Monday, November 22, 2010

To put your eggs in a few baskets or to put your all your eggs in a basket?

That's the question that a lot of people ask. Well, it all depends on investor's risk appetite.
Well, for me, I will not put all my eggs in a basket. I will also not put my eggs in too many baskets.

Putting all the eggs in one basket increases investor's unnecessary risks. Having eggs in too many baskets does not make any sense either. The best thing here is to put your eggs in a few baskets. But how many?

Investment is all about your understanding of the word. Many undergraduates are speculating in the stock market. They are actually gambling in the stock market. This is as good as gambling in the casinos in our integrated resort. The only difference that I can see here is just the $100 levy that we, citizens, have to pay just to enter the casinos.

Warren Buffett, Steve Jobs, and Bill Gates put all their eggs in a basket because they know what they are good at. They know what they are doing and has created a niche of their own. Therefore they invest in themselves.

Well, in Singapore, it is not impossible to grow rich. Mr Buffett, Mr Jobs and Mr Gates also started from nothing to grow into what they are now. The main thing that we have to avoid is laziness.

Laziness is the most powerful mass destruction weapon that I have seen.

Investment is not a short term gain. Investment means to put your money into a company or product and earn a profit out of it. So what many undergraduates do in the stock market is not investment at all. The reasons are as follows.
First, they did not hold their shares long enough to be considered an investment.
Second, they like the term "contra". Contra is a process where speculators buy a stock in the stock market and sell them within three days, without coming out with a whole sum of money to buy the shares that they have purchase. In the three days, if the share price goes up, the profit will go into their pockets but if the share price goes down, they will have to pay the brokerage firm for their losses. Isn't this as good as placing a $100 on a blackjack table? If you win, you will get a "profit" of $100, if you lose, you will lose that $100.

To be a real investor, these are the key things that you need to have.
1.   Don't be lazy. Work hard for the first few years to save enough to start your first investment.
2.   Don't be lazy. Make an effort to understand what the companies do before you make a decision to put your money with them. The Internet is so powerful now, you can have all the information that you need. Speak to the CEO of the company if need be.
3.   Don't be lazy. Even if you have invested in some companies, work even harder to save more money to invest more in these companies.
4.   Think of yourself as a shareholder of the company. You own a part of the company too.
5.   Our aim is to grow our savings at a much better rates than what the bank gives as interest. Instead of saving your money in the bank, why not be a shareholder of the bank?

Don't just look at one company. Cast your net to about 6 to 10 companies. Do research on these companies and pick the best 3 to 4 to invest in. Your savings will grow at a rate that you will be surprised as well.