Equities & Shares Investing

Equities or shares are one of the main investment choices for paper assets. Only around 50% of people currently hold any shares. And above 40% of people who have invested in shares say they will never invest in shares again. Yet why is equities still an investment class to look at?

Why Shares?

  1. Highest returns among asset classes in the last 50 years (12.35% in the US market)
  2. Warren Buffett arguably the greatest shares investor average is 21.6% in the last 50 years (or a total of 1,826,163%)
  3. Compounding returns

 

3 Categories of Shares Investing

Investing into shares itself can be broadly divided into 3 categories of investing with rather different goals & methods.

1. Day trading

Buying & selling shares in the same day (intraday) to make quick profits based on small price fluctuations & involves arguably a high degree of risk. Many day traders advise others to stay away unless you are willing to pay the price to learn. A key feature as well is being able to step away & cut losses. Typically not holding any shares at the end of each trading day.

 

2. Swing trading

Short term trading typically lasting from 2 days up to 1-2 weeks. Traders are interested in short term price trends & momentum.

 

3. Long term value investing

A long term trading strategy (above 1 year & often longer) looking for companies with strong fundamentals & that the market has undervalued. Or as Warren Buffett puts it buying stocks at less than their intrinsic value.

 

Other Shares Info

Exchange Traded Funds (ETFs)

Exchange traded funds are index funds that are listed on a stock exchange. ETFs allow investors to buy a portfolio of stocks under a single share listing. Buffett has famously outlined his investment strategy upon his demise for 10% into short-term government bonds & 90% into one single ETF – the S&P500.

ETF advantages

  • Immediate diversification with a single share that outperforms most managed funds in the world
  • Lower expense ratios (especially compared with UTs in Malaysia)
  • Shares trading benefits (continuous pricing, short selling, buying on margin, stop & limit orders)

Learn more on ETFs

 

Real Estate Invesment Trusts (REITs)

REIT is a security that invests in real estate through property often on a stock exchange market.

Learn more on REITs

 

Stock Options

Options gives the buyer the right (but no an obligation) to buy / sell shares at a certain price within a certain period of time.

  • Call Option: right to buy
  • Put Option: right to sell

 

Stock Warrants

Warrants are like options giving the warrant holder a right to buy/sell shares at a certain price within a specified period of time. Warrants differ from options that warrants are issued by the company and may have a longer period of time up to years. Warrants have potentially higher gains and is cheaper at lower cost. However, warrants do not receive dividends and can become worthless if they expire.

 

Contracts for Differences (CFDs)

A futures financial instrument which works as a leveraged derivative to an asset like shares typically used for short term trading.

Learn more on CFDs (members)

 

Growing with Shares Investing

  1. Dividend payments (note: not all companies pay out dividends)
  2. Share price appreciation (realized when you sell the share)

 

Minimum Shares Investment

In USA, the minimum share to purchase is just 1 unit.

In Malaysia, the minimum shares to purchase is 100 units.

There are brokerage fees which are discounted if you trade on your own over the internet. Some brokers charge flat fees (especially internet-based brokers) while others charge by % (more common in Malaysia). % charges range typically from 0.4-0.6%.

 

US Stocks main 3 Indexes

  1. Dow Jones Industrials Average (DJIA): 30 largest companies in USA
  2. S&P 500 Index: 500 largest companies in USA
  3. Nasdaq 100 Index: 100 largest companies in the Nasdaq exchange which is focused on the technology sector

 

Overall

Shares offer the most potential for growth. Especially if you are younger (having 20 or more years of income coming in), you are able to be more aggressive in pursuing higher risk investments such as shares as you will be able to hold & weather out stock market dips & crashes. (And load up even more shares).

At MyPF, we focus more towards mid-long term value investing where we work with our clients to grow wealth going in when the time is right in a bear or bull market. And not worrying what Mr Market’s pricing is on a day to day basis allowing you to sleep well at night. All this to you owning a successful diversified profitable stock portfolio.

 

More Info

MyPF Members Access

 

Share and discuss on shares investing.

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