How to Start Investing

I have frequently been approached by my friends and colleagues on what stocks to buy and how to start investing. Then I realised that an element is missing in this blog that has not been addressed: that is, how to start investing in businesses via the Stock Exchange.

Simple.

1. Go for the low lying fruits lying just above and around you

Start by looking around you and keeping a keen eye to identify which products and services are provided by companies that are listed in Singapore's Stock Exchange. Perhaps it will never occur to you that so many products and services you experience in your daily life all belong to listed companies:
- a can of green tea from Pokka, or canned drinks from F&N
- massage chairs by OSIM
- traditional chinese medicine by Eu Yan Sang
- nice Jap restaurants like Sakae Sushi that are operated by Apex Pal
- famous brands like Raoul managed by a company called FJ Benjamin
- niche watchshops like Hour Glass that sell watches that are horological art
- our favourite family bookstores like MPH and Popular
- Singapore's newspaper monopoly by Singapore Press Holdings
- our favourite 1st Class, World Class Singapore Airlines
- "Eng Seng" sprayed on some temporary roadblocks come from the construction company Chip Eng Seng
- banks like OCBC, DBS, UOB, etc.

(The mention of these listed companies does not constitute a recommendation from me...)

And the list goes on.

2.  Target businesses that have a geographical proximity to you

There's always this question: what about companies listed on New York Stock Exchange like Intel, Dell, Microsoft - why not consider them too? You could, but do you remember what sages like Sun Tze and Clausewitz said about the principles of conducting a warfare? Always fight a battle on grounds where you have a good grasp on the terrain. Likewise, companies listed on New York Stock Exchange are geographically very far from home ground and this also meant that the information sources are confined to the internet. If I have to invest my money, like how I will wage a war, the entire operation will be conducted on grounds that I am most familiar with. Risks are lower, and my confidence of success is much higher.

(For more info on how Sun Tze's war principles can apply to investing, read the following articles written by another fellow investment blogger, Sun Tze: Chapter 1 - Deliberation, Chapter 2 - Planning, Chapter 4 - Tactics.)

3. Doing your due diligence: Performing the different levels of business analysis

After looking around you, pick one area that you have a specific interest, it is best if is a product that you can relate to tangibly and you have an active interest to find out more. Then read up on it from reports and announcements found on http://www.sgx.com/, sift through posts in forums in http://www.wallstraits.com/, www.wookup.com/huatopedia. Talk to your friends - ask what they think of Sakae Sushi (as an example) food and service quality. Ask employees or ex-staff about how they find their bosses. Make your research as exhaustive and complete as possible. All these will give you a pretty good idea on the nature of the business and the prospects of the industry.

The framework for analysing the business is clearly laid out in the various articles I have written on investment methodology.

4. "Inactivity strikes as intelligent behaviour" - Warren Buffett

The next step after conducting all analysis is to take one step back. Briefly sense what the stock market climate is like and observe. Is there an immense sense of euphoria where people believe that the market will be shooting through the roofs tomorrow? Do you read of articles about university students are suddenly all investing, and aunties throwing in their life savings into the market? These are signs, but never act base on them. What you have to do is to take note of all these observations and remain inactive in trading activity, and continue reading up and finding out more about your companies. Inactivity is intelligent behaviour.

When the time comes where you can take advantage of bargain prices of listed companies, act swiftly and decisively to swoop in, because such opportunities are rare.