Whenever we talk about finance, it seems that there are many advices on investing everywhere! Everyone from your childhood drinking kaki who doesn’t seem to be able to get a proper job but always has insider hot stock tip to your neighbour who was an army encik before landing an insurance agent job, is telling what you should do with your money.
Although these advices are given out of goodwill, most of them might not be the best person to tell you what and how you should handle your finances. The thing about finance and investments is that nobody knows your true financial objective. Different financial objectives require different types of investment strategies. That being said, today we identify the top three advices we should be wary of when investing!
Using Today’s Events to Predict Future Events
Some experienced investors have recommended me to use today’s events to predict future events. As an investor, it is both tempting and logical to use current events and performances to forecast future events and performances. However, many investors are not cognisant that the financial world is dynamic and ever changing
One perfect example is the dividends given out by companies. Haven’t you heard from your fellow investors that you should buy stock X and earn from the dividends pay-out?
“You should invest this company; the dividends they give for the past 5 years have been quite good!”
Unfortunately, not all companies give out dividends periodically for you to “earn”. A company that is rapidly growing usually won’t give out dividends. This is also true for companies that believe that it will better off increasing its value by reinvesting its earning. Companies that do not give out dividends usually use the money to fund other projects (which might ultimately increase the performance).
While we feel that it is rational to use current events to forecast and predict future events, we should always understand that the only constant in this world is change. Take everything with a pinch of salt!
Have you heard from anyone that everything you need to know is in the company report? As a shareholder of the company that you have invested in, you will most likely read its annual company report. More often than not, these reports paint a rosy picture.
“We broke the record for the number of guests served in 2016!”
“We boosted our capabilities”
“We have increased our sales significantly!”
If you are in the management team of the company, you will definitely want to assure your investors. However, the downside of this is that many investors will be unintentionally misled. Always verify what was said in the company annual reports, even for numbers! Do not trust everything at face value. While numbers are still the best way to verify the statements claimed in the annual reports, they may not paint the entire picture. Numbers can be manipulated to fit into almost anything. Especially the fancy infographics, artwork and visuals.
“Eh bro! My girlfriend’s dog’s groomer’s son got very solid recommendation. I hear say, Company X say they are making big expansions into China and Europe by the end of next year! I think must buy this company leh. If never buy sure wasted opportunity.”
It is inevitable to find yourself in situations where people offer their recommendations to you. While it is tempting to trade based on what they recommend, I always believe that we should do our own due diligence. Even if the recommended stocks could be an extremely good buy, it is always good to conduct your own research and convince yourself before you commit yourself into that investment.
While conducting your own research can be an extremely arduous process, this onerous task can save you from a disastrous financial portfolio!
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Bonds and Fixed Income