Learning Resources

How to Invest in Stocks with Little Money

19 Apr 2022

How to Invest in Stocks with Little Money | VI

You may have wondered how some investors get ahead of others. The way others seem to be losing money and everything they own while people like Warren Buffett are still accumulating wealth consistently even in their 90s may make you wonder...

Is it true that only A LOT of money begets MORE money?

Well... we can tell you now, that's not true.

You can learn how to invest in stocks with little money and still get high returns over time, as long as you learn the right things.

Even Warren Buffett started with only investing money he earned from his paper route at the age of 11.

It doesn't matter if you have a small budget or a large one. When you invest in the stock market the right way, you can still make big profits over time.

The problem is that most people aren't familiar with the stock market, and they are not willing to pick up the way to do it properly. They play guessing games, depend on "hot tips", and jump at opportunities that provide "fast return."

If you want to make the most of your investments, then you'll need to start by learning about the stock market and how it really works. Over time, you'll realise that it reacts purely out of investor emotions and how much common sense it actually is.

To invest in stocks with little money is not difficult. The problem is to determine which ones are worth investing with the limited funds you have.

But before that, here's Sharon and Darren's take on why investing your money is crucial, especially at a time like today.

Money Money Home | VI

Here are 4 things to check off to know whether a stock is worth investing in even with little money. We even ranked them in order of importance.

1. It has a good business runway

It doesn't matter how good a stock looks in price or its financial performance.

The more important questions to ask are: How much longer can this business be around? Will their product/service still be relevant 10 years from now? Or will they soon be gone like camera films and DVDs?

We've all seen those companies that, even though they look valuable and are super popular now, you know they won't last.

Look at King Digital Entertainment, the company that made Candy Crush. They were super popular back then and Candy Crush was making a mark everywhere in the world, so much so that the company decided to publicly list their company.

However, theirs came out to be one of the worst IPOs in 2014, and just 2 years later, they were acquired by another company.

That's why it's so important to be careful when investing in stocks. Before you learn how to invest in stocks with little money, make sure that the business is here for the long term first.

2. The management team is not "sus"

Generally, we are a glass-half-full kind of people. We do our best to look at the good side and not incriminate anyone.

Unfortunately though, there are bad people out there and a lot of them happen to be managing a publicly listed company, aiming to scam or make use of shareholders' trust to get what they want.

The most common MO (modus operandi) is known as Pump And Dump, where the management would suddenly buy a lot of their company's shares, gaining attention from other investors who would also buy their shares. This will then jack up the share price, and the management would quickly dump even more shares than they bought, gaining from the share price hike.

Another common malpractice by a company's management is overpaying themselves with millions of dollars when in fact the business and stock are not doing well at all.

See also: 3 Things Investors Look For in a Company

An example that comes to mind is when J.C. Penney awarded its executives millions of dollars in bonuses in the year 2020, just days before it filed for bankruptcy protection.

Yes, we are equally appalled that these practices have not been made illegal yet.

3. The business has a solid financial performance

Now that we've ensured that the business will be around for at least another 10 years and the management of the company is well-intentioned, it's time to look at how well the business is performing.

Sadly though, this is also where most people would throw in the towel because they either get very confused by the numbers or are just not willing to power through the process at all.

Even though this comes in third in the order of importance when it comes to investing, it is still something that you should look at before deciding to invest in a stock.

A healthy company, i.e., a good stock, should have a healthy and stable flow of cash coming in each quarter from selling their company's products. We say this because there are a lot of companies who would constantly bring in cash flow from the sale of one-off items instead of their main business. That's a red flag right there.

It's good if the company's profits grow leaps and bounds each year if the company is growing fast. However, most companies usually experience steady growth over the years.

4. It has to have a good share price

To people who don't understand investing, they'd say you should buy when the share price rises and sell when the share price drops. We implore you to NEVER EVER subscribe to this concept because this will make you lose more money than you earn.

You should never base your buy and sell on the rise and drop in the share price, but rather on the stock's intrinsic value.

A stock's VALUE and its PRICE are 2 different things.

Imagine a plate of normal chicken rice that costs you $20 in Singapore. You will not likely buy it because you know its value is lower than the price.

The same goes for stock. You should buy based on its value rather than the market price because the price is not a real reflection of what it’s worth.

To calculate this can be difficult for some, so it is advisable to get an app that can calculate this for you.

Investing in stocks with little money can still bring you great returns. You only need to make sure two things are in place: follow all the steps listed above and do it as soon as possible. There is magic in the concept of time that helps you compound more the longer you go.

It is certainly tempting to just take free financial advice, listen to hearsay, and invest based on what your friend/colleague/relative say is good, without doing any due diligence.

However, you'll also come to learn you'll need to pay for this free financial advice in the form of financial losses in the long run.

Allow us to teach you a systematic process to make money from stocks even with just $10 a day. Come to our free investing webinar to learn with us.

DISCLAIMER

This article and its contents are provided for information purposes only and do not constitute a recommendation to purchase or sell securities of any of the companies or investments herein described. It is not intended to amount to financial advice on which you should rely.

No representations, warranties, or guarantees, whether expressed or implied, made to the contents in the article is accurate, complete, or up-to-date. Past performance is not indicative nor a guarantee of future returns.

We, 8VI Global Pte Ltd, disclaim any responsibility for any liability, loss, or risk or otherwise, which is incurred as a consequence, directly or indirectly, from the use and application of any of the contents of the article.