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The market is not perfect
Understanding this earlier on in my investing journey would have spared me some agony. The market doesn't always value things accurately in the short-term, but over a long-enough term, things should start falling into place. Benjamin Graham's analogy of Mr. Market as a moody person and quote that "In the short run, the market is a voting machine but in the long run, it is a weighing machine" usually rings true. So, learning to tune out the market noise and ensuring that the stock you are investing in has sound fundamentals at a reasonable price, otherwise known as Value Investing, is likely to generate reasonable returns over the long run.
Don't invest too much in lightly traded shares
Shares with low trading volumes will be harder to buy and sell. Companies which I've mentioned so far that fit in this category include Colex and UOB Kay Hian. If you buy too many shares, you may have to pay a higher price unless you accumulate them slowly, in which case you may incur minimum brokerage fees. Selling also has the same issues, hence you have to ensure that the company will either grow sufficiently well to make up for the shortfall or you are not planning on trading this share after purchasing it.
Don't look only at prices and ratios
Don't just focus on the P/E ratios of companies, dividend yields or whether the company's share price has fallen recently. It would be good to take a look through the company's financial statements and assess the health of the companies before investing in them. There may be good reason for the sudden drop in the share price or the consistently low P/E ratio or high dividend yield.
Diversifying is not necessarily the best option
Warren Buffett: “Keep all your eggs in one basket, but watch that basket closely.”
Diversifying too much is not necessarily good. While diversifying helps to reduce the risk that we may choose a bad company, diversifying too much will reduce the impact that our winners will have on our overall portfolio. Picking the few best companies in different industries will be a better option than buying the whole stock market, preventing the risk of us buying before an industry-wide downturn but giving us the opportunity to invest in the best of each industry. While it may take some time to pick out these companies, it is worth it especially if we are investing a sizable sum of money. We may also want to invest in different countries as there are events that would affect individual countries such as the current Greek debt crisis and China stock market crash.
On a more positive note, the stock market is a winner's game
The stock market allows you to invest in good companies that are able to grow and deliver returns to you, the stockholder. If we look at the STI, it has its ups and downs but has been able to grow over the long run. So long as we pick good, stable stocks at reasonable prices (instead of following the market noise), we will be able to take part in their growth, which can be spectacular at times, allowing our money to grow over time.
I hope that this blog post has been informative and useful for you. While there are many risks involved in investing, there are also many opportunities for great rewards if we are able to maintain disciplined in our approach towards investing. We may have to pay "tuition fees" in the initial part of our investing journey, but as we go along, we learn and we improve our judgement and discipline.
If you have enjoyed this post and would like to receive notifications on new posts, please subscribe to my blog via email
Shares with low trading volumes will be harder to buy and sell. Companies which I've mentioned so far that fit in this category include Colex and UOB Kay Hian. If you buy too many shares, you may have to pay a higher price unless you accumulate them slowly, in which case you may incur minimum brokerage fees. Selling also has the same issues, hence you have to ensure that the company will either grow sufficiently well to make up for the shortfall or you are not planning on trading this share after purchasing it.
Don't look only at prices and ratios
Don't just focus on the P/E ratios of companies, dividend yields or whether the company's share price has fallen recently. It would be good to take a look through the company's financial statements and assess the health of the companies before investing in them. There may be good reason for the sudden drop in the share price or the consistently low P/E ratio or high dividend yield.
Diversifying is not necessarily the best option
Warren Buffett: “Keep all your eggs in one basket, but watch that basket closely.”
Diversifying too much is not necessarily good. While diversifying helps to reduce the risk that we may choose a bad company, diversifying too much will reduce the impact that our winners will have on our overall portfolio. Picking the few best companies in different industries will be a better option than buying the whole stock market, preventing the risk of us buying before an industry-wide downturn but giving us the opportunity to invest in the best of each industry. While it may take some time to pick out these companies, it is worth it especially if we are investing a sizable sum of money. We may also want to invest in different countries as there are events that would affect individual countries such as the current Greek debt crisis and China stock market crash.
On a more positive note, the stock market is a winner's game
The stock market allows you to invest in good companies that are able to grow and deliver returns to you, the stockholder. If we look at the STI, it has its ups and downs but has been able to grow over the long run. So long as we pick good, stable stocks at reasonable prices (instead of following the market noise), we will be able to take part in their growth, which can be spectacular at times, allowing our money to grow over time.
I hope that this blog post has been informative and useful for you. While there are many risks involved in investing, there are also many opportunities for great rewards if we are able to maintain disciplined in our approach towards investing. We may have to pay "tuition fees" in the initial part of our investing journey, but as we go along, we learn and we improve our judgement and discipline.
If you have enjoyed this post and would like to receive notifications on new posts, please subscribe to my blog via email
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