Tuesday, December 27, 2011

Investment is like our daily life

Dear readers,

It's been a month long since I last posted here. Merry Christmas and a Happy New Year to all of you. Hope that 2011 have brought you some good investments.

During the Christmas weekend, I read a post from a friend in her Facebook. 
"Damn crowded, whole world seem to be here — at 112 Katong."

We know that 112 Katong is a brand new shopping mall that was opened just before Christmas. It had attracted a lot of shoppers during the Christmas long weekend.
But how is this related to investment?

Thoughts just ran through my mind when I read the above post. Somehow I just linked the thoughts to investment. Here, I will explain their relationship.

It's in the humans. Nature create humans that like to follow the crowd or follow something new. 112 Katong was just opened and people just flocked there. They did not think of whether it will be crowded or not. They just like to be with the big crowd. Some people may even shop for things there, without comparing prices elsewhere. So, most of the time, shoppers bought things way above the value.

Imagine if you are an investor, waiting for a stock or a property to buy. You see that many people were buying ABC stock or DEF property, the price has been pushed up for almost 10%. You were afraid that price might go higher, so you decided to follow the  crowd and make your purchase, without doing any homework. This is the worst mistake that an investor can make.

112 Katong will still be there in the next 20 to 30 years. Why do so many people like to follow the crowd? Don't they feel uncomfortable with the crowd? Just like the shopping mall, the stocks will continue to exist as long as the company is still up and running. 

Personally, I prefer to shop in shopping malls on weekdays. Why? So that I can enjoy the shopping experience without squeezing with the others. So I applied the same concept into investing stocks. I look for stocks that do not trade on the top volume list. I look for stocks that people don't like. I look for stocks at my own sweet time and do research on them before I commit to buy. When I have committed to buy the stock, I will wait for it to fall to my strike price before I take action. That's what an amateur investor should do too. 

Also, we compare prices when we do our shopping. Recently, I bought two dozen golf balls that will cost $8 per piece in Singapore. A friend was coming back to Singapore for Christmas, hence I bought through the Internet. The golf balls cost less than $5 per piece. I actually bought at a discount of 37.5%. The same should go to property investment. I bought two, "not so popular", properties in 2010 and sold them for a good profit in 2011. Before buying the properties, I looked at the prices of nearby properties for comparison. Of course, I did not buy the cheapest one, but I bought one that is at a discount of my personal valuation of the property. Investment is just like buying normal shopping items, we tend to compare prices before purchasing them at a cheaper shop.

A good investor enjoys doing homework on the investments that he is interested in. Just like a student will like to do homework in the subjects that he is interested in. It's like purchasing a car. When a person likes a certain car model, he will look for all the reviews, or pictures of the car. This applies to investment as well. Be it stocks or properties, amateur investors should find out more before making the decision to buy.

There are many other examples that investment can link to our daily lives. Our daily habits will determine how successful we can be in our investments.

May the incoming 2012 bring us better investment opportunities.

Happy investing and cheers.

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