined in your investment plan/strategy and stick to it. If your stock is losing
money, ensure that you have a stop loss strategy in place (between 3-5% is recommended,
depending on your risk appetite).
Do not put all your eggs in one basket…
Learn to manage your risk. Never put all you money onto one stock. Always diversify your
investment so that you can still have some investment returns if one of your investments turns out
bad.
Know what you are getting into
You should always research the company you invest in – what business are they in, competitive
edge of the company, how do they generate income, the company’s business cycle, whether they
are a financial stable company. You should study the fundamentals of the company to ensure that
you are investing in a financially sound company. You can also look at technical studies to
determine the best entry and exit points in your investment.
Say ‘NO’ to rumours
Never buy a stock based on rumours. The stock could be subjected to speculative play, which
normally ends very fast. You could end up in the losing end once the speculators exit the stock.
Volatility
Do note that the stock market is a volatile place. Stocks may be affected by regional and/or global
markets, economics news, cancellation of contracts, commodities prices, political stability and etc.
Beside the returns of your investment…
The company may reward shareholders through dividends, bonus issues, right issues and etc.
How do you select stocks?
Again, it depends on your investment plan and risk appetite. You can choose to invest in (i)
developing companies (just started its business – high risk), (ii) growing companies (strong growth
in sales and profits – huge potential returns), (iii) maturing companies (growth not as exciting as
growth stock, potential return lower – low risk) or (iv) declining companies (unable to grow as fast
the economy/industry growth rate – high risk, low returns). It is best to invest in companies that
have high demand in products or services, low debt to equity ratio, efficient management of
shareholders fund and ability to survive the ups and downs of the market despite increase in
competition.
Fundamental Analysis
A method of evaluating a security by attempting to measure its intrinsic value by examining related
economic, financial and other qualitative and quantitative factors. Fundamental analysts attempt to
study everything that can affect the security’s value, including macroeconomic factors (like the
overall economy and industrial conditions) and individually specific factors (like the financial
condition and management of companies). The end goal of performing fundamental analysis is to
produce a value that an investor can compare with the security’s current price in hopes of figuring
out what sort of position to take with that security – i.e. underpriced – buy, overpriced – sell.
Fundamental analysts use real data to evaluate a security’s value – such as financial statement to
evaluate stocks.
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