New to shares investing? Want to share the basics of shares investing with a friend? Check out this beginner’s guide to shares investing!
What is Shares Investing?
Shares or equities investing allows you to be one of the owners of a public-listed company. As an owner in the company, you enjoy (if any) dividends the company declares. You also realize gains if the price of shares you own appreciate and you sell off the shares to another party.
Shares investing is not gambling (unless you want it to be). You can invest in shares for as short or as long as you want to provided there is a willing buyer and seller. Many Malaysians perception of the stock market is influenced by the experiences of people around them (for example your parents).
Why Should I Invest in Stocks?
While it is possible to become wealthy not investing in stocks, most people who are wealthy would invest in a diversified portfolio of assets that include both stocks and properties. Stocks have one of the highest potential returns especially if you factor in compounding and dividends. Stocks do have its risks including the company or industry being disrupted, financial (or other) scandals, and stocks that continue to decline in value.
How Much Money Do I Need to Start?
Stocks has a reasonably low entry point where you can buy stocks for just a few hundred ringgit. While you can start with just RM1,000, we would suggest that you aim for RM10,000 to start in Malaysia (or at least to be able to set aside RM10,000 within a period of the next 12 months). This will allow you to pay less in fees and allow you to have some stock diversification.
How Much Time Do I Need to Invest to Invest in Shares?
It depends on the type of investing that you’re doing. If you are an active trader, you will need to spend about 1 hour daily (likely much more especially if you’re new). If you’re a long-term investor, you should expect to spend at least a few hours weekly if you’re a DIY investor doing your own stock picking.
Shares investing can be as short as anytime within the same day (intraday) or as long as buying and holding for eternity (long-term/Buffett style).
Selecting a brokerage
Select a brokerage with the features that you need. Using an online brokerage (which is the norm in today’s world) is lower cost than going through a physical broker.
- Brokerage trading fees calculation, min/max fees, and other applicable charges
- Trading site/app advanced trading features (see GTD below), and indicators
- Quality of support, customer service, and research reports.
An example of low cost brokerages that meets most of these criteria are
Opening a share brokerage account
Opening a shares brokerage account it simple which some brokerages like Rakuten Trade allowing you to open your account fully online within a day.
Account opening documents
- NRIC copies (front and back)
- Bank statement
- Account opening forms
You will need to have CDS account which allow you to trade securities like shares, REITs, bonds, warrants, and IPOs electronically. Your CDS account is automatically created when you open your brokerage. You can have more than one CDS (and brokerage) account.
Funding your brokerage account
Cash account: You will need to fund your brokerage account before you trade. Login to your account and transfer funds in via online bank transfer/cheque (depending on your brokerage funding methods available).
Margin account: You can trade first but must make payment settlement within 3 days from transaction date (T+3). A margin account allows you to buy shares using borrowed money from the broker. The loan collateral is the cash and shares in the investor’s account.
Contra account: Contra trading allows you to trade more than the money you have in your account. It maximizes your trading exposure by offering shares as collateral.
Bursa Malaysia Trading Hours
- Bursa Malaysia is open Monday to Fridays 9am to 5pm.
- The market is also closed for (a long) lunch from 12:30pm to 2:30pm daily.
- The market is closed during weekends and public holidays.
Buy vs Sell
You buy or sell shares of a company on a market exchange.
For a trade to happen, there must be a willing buyer and seller at an agreed upon pricing.
Action: Buy (aka Long) or Sell (aka Short)
Quantity: X units of stocks to buy/sell. In Bursa, minimum lot size is 100 units. (1 lot = 100 units)
- Limit Order: Only transact at the Limit Price or better.
- Market Order: Transact at whatever is the current market price.
- Day: Your order placed (whether matched or not) is valid for only the same day.
- GTD (Good Til Date): Your order placed is valid until the specified date. For example, if not matched on a day, the order will continue to be valid until matched (or past GTD).
Limit Price: The best price you are willing to buy/sell at.
Trading Pin: Your trading pin to verify your trade. Some brokers have the same password as trading pin.
Types of Shares
- Stocks: A common stock is ownership in a company entitling you to dividends and voting rights.
- Warrants: A derivative (price derived from underlying stock price) that gives the right (but not obligation) to buy/sell a stock a certain price before the warrants’ expiration. The price is referred to as the exercise price.
- ETFs: A stock that is tracks a basket of stocks (or index/commodity/bonds) that you can buy/sell directly on the stock exchange.
- REITs: A company stock that owns real estate and property paying out dividends to shareholders.
How are Dividends Handled
The company may propose dividends and require majority approval to declare dividends. Once dividends are declared, a Ex Dividend date and Payment Date will be set.
- Ex Dividend Date: you must own the company’s shares before the Ex Dividend Date to be entitled the dividends.
- Payment Date: the dividends will be paid to you on the payment date.
From 2008, Malaysia has moved to a single tier tax rate. You do not need to pay additional taxes on dividends you receive from Bursa Malaysia. (For US market, your dividends are automatically deducted 30% tax rate before paid out to you).
What Stocks to Avoid?
- Avoid stocks with low liquidity (typically defined as low trading volume below 100,000 units daily).
- Avoid companies and businesses that you do not understand. Focus on your circle of competency.
- Avoid stocks in sectors that are not performing. The sector trend should be your best friend.
- Avoid hot stock tips and “goreng” stocks being manipulated by individuals and groups.
What Stocks to Buy?
- Invest within your own circle of competency.
- Consider pricing, valuation, fundamental analysis (especially for long-term investing), and technical analysis (especially for short-term investing).
- Setup and craft your own Personal Investment Plan stating your goals, entry and exit strategy, etc.
- Learn how to build up a robust and diversified investment portfolio.