Monday, September 26, 2011

A 'tough' road to be an investor

What does it really take to be an investor? Route to become one is not an easy task.

Recently, friends have been asking if they should buy more shares or sell their shares during this volatile period. I told them that I have bought some shares and did not sell any of my holdings. They were again confused by my actions. That's very normal. It's human. There's always an element of fear in the current situations.

One friend asked, "Why don't you sell your holdings and wait for the price to go down before buying back?"
Another friend asked, "Why do you buy when the Euro zone is in a mess now? Greece may default and cause another Lehman-like crisis."

The answer I gave to both my friends is the same one. "I do not know if Greece will default. I do not know in which direction will the share price go. All I know is, I have my personal valuation of these shares and they have fallen to my strike price (a discount of my personal valuation), so I opened my warchest and bought these shares."

What if the prices of those shares fall further? Well, I will just buy more. If I can get the same shares at a cheaper price, it means I can buy more of them. Isn't that great?

One way we can invest is to use just a part of our investible savings to buy first. If price falls about 10% more, then we stockpile. If price rises, then we are all happy investors.

Investing is not as easy as buying low and selling high. How do we know how much is low? How do we know how much is high? Do we buy at $3 and sell at $3.10? Not that I know of any investor would do that. A real investor is one that will put their money into a company that can give them comfort to sleep soundly at night. An investor does not put money in the company's shares and hope that the price will increase in the next few days. (That's gambling. It's like putting your money on the gambling table and depend on luck.)

My journey to become an investor is not as easy as it seems. When I first started to buy shares in the stock market, it was like ok, I just buy and hold the shares till the price goes up 10% then I sell. Well, I was wrong. There are just too many traders out there buying and selling shares. I cannot control the direction of the share price. Currently, I am still holding on to these shares and the price has gone up but I am not going to sell them as yet. That's the first lesson I learned. Do not put all your money at one go.

6 months down the road, I picked up some pointers from the books that I have read and I also saved another sum of money. I thought I was ready to apply what I learned in the book. Again I was wrong. It was really not easy to put that sum of money into the stock market. There was always a fear that what if my calculation is wrong? Why don't I wait a while longer? What if I buy now and the price dropped further? There is always the emotion factor that will affect your decision making.

Thereafter, I decided to sell all my shares in my holdings and came up with another plan. With the cash I have, I put in about half of the money into the company that I have done my calculations. With this, I will not have the worry that I will lose the entire sum of money if company is going bankrupt, and of course, the companies that I have researched are those with more than 20 years in their respective industries. Hence, my worry that the company to go bankrupt can be put behind and I can sleep soundly at night.

This strategy works well for me. I also started to widen my search for companies to invest in. It's all hardwork but I do reap what I sow, and I am satisfied with it. My investment has been growing at more than 15% compounded every year for 4 years. If I can do it, so can you. Now I am able to overcome my fear that I had when I first started.

I always have a stirke price for each and every company that interests me, hence whenever there is a panic sell in the market and the price hits my strike price, I will buy the shares with my savings. My current shareholdings are able to give me a dividend yield of at least 7% each year and these dividends were mainly reinvested to buy more shares instead of spending them.This is the only way to grow savings at double digit rate and beat the inflation.

Investment in properties or in stock markets makes no difference. When they are at a discount of your personal valuation, it's time to buy. So when will I sell my shares? I sell my shares only when I need cash to fund my other investments. For example, I have sold some shares last year to fund my purchase of a property. If there is no need to sell the shares, I would rather leave them in my CDP account and collect the dividends.

To be a real investor, you may want to follow this list:
1. Be patient. When the share price did not fall to your buy price, don't buy.
2. Overcome the fear. Have confidence in your investment. Trust your own judgement.
3. Never time the market. Do not wait for the market to fall further.
4. Do not be too greedy. Buy enough and not too much, make sure that those are the companies that you want to hold for a long time.
5. Sell only when you have found a better investment or when you are in need of money.
6. Reinvest the dividends so that your savings can grow much faster than inflation rate.

If you have insights, please share here.

Happy investing.


Disclaimer: Readers are advised to exercise their own discretion when it comes to investments. All investmets involves risks. The blogger shall in no event held liable for any loss or other damages.

1 comment:

  1. Interesting read and some good advice :)

    Many are confused about their being. Am I an investor or am I a trader?

    This is often the very first step one needs to know about him/herself.

    An investor need not be a trader.

    A trader is just like any profession - doctor, singer, barber, cook, etc, and all should learn to be an investor.

    Everyone else should learn to be an investor, or rather, your own money manager... else your hard earned wealth will get decimated by the silent theft of all governments... and this they call "inflation".

    Humbly yours,