A Useful Way To Think About Investing

I was at a party last evening with some of my army mates. We have mostly finished our reservist duties and yesterday's gathering was really nice to see some old faces. Amongst the topics we talked about, was about investing, equity investing to be exact. I had a friend who asked me "so you are into stock trading ya". I replied: "no, I'm investing for the long term". Somehow or rather he did not quite get what I meant and I think it was due to an often held mindset that stocks are for the short term, trading in and out is important and when markets tank, the natural response is to panic.

Long Term Mindset
As we all would know, succesful investing entails a long term mindset. It should also entail having your stock portfolio as a part of your overall long term investment and retirement portfolio. I have split my portfolio between what I would term 'Cash' and this includes my stock and cash holdings. I then have another portfolio which I term 'Retirement', in which my SRS, Insurance, CPF monies would be included. Doing this helps me organise my assets more efficiently and more importantly it makes investing much more enjoyable and fruitful at the same time as targets become more tangible and realistic.

Understanding the Business
As Benjamin Graham once quoted, approach buying stocks like how you would buy groceries and not perfume. As I am reading the section on Porter's Five Forces in my CFA Level 2 preparations, I somehow categorically agree again with this mindset. It is important to be discerning when adding a stock position to your portfolio, understanding the various dynamics surrounding the business you are investing in.

Cashflow
The growth and sustainability of Cashflow becomes increasingly important as well as cashflow generation is frequently used as a value of a company. I have increased my focus on companies that are not only able to generate strong cashflow but are also able to deploy their resources in the most efficient manner possible. As we head into an increasingly competitive economy, this trait is becoming increasingly critical to any successful business.

Care to share how you frame your investment mindset? Do drop some comments and I'm keen to hear from you as well!

Signing Off
Transitioning Stock Investor