Getting started in shares investing: Why, Who, What, Where, When, and How?
Every journey has a beginning…
The journey of a thousand miles begins with one step. ~ Lao Tzu
We look at the Why, Who, What, Where, When, and How of investing in shares.
The 1st question you need to ask is why are you investing. Can you achieve financial independence (FI) by other means? It is possible to achieve FI if you squirrel away all your money in fixed deposits (FD/CDs)… provided you have a very large pool of money. If not, what returns do you need to achieve? Is shares investing a good choice for you towards reaching your investment goals?
“Begin with the End in Mind means to begin each day, task, or project with a clear vision of your desired direction and destination, and then continue by flexing your proactive muscles to make things happen.” ~ Stephen Covey
Who will be handling the investment analysis and decisions?
Are you a DIY investor with the interest, aptitude and time to spend researching companies and stocks?
Or would your time be better spent engaging expertise to handle your investment portfolio? Who should the expert be?
- Hedge Fund: high costs typically 20% upfront and 20% returns; Historically unable to outperform the market over a medium-long term period.
- AI (Bots): using software to make investment decisions after asking you a series of questions; Low cost (as automated) and good at crunching numbers but still lacking human perception and perspectives.
- Advisor: dependent on the advisor (and his team) on the effectiveness of investments; What is his investment track record? Does he have his own skin in the game? Contrary to popular belief, engaging an advisor is relatively low-cost and gives you significant value and multi-fold returns.
Whether you invest on your own or work with an advisor, you still need to know and set the overall course you’re headed towards.
Do you have knowledge, passion, and/or expertise in a certain market or sector? Play to your strengths!
What is your circle of competence?
“If we have a strength, it is in recognizing when we are operating well within our circle of competence and when we are approaching the perimeter” ~ Warren Buffett
“The game of investing is one of making better predictions about the future than other people. How are you going to do that? One way is to limit your tries to areas of competence. If you try to predict the future of everything, you attempt too much.” ~ Charles Munger
What is your shares investment time-frame which will affect your choice of investment strategy and choices?
Are you investing for a short (below 12 months), medium (~2 years) or long-term (5 years to forever)?
Which markets will you be investing in?
Investing in your local market (e.g. Bursa Malaysia) may give you an edge as you are a consumer/user/networked with many of the listed companies.
Investing in overseas markets (e.g. NYSE or NASDAQ) allows you access to a much bigger market, higher trading fluidity, and access to global companies.
Talk with experienced investors or advisors who can share with you their experiences and the different characteristics of different markets they invest in.
You may be suited for one or more markets depending on your investment strategy, competencies, and resources.
You need to spend time to be good at anything, and if shares investing is important to you (as it should be if your money is in the market!), you need to be disciplined and allocate regular time for investing and continuous learning.
“Time is the most important factor in how well your investments perform. The longer you wait to save and invest, the more you’re costing yourself.”
Time is also important for investors from short to long-term on when is the right time to enter the market and when to cut loss on your non-performers. Most of your money is actually made at the time of picking the right company and entering at the right time. Losses become insurmountable as it becomes increasingly difficult to recoup losses of capital.
Learn to be disciplined in following your investment rules and managing your emotions.
“Eighty percent of the market is psychology. Investors whose actions are dominated by their emotions are most likely to get into trouble” ~ Adam Smith, The Money Game
“Searching for companies is like looking for grubs under rocks: if you turn over 10 rocks you’ll likely find one grub; if you turn over 20 rocks you’ll find two.” ~ Peter Lynch
If you’re the one doing the investing yourself, be prepared to spend a lot of time looking at companies. It is increasingly easier to get information in our online globalized age but on the flip-side, you now need to know how to better filter the vast amounts of information available to you separating out what is important, what is inaccurate, and what is fluff. All this while maintaining a balance between our circle of competency and natural bias.
- Craft out your personal investment plan, and allocate your (current and future) funds.
- Learn how to filter, shortlist and analyse shares – fundamentally, technically or engaging expertise.
- Keep an investment trading journal and learn continually from your mistakes and successes to become a better investor.
Shares investing is simple but it does take resources (time, effort, capital, etc), like all things worthwhile doing.
We hope this article has been helpful and all the best with your shares investing journey whether you are just starting out or an experienced investor!
We love to hear your suggestions, comments and feedback on 5W & 1H on Shares Investing!