Learning Resources

Must-Read: Investing for Beginners in Singapore

30 Jun 2021

Investing for Beginners | VI
(c) Sadie Xiao


By now, investing is no longer a question of why, but a question of how. All investors started just like you, but some of them dived head-on without really knowing what investing in stocks is about. Hence, you hear complaints on how they lost money in the stock market or even discouraging remarks on investments in general.

Investing is a way to grow money. It's why people do it. And we believe it's the exact reason you want to invest as well.

But it's never a good idea to enter the stock market blindly.

Conviction isn't and won't be enough. What you need is the proper knowledge to navigate it with confidence, and of course, to get great returns over time.

So, we have listed the three most important things beginners in investing in Singapore must understand.

1. Investing has risks

Investing has risks


Think of investing as swimming. You swim because you want to reach a destination, perhaps financial freedom or a retirement fund. But the water isn’t as friendly as you wish it to be. You can drown, get injured or dehydrated, suffer hypothermia or cramping, or bump into foreign objects and strong currents.

Similarly, in investing, risks are present everywhere. By risks, we mean uncertainties. It’s not certain you’ll lose or gain money over a particular period.

See also: Low-Risk Investments in Singapore

But we won’t say investing is a gamble. When you gamble, you hold on to pure luck. In investing, you study figures. You don’t just pick stocks blindly, but you must do it systematically.

As a beginner in investing, in Singapore or wherever, you have to understand that investing is not a one-night adventure but a long drive where you need to stop and look back every now and then to evaluate if you’ve taken the right paths and jumped the right bridges.

After all, we can’t time the market. This has been what successful investors are telling us. At times, the market will go bullish. At times, it will swing down. But we can’t predict when.

The risk is in not knowing the market movement. There are also economic, socio-political, and liquidity risks on top of market volatility.

What we can only do is make an informed purchase that can weather market fluctuations. This way, we reduce risks.

2. Buying a stock is buying a business

stock is a business (investing for beginners)

Another fact you should not ignore as a beginner in investing is this: a stock is a business.

When you buy a stock, you become part-owner of a business. For example, if you purchase Amazon shares, you buy a percentage of ownership of the company.

But being a shareholder doesn’t necessarily mean you get the benefits and/or responsibilities similar to Jeff Bezos. When you buy into a company, it doesn’t mean you get to be the CEO for a day. Rather, it means you trust the business enough that you decide to put your money in hopes that the company will achieve growth in the long term.

Companies issue stocks to raise funds they can use for operations. Stock investors, such as yourself, can gain profit whenever the share price of a company increases. They can also get money from dividends paid out by the company whenever it registers growth.

The price of stocks is determined not by a company’s performance (although the company determines the initial stock price). Oftentimes, the market doesn’t genuinely reflect what stocks are worth, because the prices are determined by the market sentiment. For example, when there are more buyers, the price will go up; whereas, when there are more sellers, the price will go down.

As a beginner investor, you have to realise that successful investors accumulate their wealth by holding on to their stock picks, not by trading regularly. This is because they want to maximise the interest compounded every year.

3. Investing requires research

investing requires research (investing for beginners)


We mentioned above that investing, like swimming, has risks. But these risks can be avoided when we are adequately prepared for the investing journey we’re about to undertake.

To reduce your swimming risks, you have to familiarise the currents, practise proper breathing and strokes, hydrate, and do proper conditioning.

Picking a stock is the same. You just don’t close your eyes, roll some dice, and buy whatever the dice point to. You have to check if the company meets what we call the 3R concept: right business model, right management, and right valuation versus price.

If you want to learn more about the 3R concept we use to determine value stocks, join our free online masterclass on Creating Passive Income for Families.

Investment research includes reviewing if the company’s past three- to five-year financial performance is good, if it has a competitive advantage in the industry, what its plans to grow the business are, and if the business will likely be around in five or ten years.

You also have to delve deeper and evaluate its management: are they performing well, is there trust in their capabilities from their employees, and are they capable of moving the company forward? Lastly, you have to check if their share price reflects their true value and if you’ll make a profit when you buy the stock today.

Investing is not a get-rich-quick scheme. You have to work to pick the best stocks so, in the future, you’ll just sit and relax while waiting for dividends and capital gains from your investments.




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.