Want to save money and learn how to make money? It’s tougher than you think.
Singaporeans love making money and explore quick and creative ways to do so.
They turn to investing in stocks thinking it is a legit, quick way to make a buck. However, many face investment difficulties during recessions or when high periods of volatility kick in.
Worse, some think that the most cost-effective way to invest in the stock market is to learn from other successful investors.
This is why the likes of Warren Buffet, Benjamin Graham and David Rubenstein attract such a cult-like following.
But if we look at three quotes from these savvy investors and try to understand the basic principles behind them, we find that as retail investors we can’t do what they do because we just can’t.
1. Warren Buffet: “I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years.”
Many Singaporeans treat the stock market like a game. They buy a stock when they think the prices are low enough (when compared to the stock prices’ historical highs) and look to selling it when prices increase.
Warren Buffet advises us to buy the stocks of strong businesses that we intend to hold on to for the long run. In other words, visualise the possibility that you may not be able to sell the stock in the next five years. You will instinctively be more selective in what you purchase.
Never buy a stock simply because it used to be more expensive.
Why you can’t apply this idea: Not many people have the tolerance, appetite or disposal income of Warren Buffet.
2. Benjamin Graham: “If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.”
When we shop our groceries at the supermarket, we usually go for brands that we are familiar with.
Selection of a perfume is, however, a different experience. We find ourselves attracted to the flavour of the season, and end up purchasing what everyone else is talking about.
Benjamin Graham’s advice on investing is that we should choose stocks that we are familiar with, and not the latest craze.
Trends come and go, and the last thing we want is to be hold a stock that went out of fashion.
Why you can’t apply this idea: We all have herd mentality. We cannot simply shake it off or turn it down as and when we like.
3. David Rubenstein: “Persist – don’t take no for an answer. If you’re happy to sit at your desk and not take any risk, you’ll be sitting at your desk for the next 20 years.”
We love this because it goes against the natural instinct of most Singaporeans. We are so fearful of risks that we rather not try.
Here are two simple questions to find out if you are such an individual.
1. Are you afraid to invest because you are worried about the risks involved?
2. Are you content to earn the interest rate provided by banks?
If your answers are “yes”, you are similar to many risk-averse Singaporeans.
Why you can’t apply this idea: Sometimes inaction is the best action, because by not entering the market, we are already making a killing by limiting our exposure.
Any investments will have elements of risks involved.
Even our savings deposits in banks are exposed to certain risks such as a bank-run or bankruptcy.
But citing risks, or equating investing as gambling, is a bad excuse to ignore personal financial planning.
If reading is not your cup of tea, a trustworthy financial advisor can do the trick as well.
This article was written for and first appeared on Mothership.sg.
Royalty-free photo from Getty Images. Used with appreciation.
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