What is Investing and How Did I Start?
Updated: Feb 13, 2020
Want to know more about investing but have no idea where to start? With technology advancing everyday, information is readily available everywhere and can be painful to sieve through as an working adult. To get anyone started, here I share some of my investing experiences and online resources that can be beneficial for newbies like me!
First, we need to understand what is investing..
So What is Investing?
Investing is the purchase of shares, property etc. in hope to gain a profit. Not necessarily that money has to be involved all the time but time or the amount of effort as well.
One such example would be investing time (effort and money) by queuing to get a table in a popular restaurant. In this case, the profit would be actually having a great dining experience (good food, good service, good ambiance etc.) thus you leave feeling rewarded for the investment.
Likewise, working for a company is another form of investment. Time and effort are invested to hone your expertise in a role to hopefully achieve more compensation or even a promotion.
How should I start Investing?
Before making any investment, the most important step is actually to know about yourself!
Knowing yourself!
Why is that?
Investing is just a simple process of putting in the money into assets or stocks. Still, to actually reap the "fruits" of your "labour", you need the discipline, patience and trust. The concept is exactly the same as planting a fruit tree which Warren Buffett had described similarly about Berkshire Hathaway's assets in his shareholder's letter 2018. I highly recommend for anyone interested to check out the link as it is a god send opportunity to have one of the most successful investor to share about investing.
It is easy to plant a fruit tree. However, it requires periodic watering, fertilizers, trimming, removing pests etc. for the tree to grow well. In short, delayed gratification which is something that our generation lacks. Hence, here comes the question of whether you have all of the qualities to grow "trees".
If your answer is the same as below:
"I don't think I have those qualities." Not to worry as there are other financial instruments available that let others do it for you but at a commission.
"I don't know..." Like most confused millennials are (myself included), I advise that you start small and learn more about yourself as you invest. What are the kind of things you will learn? For example, "gardening" style, learning about your emotions towards failed attempts etc.
"I believe I have and I know what type of gardener I am." Great! Now you can proceed to the next stage.
What is your risk appetite?
Let's imagine that one day scientists discovered a type of honey that contained properties which could prolong a human life. Naturally, the demand for this special honey skyrocketed hence earning the nickname of "liquid gold". However, obtaining this particular nectar is not that simple. The bees that produce it are as large as a human and one sting will guarantee death (sounds like a game LOL).
Alternatively, you can stick to your 8 - 5 job and earn a monthly salary. Maybe few years down the road, you realized that your salary is unable to keep up with the ever rising expenses. You resort to ranting on Facebook thus evolving into a keyboard warrior.
So which path would you choose? Before deciding, begin by recognizing your tolerance of pain. If a scratch is enough to make you cry then path #1 will not suit you at all. Depending on your decision, there are different sets of actions that you should take. Of course this is an exaggerated analogy, life is not entirely cruel by giving you only two choices.
For the first option, the number one priority is to acknowledge and understand the risks involved. Upon knowing yourself and your "enemy" well, identify how to manage the risks (risk management and hierarchy of control may give you some ideas). As a "bee hunter", donning of armour is a way to reduce risk (refer to PPE, last level of hierarchy of control). When put into action, learn to embrace your fears. If you go into battle feeling defeated, defeat will soon follow.
How does it translate to investing? Investment can be high risk high reward, high risk low reward (the worst), low risk low reward and so forth. Know what is your "pain" tolerance by doing your homework and invest in the amount you are comfortable of losing. Most newbies (like myself) often underestimate the psychology effects of it. Resulting in the habit of checking stock price periodically or worst, stress and loss of sleep when it goes deep in the red.
As for the second option, ensure that you are successful in what you do. Climb up the corporate ladder like it is the stairways to heaven and take good care of your health concurrently. If not, a "golden handshake" is always round the corner and this stable stream of income will be no more.
As for me, I chose option 3 which consists the best of both worlds. Have a job that is not too demanding yet enjoyable. Supplement that monthly income through passive investing.
Invest in yourself
Thirdly, invest in yourself by dedicating time to learn about investing. Find out what are some of the investment strategies and whether it matches you.
After you have identified the type of investor you are likely going to be, continue to read more. Personally, I believe that I belong to the category of value/growth/dividend investor. Value: I like to acquire stocks at cheap valuation as chances of it becoming cheaper is much lower than buying at a high price. Growth: Choose companies that have proven themselves to grow consistently over the years with great market control. Dividend: I like to be paid while waiting.
Below is a short list of my preferred sites:
1. Buffett's Books
Visit Buffett's Books in the link here.
Buffett's Books was one of the websites that kicked start my investment journey. They have provided 35 lessons that are easy to understand in video format and transcript for FREE! The lessons are primarily focused on value investing, a strategy pioneered by the late Benjamin Graham which Warren Buffett had adopted and become one of the most successful investor!
So what is value investing?
Value investing revolves around looking through a business' fundamentals and determine if it is worth the current price or not. Essentially, it is almost like the common term out there "Buy low, sell high" except that Warren Buffett doesn't believe in selling good businesses. It is a investment philosophy that made a lot of sense to me, hence my preferred methodology.
Additionally, they have included tools that can help you with assess businesses. One of the tools I frequently use is the Discounted Cash Flow (DCF) calculator that estimates the value of a company based on past years' cash flow.
For anyone who is interested to learn more, Buffett's Books do have advanced courses which are available for a fee.
2. The Finance
Visit The Finance in the link here.
The Finance is an online community where local bloggers share their investment strategies, ideas or anything finance related. Majority of the content would revolve around companies listed in the Singapore Exchange (SGX). Just google about the recent Hyflux incident and count how many bloggers shared their piece.
Personally, I always have the habit to listen to opinions of others before making decisions. Looking at other's perspective on The Finance is how I try to make a more "informed" investment decision.
Sometimes, I do get bored while waiting for my portfolio to grow into fruition so I look out for stock ideas to fix my itch (that is why I have several small positions in my portfolio, almost like gambling LOL). Just take note that before following any recommendations, please do your own due diligence.
Some of the blogs that I check out regularly: Investment Moats, Turtle Investor, Small Caps Asia, Seedly, Dr Wealth, Fifth Person etc.
3. Ale's World of Stocks
Visit Ale's Youtube Channel in the link here.
Ale is a YouTuber who makes stock analysis videos on largely tech or growth companies. What I really like about his channel is that his videos are fairly easy to understand. He provides good analysis by giving an overall picture of the company, its competitors and how much its products' demand will increase. Lastly, he is a long term investor like myself, hence he is not fixated with media negativity (we regard them as noise).
Closing Thoughts
Before investing, it is important to recognize that investing is not a sprint but a marathon. It is a life journey of constant self learning and improvement. Results cannot be just achieved overnight. Whether you have what it takes to make it possible depends on how much you know about yourself. What is your personality and your risk appetite will define the type of investor you are going to be. Then, you can begin to learn how to invest.
There are many ways and strategies available on the internet that anyone can learn about investing. I have listed some that I found to be useful for newbies. However, how do you transform these skills you learnt into your own and into something that suits you? How do you combine it with your work experience in a specific industry and use it to your advantage? How do you apply what you learnt? Only you know the answer.