How to Start Investing in Singapore Stocks

money-questions

Dollar-Question

I got another email from a newbie investor, asking a question that I have probably answered my friends many times.  How to start investing in Singapore stocks or stocks in general, with a small capital?

This question is always thrown up because many people don’t see the point of investing with a small capital and often struggle with the question of – is it even worth the hassle?

Let me tell you WHY you SHOULD start with a small capital and HOW you should start with a small capital.

 

Subject:
How to get started with investing with small capital

Message:
Hi there! I was browsing through some articles on investment and
chanced upon this blogpost:
http://bfgfmoneyblog.com/feeling-lost-in-singapore-advice-for-lost-souls/“.
I think those were really great advice to the person. I am just
starting to learn about investing (really at the beginner stage, still
researching and no action done yet). I am wondering how/where to start
if i currently only have a small sum of money for investment? e.g.
SGD3500 – SGD5000. In fact, I don’t know whether I should start or
wait to accumulate more money for investment then start. I’m 28 this
year ūüôĀ so I’m not sure if I should still wait. Additionally, when I
attended a seminar held by SIAS in May, the speakers mentioned that
for beginners, can start with buying STI-ETF. so I’m wondering whether
i should just use my small capital to buy all STI-ETF first. then
slowly save more money and start to buy stocks. Any advice would be
appreciated! Thank you!

 

Why You should Start Investing with a Small Capital

Please don’t save up till you have a big chunk of money then dump it into the stock market. ¬†No, no, no. ¬†Please don’t ever do that.

When I gave one of my students my skateboard, I told him this, “Try not to fall too badly.”

Student: “Wah lau don’t curse me leh!”

Me: “Confirm fall down one. ¬†The possibility is too high.”

Investing in stocks for the first time is like skateboarding or riding a bicycle at the start.

You will fall.

You will lose money.

Hope I didn’t scare you there. Haha! ¬†Even Warren Buffet lost money when he bought an airline stock. ¬†The chances of losing money investing is very high at the start – due to lousy research or bad decision-making or panic-selling ( yes, yes I know you promised not to panic sell but at the start, the chances of that happening are very high).

So now that you know that the possibility of losing money at the start is very high… do you still want to save MORE money first then start investing?

No Way Man!

Keep it small! ¬†You can buy stocks with 1k-2k, doesn’t matter. ¬†At the start, you are uncertain about your investment thesis or decision-making skills. ¬†The main risk is your lack of experience. ¬†Taking into account the risk of being a newbie, all the more reasons you should only invest a small amount. ¬†Will you give an inexperienced fund manager $100k of your savings to invest? No way!

 

Investing with a Small Capital Eliminates Fear

We all know the stock market can fluctuate up or down based on sentiment. ¬†Stocks are always volatile by nature. ¬†Don’t cry when you see your XYZ stock suddenly plunge 25% in one day for some stupid reason like Bf Gf blogger releases report of XYZ company misappropriating funds.

As a newbie, you can get very excited when you see the price rise. ¬†Likewise, you will feel scared when your stock price starts plunging deep into the red. ¬†By investing with a small capital, you won’t feel bothered by the temporary losses and you are less likely to sell on panic. ¬†Even now, I still invest small sums into stocks that I like, but are not too certain about.

A small amount invested acts like a tracer bullet.  Fire one shot first, follow the company over time; if it continues giving you confidence, fire more shots at it.

If you feel fearful when the stock goes up or down, then you may have invested too much.  

Any decisions made based on fear will result in losses.

After all, you can always add on to your stock picks when you have more money or when you become wiser.

BTW, for my first stock, I started with 5k and proceeded to lose $500 in two weeks after macroeconomics spook me out. ¬†Then, I bought Cache Logistics with 2k, and subsequently added more to it until I exited with 14k of capital over 2-3 years. ¬†I also bought into Roxy Pacific twice till it amounted to 13k total and exited with 26k total. ¬†26k + 14k = 40k. ¬†I took the 36k to buy Jardine and you can read the rest of the story here. ¬†(But don’t follow the Jardine trade, it was a questionable decision that just ended up being profitable. ¬†I am just using this to show you not to underestimate the power of ‘small capital’.)

 

Should you buy STI ETF?

What’s your strategy? ¬†When I first started, I didn’t have a clear strategy. ¬†I just bought and sold on a whim. ¬†That cost me greatly.

Usually, people buy an index just to dollar-cost-average into it and not bother about the stocks too much. ¬†I don’t buy indexes because I want to beat market returns.

Again, there is no right or wrong. ¬†Investing is a personal decision. ¬†Don’t let experts tell you what to buy. ¬†You must decide for yourself as every person’s views or decision-making processes or financial situation is different. ¬†But to help you with that decision, let me ask you these questions.

– Why not buy a stock?

– What’s your reason for buying STI ETF?

РIf you buy STI ETF, then what are you going to buy next?  ( If you buy STI etf and proceed to buy stocks that make up the STI, then you are not diversifying !  Sounds obvious but I say it just in case!)

 

Continue Building your Knowledge

Don’t ever stop learning. ¬†Continue reading books or joining investing courses. ¬†Invest in yourself. Invest in Money-making skills.

Most of the financial bloggers in Singapore prefer an Income-investing approach and I can see why.

Who doesn’t want to have dividends marching into your bank account throughout the year?

