I get asked a lot about investing.
To start off, let me just say that I don’t claim to be the best investor in Malaysia. There are many others who I’m sure are better out there. However, I’ve been able to make a decent amount of money through saving and investing. In particular, dividend and value investing.
I’ve been able to successfully generate annualized returns of 10% (so far). With my portfolio close to RM450K right now.
I invest primarily for financial independence and freedom. To generate enough passive income, allowing me to have the freedom of choice when it comes to major financial decisions.
I don’t view ‘investments’ that keep me up late at night as passive investments. I’d very much rather have an investment generating 10% pa, worry-free than an investment that generates twice that but keeps me up all night and all on my toes all day.
In other words, I am investing with quality of life as an end goal. And I’m investing for the very long term, for life.
What Are Your Advantages
The first question to ask yourself before you invest is this. I’ve broken advantages down into 3 main categories.
If you happen to have access to certain information not privy to the public or the rest of us Malaysians, you’re way ahead of the curve. Be aware of threading the fine line of insider trading though.
It’s always a good idea to invest in businesses you have a direct connection to. A good example would be an AirAsia employee who might have noticed that passenger volume has gone down for months where previous flights were full.
An example of illegal insider trading would be an accountant of AirAsia who reads the unpublished accounts and notices AirAsia is about to declare an unusually high-profit next quarter.
This means you’re better at taking the information available in the market and dissecting it and then using it to your advantage. You could have algorithms set in place, charts etc.
This usually applies to the big boys. Investment firms with PhDs and whiz kids working for them, making better use of the information available in the market than the average joes like me.
3. Emotional / Behavioural
Do you have a particular personality or temperament that allows you to make better investment decisions?
Being able to separate your emotions from investing ie. not succumbing to the ups and downs of Mr. Market. This is easier said than done and I myself find it difficult to execute especially during times of recession.
A good example would be our good Mr. Warren Buffett. ‘Be greedy when others are fearful and be fearful when others are greedy’.
Becoming a Better Investor
After identifying your advantages, it’s time to beef up. Now, these are useful even if you’ve had some mileage as an investor. Remember to always improve yourself.
1. Read These Books!
I’ve taken the time to compile a list of useful books hERE.
The purpose right now is to not to immediately jump into investing. It is to make sure you’ve got your arsenal of knowledge and skill to help you keep your head afloat in the market.
If you don’t have the time or the energy to read up and increase your knowledge, you shouldn’t be investing. Trust me, you’ll get burnt.
Consider a low-cost index fund or FDs if you eventually find that investing in the stock market isn’t for you.
2. Pick Your Style
Now you’ve read up on the different styles of investing, you should have a rough idea on how you want to go about investing.
Base this on your own personality. What sort of risk are you willing to take? And what sort of returns are you looking at?
Base this also on the amount of capital you have to invest. RM10,000? or RM100,000. There is both a case for and against diversifying. Which you’ll have to decide for yourself.
And base this on how long you plan to invest in. The timeframe. Investing for the long term allows your money to compound for a longer period of time. Which is why investors that start young have a huge advantage compared to their senior counterparts.
3. Set Your Rules
One of the main mistakes investors make, especially value investors is thinking that the journey ends once you’ve successfully picked a stock.
On the contrary, investing ends only when you’ve liquidated your investments. When that cold hard cash is in your hands or bank account. Dividend investing helps me maintain my capital while receiving dividends in my bank account annually.
On that note, it is important to have a target price or value for your stocks. This will let you know when to sell and when to purchase more. For me personally, as a dividend investor, I only sell a stock when it is 50% higher than my valuation of the stock. And I add more if it falls below 30%.
4. Have a Proper Financial Plan
It is important to have a plan to adhere to every month. You’ll want to have a proper financial plan in place and review your finances periodically in accordance with the said plan.
I’ve gotten a proper basic financial plan together that covers the essentials for all Malaysians hERE.
Now that you’ve got everything in order and you’re all set to start investing, I’d highly recommend one more step before you start off – paper trading.
Paper trading is trading hypothetically online without the actual use of money. You start off with a set amount of capital, say RM100,000 and you start investing as how you normally would. Do this for a year and see how you manage at the end of the exercise.
Now, investing is easy. But it isn’t as easy as some of you might think. You’ll be thrown into the market with the big boys and their PhDs and algorithms. But, armed with the right knowledge and some common sense, investing isn’t too difficult.
For your next step, you’ll want to go through the motions and start with the opening of your brokerage account. You can read up on it hERE.
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