Run a Google search of the phrase “beat the market” and you’ll see over 190 million results. That’s not surprising considering it’s a perennial topic of obsession for investors: how to outperform the market and earn returns reliably, accurately and consistently. Read on if you want to learn not one, but three secrets to help you make money from your investments.
Words by James Yeo
Somewhere in this world, there will always be people looking for the holy grail of investing: beating the market. In case you have no idea what it means, it simply refers to a superior investment methodology that when applied, will make one lots of money and be ahead of everyone else.
As cliché as it may sound, such a thing does not appear in reality; and investors often tend to spend too much time chasing after this fallacy to the point where a great deal of opportunities are wasted during the period.
[Free Ebook] How should you invest your first $20,000?
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.
That said, if you examine the track records of the investing legends who have consistently outperformed the stock market as a whole, you would see some common traits that anyone can adopt easily to their own investment portfolios.
Without further ado, let’s look at 3 ‘secrets’ to beating the market:
Secret #1: Invest in what you know
When it comes to picking out some of their best investments, investment gurus like Warren Buffett and Peter Lynch have always stuck to what they know or can easily understand. One famous example is where Warren Buffett avoided the dot-com crash by refusing to dip into technology stocks during the era and focused on companies that spun off profits year after year instead.
For locals, one relatable example would be famous snack chain Old Chang Kee. Curry puff lovers who had invested in the company since its inception in year 2010 would be sitting on 168% gains today, notwithstanding the tasty 10% dividend yield based on its S$0.03 dividend and a share price of S$0.30.
Secret #2: Stick to your guns
While many people know realistically that investing takes time to generate returns (just like how we need to wait for seeds to blossom into huge trees), they often do the exact opposite. They usually treat the stock market as a casino and trade in and out, hoping to make a killing.
To add on to that, many investors commit the mistake of selling the winners and holding on to the losers. Peter Lynch once commented that his overall success could be attributed to a small number of stocks in his portfolio that returned big. He coined them “multi-baggers”, meaning that the stocks appreciated multiple folds in value.
On the local front, Vicom is one such example that fits the bill. Even though it may have stagnated during the period of 2000 to 2006, it started to stage a growth phase from 2006 onwards, achieving a 721.05% return to date. Any investors who had off-loaded the stock in year 2006 would probably be cursing and swearing by now as the stock continues to run ahead without them.
Secret #3: Look for an impeccable track record
In my past 8 years of investing, I have dabbled in many different categories of stocks, be it growth stocks, turnaround stocks or income stocks etc. One thing I found out is that strong companies who manage to deliver on results constantly are inclined to continue doing so, as opposed to “turnaround” stocks which most of the time don’t turn around at all.
One famous example I raised back in another post is Tigerair. At the time of writing that post, Tigerair was trading at S$0.415. Today, its stock price stands at S$0.32 even after a slight rebound, down almost 30% from then. To date, it is still in the red and I personally do not foresee any recovery in the near future.
On the other hand, one can take a look at Sheng Siong, whose share price has jumped 117.95% from S$0.39 to S$0.85 in a short 3-year period. We can simply take a look at the number of stores Sheng Siong has been building these past years to know that the company is on a stable growth trajectory.
Although these 3 ‘secrets’ are nothing groundbreaking, I hope you will embrace them as a welcome change in your investing behaviour and mentality. I strongly believe that anyone, be it professional or novice investors, can achieve noteworthy returns from the stock markets, so long as they take these secrets to heart.
This article first appeared on DollarsAndSense.sg, a website that aims to provide interesting, bite-sized financial articles which is relevant to the average Singaporean.