This is a continuation of our previous post: Guide To Investing in Singapore – Part 1
Step 4: Learn to value shares
A share that is selling at $1 might be cheaper than one that is selling at 50 cents. Why is this so?
In investing, we do not look at the absolute value of a share price, but look at the underlying value of the shares you are buying. So if the shares of Company A trades at $1 per share, but its intrinsic value is actually $1.20 per share, you are getting a good bargain from Mr. Market.
Vice versa, if the shares of Company B sells at $0.50, but your intrinsic calculations tell you it is actually worth only $0.30, you could end up paying above what it is actually worth, should you choose to purchase.
Step 5: Reading annual reports
An annual report is like a company’s report card. Since it can be thick, many investors chuck it aside and do not bother reading it. However, with some guidance, you may be able to find out which are the useful segments to take note of.
Step 6: Different type of shares available
Not all shares are the same. Some are categorized as value stocks, some as growth stocks, while some are dividend stocks. Take time to understand the basic definitions of Value stocks, Growth stocks, Dividend Stocks, and also Reits (a special type of stocks tied to real estate).
Step 7: Buy good companies at a good/fair price
There are many hundreds of shares listed in Singapore. So, choosing the best out of them can be a headache. Worry not! Come and learn the basics of investing with us.
Step 8: Know when to sell
While buying the right stock is not easy, selling can be even harder. There are a few factors for investors to consider before selling their shares.
- Valuation – most of the time, fund managers and analysts will sell or take profit on the stocks which have reached their full valuation. Of course, there are times when the market offers insane premiums over the intrinsic value of the stock, and you could beat yourself up over it later for “selling early”. However, one never knows whether this will happen, so one of the best thing to do could be to take your capital and profits off the table, so that at least, you can sleep better at night. This brings us to the next factor.
- Keeps you up at night -you are constantly worried about the stock going in the opposite direction of what was hoped for, due to huge uncertainties which cannot be ‘calculated’ or accounted for. These emotions are normal. However, if you are worried that the money that you have invested in, is meant for something more important and it could lose value, it is not too late to de-risk and seek instruments with lower volatility.
- Faulty investment thesis – your initial thesis of what could make the stock go up or down was wrong in the first place. While nobody likes to admit they are wrong, there is no need to be egoistic when it comes to Mr. Market. If you found your investment thesis wrong, it is not too late to take profit on what you have earned, or cut losses.
- Business change – the company decides to foray into a business field that is not familiar to you. This could make it hard for you to evaluate the business and apply appropriate valuation metrics. Evaluate how much impact the business segment change will cause to the company’s revenues.
- Management change – the company has appointed a new CEO , CFO or chief scientist. It would be useful to know what is the background of this new person, and whether he/she will have a huge impact on corporate culture, especially in terms of spearheading new business segments, or making good use of the company’s kitty.
- Better Opportunities Elsewhere – you realize that your current stocks may only be giving you about 5 percent return per annum based on the foreseeable outlook. And a new stock idea came around to you. If you have done your homework and think that the new stock idea can promise double the returns, yet you do not have spare cash to plow money into the new stock idea, it could be time to re-allocate the money to this new stock.
Step 9: Do Asset Allocation and Diversify
Due to the volatility of investing in just one asset class, we should consider investing beyond Singapore. The following article guides us on overseas investing.
Congratulations on sticking through to the end. We hope you have started your investing journey by now.
The information provided is for general information purposes only and is not intended to be personalized investment or financial advice.