Special Writeup - Especially for Aspiring or Beginner Investors

I recently have been asked by a few close friends on why to invest, what to invest and how to invest. Alot of times we may take our easy access to financial markets for granted as probably investing is second nature to us. However, I realised that for many folks out there who are either not working in the financial industry or are not versed yet in all things investing, they may find it difficult to understand how to start investing and for that matter doing it right. Thus, I'm writing this for their benefit.

To keep it simple, I will categorise markets into 3 broad forms. There is the equity or stock market, fixed income or bond market and alternatives such as FX, real estate, gold, etc.
I shall elaborate with the commonest, which is the stock market (but if there are requests to understand the other markets do post your comments and I shall blog about them). 

In Singapore, we are blessed with the SGX stock market. What is even more cool is that we are able to buy smaller lot sizes (100 shares) which makes accessing the market even easier. Basically, to access the stock market there are 2 main ways: Actively or Passively. Both have their pros and cons and I shall elaborate a little further below.

1. Active Participation in Stock Market
- This is the most traditional way to be involved in the stock market. Just buy the shares of the company. To do this, you would need to open a brokerage account with any of the local brokerage houses. This is where alot of beginner investors stump and get alittle lazy. If you wish to invest, you need to get moving!
- Honestly, buying stocks directly is not as daunting as it seems, as long as you understand what you invest in. My suggestion is to start off with blue chips, look at the 30 stocks listed on the STI Index and figure out which companies and their respective businesses that you like. And just buy into them and hold them for the long term. It is that simple for a start.
Of course as you get more experienced you will study alot more information like fundamentals, valuation metrics, etc. However, for a start just buy a few lots of businesses that you are familiar with. I use Mapletree Commercial Trust (REIT) as an example. They own Vivocity and I love shopping there and am impressed with the locality of the mall. So I bought the shares of the REIT. It really is as simple as that!

2. Passive Participation in Stock Market
- There is another way to begin your stock journey albeit in a more passive manner. You may not yet have the confidence to choose the stocks that you like but you would still want to participate in the stock market. This is where an Exchange Traded Fund (ETF) is most useful. This is a passive investment vehicle whereby it purchases and replicates the stocks on the Stock Index. What you need to do is just to purchase units of this ETF to get a broad based exposure of the overall stock market. As this is not meant to be a sponsored post I shall not mention which ETF or product is most suitable. Nevertheless, a quick google on "Singapore Equity ETF" will definitely help provide you more information.

- Another passive option is through Unit Trusts that invest in the equity markets. Tip would be to identify funds that are able to consistently provide superior alpha returns (ie returns above what is expected of the market). This is not an easy task but one that can potentially reap superior rewards if done well. Do note the slightly higher costs and fees that are involved with unit trusts that are in exchange for professional investment management and stock picking.

Sincerely hope that the above sharing has helped. As can be seen, accessing the stock market is not as daunting as it seems. It's all about starting somewhere and increasing your exposure and understanding of the financial markets that will eventually empower you to be a better and wiser investor.

Signing Off
Transitioning Stock Investor

Lessons that need to be learnt from the Chinese Stock Market Crash

General foolhardy market euphoria, Utter disregard for fundamentals, Retail Investors jumping in based on total speculation.

The above sounds all too familiar ya. Yes, the above is what I would use to describe what happened to the Chinese stock market over the last 1 year or so. Almost everyone in China who could invest, went into the stock marker with wild abandon. Chasing stock prices as they went higher. Buying stocks like it was a roulette game in a casino (red or black). Interestingly, this phenomenon was warned about in the book which I shared about in my previous post. And ex-post everytime this phenomenon occurred it was bound to end up being pretty ugly, which is what we are currently seeing in the Chinese stock market as we speak. It certainly was also a reminder of what we saw in 2008, where markets crashed discriminately and spectacularly.  

Over the last one week, around half of the stocks in the market were halted for trading by their own companies. We have seen certain stocks drop by levels that would have rendered most people bankrupt if they had marginalised their positions, something in which many Chinese investors did. Mutual funds were not spared as many of the Chinese A shares they invested in were similarly suspended. I did a quick study of some of these suspended stocks and some of the names just bewildered me (as there was a good mix of unfamiliar and relatively well known names). 

All the above just goes to show a few important points, which are closely correlated with behavioural finance. If you would like to invest and to do it well, understand the business you are buying into. Also, do not allow greed or emotions to drive your decision making. Never follow a trend based on hearsay or following your inner herd instinct. In the stock market a stock that everyone is chasing up is not necessarily a good investment idea. In fact, often times the stock price does revert to mean somewhat and you end up with a bruised position and sometimes ego. Put real effort and analysis into your investments and you will reap the harvest in the long run. Learn to look through the mess and stay focussed in finding quality businesses selling at reduced prices in the days to come.

In other words, Stay Calm and Invest On my friends.

Signing Off

Transitioning Stock Investor

Thoughts on the Market - 29th May 2015

Day's off for me today. As I settle down for the long weekend, I'm at my laptop thinking about what has happened in the market during the week. Yes, we may ask.....what happened???

As most of us may know, the Chinese Stock Market plunged more than 6% yesterday. As I'm watching CNBC, I'm also seeing a lower pre-opening price for most of the Chinese stocks. Pundits are gunning for a 3% rebound, so let's see where that heads.

What does the above Chinese market sell-off spell for the Singapore stock market? Inadvertently, there is a similar spooking of the market. Most of the stocks in my portfolio (barring Raffles Medical) are trading mostly downwards this morning. 

In the past, whatever that we have witnessed would have similarly spooked me and I may have just closed my laptop and just avoided the market with a ten foot pole. However, as my investment maturity grew (that was of course due to witnessing the 2008 GFC, Fed taper tantrum, Oil shocks, etc) I begin to look at this period as a great opportunity to invest in the stocks that I like. 

This brings me back to my previous post whereby I wrote at length about Singtel. The current price of $4.09 does look extremely attractive and I would probably add another lot if the price hovers around those levels for the next couple of weeks. We'll see. 

OCBC Bank does look interesting as well at its current price of $10.14. It has fallen quite substantially below my average cost of $10.34 for my existing holdings so probably this is an area that I may be seeking to increase my holdings. You may refer to my current portfolio (in my previous post) for a guidance on what stocks that I'm 'focussing' on. 

To reiterate my thoughts for the market today. What goes up, does have to come down. The Chinese market has been red-hot and the pull-back was as inevitable as ice melting on a hot bonnet of a black car in a 33 degrees day in Singapore. However, what this does is also present us opportunities to invest in the Singaporean market with bargain opportunities galore.

I hope you can find your set of bargain opportunities as well. 

Signing Off
Transitioning Stock Investor