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The Fifth Person has reopened their Dividend Machines Course from now till 7 March 2016.  This course focuses on investing for passive income.  The price is so reasonable that even I have personally joined the course as well!

I have given a review of the Dividend Machines course here  If you have signed up already, then I hope to see you at the Fifth Person live workshops.

Find out more by clicking the image below.

dividend machines

 

bruce lee 2

 

12 Comments

  1. kyith

    “Remember this ‚Äď If you feel fearful when the stock goes up or down, then you have invested too much.”

    Is that the right way of looking at things. Isn’t it likely that they will come a point when they have a substantial amount to invest? Does that mean that their portfolio will forever be capped?

    Reply
    1. Kel

      It’s much like saying how much money you paid for a certain item will give how much heart pain. If you broke a mug that cost $2 from Daiso, the pain is not as strong as a mug from Starbucks given to you by your crush last Christmas. You won’t give a damn about that Daiso mug but you’ll probably stare at anyone who tries to use that Starbucks mug.

      So start small, start with an amount you are willing to use as a “learning lesson.” Investing is a little like gambling, playing poker or Mahjong, with exception that you are limiting the risk. Lose small amount to learn from mistakes, from there build up your portfolio. Once you have a bigger portfolio, you can decide to enjoy some returns or diversify into other investments.

      Reply
      1. The Bf (Post author)

        Kel,

        Yeah a lot of people have the misconception that they must have a large amount to start investing. When actually starting small would be better.

        Reply
    2. The Bf (Post author)

      Heck, don’t feel fearful at all would probably be the best way to put it.

      Kyith if you can rephrase it better feel free to put it here for the readers to see.

      Reply
      1. kyith

        ‚ÄúRemember this ‚Äď If you feel fearful when the stock goes up or down, then you have not formed a good basis of what the business, its corresponding risks, its valuation to have enough conviction in what you invest in. You probably also need to find a solution for your behavioral tendency.‚ÄĚ

        Eventually you will end up with a $500,000 portfolio and by then you can’t merely diversify away the risk by having 4-8k positions in numerous companies as a part time investor.

        You have to have more conviction of what you purchase, and to do that you have got to know that what you purchase are not going to lose you money.

        Reply
        1. The Bf (Post author)

          Thanks Kyith. Couldn’t have said it better.

          I was thinking along the lines of – If you feel fearful means you have allocated too much to that stock such that the allocation doesn’t match the risks involved.

          i.e high risk stock/ many unknown uknowns = smaller allocation.
          low risk stock / know the business very well = larger allocation.

          Over time if you follow the company long enough and understand the industry better, you will have more confidence/conviction to allocate more.

          Reply
          1. kyith

            ah i think thats a better narrative for the newbies.

            but to be fair high risk is probably spelt as high uncertainty which is much unknown unkowns and possibly unknown knowns.

            the low risk ones are when the unknown unknowns have surfaced, and also the unknown knowns, by which you can value them better.

  2. Kel

    Great advice for newbie investor. Using the bicycle analogy, it is thrilling to pedal the bike properly at the start. Don’t let the thrill take over you else if you go too fast, you might not be experienced enough to stop safely.

    Reply
  3. Elvin

    Actually buying an index and a stock concurrently doesn’t imply that the portfolio is not diversified.. this is a misconception.. it actually is a form of risk management.. a stock does not have longevity.. however an index does.. you could buy a stock for dividends within the index.. but buying the index can last a much longer term.. maybe 30 years and beyond.. however, who knows if the stock would still be around after 30 years?

    To start of investment, I guess you need to feel ready right? So to convince yourself that at least you’re prepared for investments which entail financial loss as a risk (means losing money), you need to figure out:

    1) How much money have you set aside for your emergency funds?
    2) Are you covered for your medical insurance?
    3) If you’re investing, are you willing to lose 5% /10% / 15%/ 20% etc of the amount?
    4) How much of this amount are you comfortable to expose to the risk of losing?
    5) How much do you know about the investment? Have you done enough homework? Should you invest in stocks? Is it too high a risk for you? What are the other alternatives out there?
    6) What am I investing for? For dividends (income)? For me to lock aside capital for the long run such as retirement? For me to grow my excess spare cash to buy a property in future? These are some considerations.
    7) How many years can I stay vested for? If there is an economic global financial meltdown and my portfolio is reduced to 30-50% of what it was, will I panic? Will I need this cash during that period of time? Can I hold until the economy recovers?

    I guess this should help you have a clearer mindset. If you’d like to invest in an ETF, perhaps find out the comparison between the ETF vs a single stock or maybe vs other alternatives. This will help you with your homework (We all hate homework I know, but Google is always here for you now). You could also speak to professional advisors / brokers / other experts in the industry like those teaching you on fundamental or technical analysis. Don’t buy anything from them on your first 3 visits until you have done your homework proper. Avoid making a hasty decision too.

    Money is hard-earned. Money lost is time and effort lost too. Hope this helps with the decision making.

    Reply
    1. The Bf (Post author)

      Hi Elvin,

      Many thanks for your detailed comment. I am sure other readers reading this will greatly appreciate your contribution!

      Reply
  4. GV

    Hey BFGF

    Thanks for including the link to my site! Appreciate for the exposure.

    GV

    Reply
    1. The Bf (Post author)

      It’s a great guide. All newbies should read it !

      Reply

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