It’s a well-known cliché: for many beginner investors, the stock market is like a capitalist casino, a place where you risk betting your money for a chance at hitting the proverbial jackpot.
But in reality, investing isn’t gambling. Not if you know what you’re doing. Unlike gambling, investing isn’t about throwing money into a trade and praying for the best; it’s about using all your technical knowledge, wisdom and love of the game to beat the odds.
And that’s exactly the kind of misconception Sebastian Goh would like to clear up. The experienced trader, who has years of experience under his belt, currently heads the Dealing teams for Phillip’s Online Electronic Mart System (POEMS), Singapore’s pioneering online share trading platform.
He sits down with us for a cuppa and shares some valuable insights into the brave new world of investing.
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.
Let’s suppose I’m in my late 20s and I want to start investing to meet my financial goals. I know I need to learn more, but there’s such an overwhelming wealth of resources out there. Where do I begin?
You could start with the fundamental analysis of companies, with a view to invest for the long term. Some books that may interest you include: Buffettology by Mary Buffett, One Up on Wall Street by Peter Lynch, Common Stocks and Uncommon Profits by Philip A. Fisher, and The Intelligent Investorby Benjamin Graham.
You could also use the Stock Analytics module in POEMS to access a comprehensive summary of listed companies’ financials and business nature from a fundamental perspective.
Alright, I’ve done my research and am ready to start. Which investment products or vehicles should I go for?
You should look at blue chip equities first and get a feel of how macroeconomic factors can make the stock price volatile.
Alternatively, get your feet wet by signing up for Phillip’s Share Builders Plan (SBP). The plan works on the Dollar Cost Averaging strategy that allows investors to invest in selected Singapore companies for as low as $100 per month.
As some blue chips in Singapore (such as the banks) are hovering close to S$20 per share, even with the reduction of minimum lot size to 100 shares, your contract value will be about S$2,000. In this sense, SBP is a product suitable for bite-sized, regular and disciplined investing.
Any administrative work before I can officially get started?
New investors may open a Cash Management account with Phillip Securities. This account allows investors to just set up one account and be able to invest in a whole suite of investment products. You can park your money in the account and have the option to opt-in to the Money Market Funds (MMFs). As of 4 March 2015, the 1-year return of the SGD MMF is 0.466%.
Phillip Investor Centres are located conveniently island-wide, and we have dealers on-site to better reach out to our clients. If you’re a new investor, I would strongly encourage you to engage the dealers at the branches for any trading queries.
What are some common pitfalls newbie investors fall into?
A common mistake is to judge the value of a stock based on its price per share.
Many newbie investors consider a share “expensive” if the price per share is anything more than a dollar, and “cheap” if the price is anything less than 20 cents.
Actually, how “expensive” or “cheap” a stock is depends on the price per stock relative to its fundamentals such as the Price to Book, Net Asset Value, Price to Earnings, etc.
[Editor’s note: Confused over the terminology? Check out this article on the 3 Investing Ratios You Really Need to Know.]
Have you heard of any misconceptions or myths you’ll most like to dispel?
The most common misconception new investors have is to equate investing to gambling. That’s not true!
Although there were some episodes in financial history which led us to think that investing is similar to gambling – such as the financial collapses and the penny stocks saga – we should not allow ourselves to be negatively influenced by them. We should instead remember the lessons learnt and ensure that we do the necessary homework before making our moves.
You’ve been in this industry for a long time. Any words of advice for newbie investors?
“In the short term the market is a voting machine, in the long term a weighing machine.” – Benjamin Graham.
I like this quote by Benjamin Graham because it sets out to explain that stocks in the short run are priced by popularity but in the long run are priced by the companies’ ability to provide shareholders’ returns. This statement does not discuss when and how the price shifts will occur in the short run, which of course no one will know beforehand. So new investors should not indulge too much in stock market prophesies; they should instead focus on investing for the long term.
Looking back, what’s the one piece of investing knowledge you know now that you wish others had told you when you were younger?
I’ve made my fair share of mistakes but today when I invest, I see myself as the business owner. Thinking like a business owner helps me focus better when making investment decisions.
Who are your investing heroes?