Did you know that Warren Buffet purchased his first stock when he was only 11 years old? It’s never too young to start investing, says Lee Weiliang, who made his first $10k by the age of 24.
Words by Lee Weiliang
It all began when the flashing red and green figures on teletext caught my eye. The digits seemed to exude a curious charm, holding my parents and I spellbound. From then on, my interest and fascination with the world of equities investment was sparked.
At age 20, I decided to pump in “real” money after monitoring the stocks for a considerable period of time. I handed my dad $5,000 and asked him to invest on my behalf.
Here's our mistakes. Don't do the same.
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
To a student like myself, $5,000 was a substantial sum of money.
Within 5 months, not only was the $5,000 returned, I even reaped a profit of more than $2,000!
This was my first foray into the world of investing. It astounded me. I became fully convinced that equities could, in fact, bring in “cold hard cash”.
In hindsight, I consider myself blessed that Lady Luck smiled upon me. The main reason for my rapid returns was due to the oil boom in 2008 to 2009. I did no due diligence prior to the investment and my dad coincidentally bet heavily on oil-related stocks.
Never did I imagine that this surprise profit would fuel my exploration into the world of equities. The main agenda for my study, consequently, was to identify a methodology for stock picking and to understand what makes a good investment.
With that in mind, I pored through numerous guidebooks ranging from financial classics such as The Intelligent Investor by Benjamin Graham to self-help books like Dummies for Investing. The library became my favourite hangout spot to quench my thirst for financial knowledge. The internet likewise proved to be an invaluable source of information as I spent my free time browsing for good financial advice.
Today, I am 29 years old and have had my fair share of gains and losses, which I shall detail below.
My best investment…
The biggest gain in my investments came about in the aftermath of the Lehman Brothers collapse. Although the financial world dubbed this saga as the second largest financial disaster since the Great Depression, it was also the beginning of a “Great Singapore Stock Sales”, from a trader’s perspective.
I invested in DBS Group Holdings Ltd at the price of $8.50, adhering to the old market adage of “buy when there is blood in the streets”. DBS then was challenged not only by the impending financial crisis, but also the loss of its CEO, Mr Richard Stanley, to cancer. All these negative news sent DBS shares plummeting to a historical low.
To quote Warren Buffett: “The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” I figured that DBS was unlikely to “collapse” on the operating table as I believed its shareholders had the ability to pump in liquidity. Also, every man jack in Singapore recognises DBS – a testament to the business’s strong branding and competitive advantage.
Together with some of my other stock investments which recovered tremendously in the post-Lehman period, I netted my first $10,000 in profit. Sweet success!
To date, the average price of DBS Group Holdings Ltd fluctuates between $18 to $20, though I unloaded them at around $15.
…and my worst investment
My biggest losses would have to be on Singapore Airlines (SIA), with a purchase price of $14.20. The main reason that propelled me to acquire SIA shares was the $1-plus special dividend. Besides, my dad highly recommended it too.
However, the European crisis soon unfolded and the climb in oil prices eroded much of SIA’s profitability. Moreover, the rising popularity of low-cost carriers around the region and Middle East airline companies staking their claim in the top-tier market collectively affected SIA’s dominance in the aviation industry.
As a result, the price of SIA’s shares has plunged to around $9.50 to $10 in recent years.
It was a painful mistake. But at the same time, it taught me two very important lessons in my investment journey the hard way.
Tips for budding investors
1) Before investing, always do your homework.
My stumble on SIA shares can be attributed to a lack of due diligence and blind buying on hot tips. The truth is, any investment made without thorough understanding is akin to gambling. In the same way as how we cannot predict 4D or TOTO winning numbers, we cannot expect to strike gold in investing on luck alone.
Yes, luck does play a part in every investment but without making a conscious effort to do the math, investors risk leaving their money entirely to the game of chance.
I highly recommend beginner investors to prepare the following four documents before making any investment.
- Financial modelling analysis: This includes historical analysis, forecast, and valuation analysis. It does not have to be a very complicated exercise but it should give you (the investor) a “feel” of the numbers.
- Investment Strategy: A document or plan that describes how you will execute the investment accordingly (position, strategy, how to monitor it, entry/exit price, etc.).
- Investment Proposition: A document that defines the investment opportunity, a summary of the investment decision and significant reasons behind it.
- Qualitative Examination: You should also prepare crucial questions and answers about the company, its management and the industry.
Running through these documents will help you reduce the probability of emotional investing and understand comprehensively the risk that you are undertaking should you choose to make the investment.
2) Control your emotions towards your investment
Investing requires more of a stomach for uncertainty than high intelligence. Most retail investors invest when confidence in the market is high and exit when confidence is close to a trough, which usually happens when markets are bottoming, thereby resulting in a massive loss of wealth.
You may have done all the necessary research on a stock, but you won’t get good returns if you can’t control your emotions.
This is why I’ll like to end off with my second piece of advice: even if the daily headlines resemble financial Armageddon, have the patience and guts to stick with your investment. Market declines are a normal part of investing.
The bottom line is, when you make an investment decision for your portfolio, choose wisely. Then plan to hold it for many years.