We’ve written quite extensively on things investors should take note of before making investments. This is because it is difficult to predict sure-wins in the market. By paying more attention to important factors, investors will be able to shield their portfolios from adverse impacts as much as possible.
ALSO READ: 6 Basic Things Everyone Needs To Know Before Investing In Their First Stock
Today, we present three not-so-common investment tips that investors should be aware of before buying a stock.
# 1 Know The Management Of The Company
When investing in companies, many investors only look at companies in terms of the price its stock is trading at. They compare the numbers through analysing charts or by looking at corresponding growth on its balance sheets.
Investors should always read the company’s annual report and consider meeting the management team. This can be done either by putting through requests to join such meetings already in place, or by attending Annual General Meetings (AGMs) and speaking with the management team in attendance.
By doing this, investors can get a good sense of how the management runs the company, how well it handles pressure, whether in delivering bad performance or under intense questioning, and get an understanding of where the management intends to take the company. This gives investors an overall impression that just looking at numbers simply cannot replace.
Think of it as hiring employees by conducting a group interview, rather than to simply assess individuals by basing it on their CVs.
# 2 Choose Stocks Like You’re Choosing A Wife
No, we’re not promoting a new kind of porn industry here.
We believe most people spend a long time and put in much effort picking their life partners. They understand everything about the other person, they know where they are headed in life and are prepared to spend the rest of their lives with him/her.
This is how you should pick your stocks – with the willingness of owning it forever. In fact, this is how Warren Buffet picks his stocks: “Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
By thinking this way, investors will put in much more effort in trying to understand their investments rather than pounce on a tip they’ve heard or just buying stocks on market dips. Investors will also continually be in touch with their investments, read about its prospects and keep updated with its performances.
# 3 Seeking Alpha
Investors must understand that by investing in individual stocks, they are, in effect, seeking alpha. What this means is that they are trying to uncover stocks that will give them better returns than the rest of the market – this is termed alpha. They are basically telling every other investors (including professional fund managers) that they know something about the stock market that nobody else knows.
If investors do not have, or are even seeking, information that will give them alpha, and all they want is the market return, then they would be better off buying broad-based country indexes. This would offer them, among other benefits, an in-built diversification strategy and relatively stable fluctuations in their investment.
Singapore’s Straits Times Index (STI) is made up of the top 30 stocks listed on the Singapore Exchange. And it has averaged an annual return of approximately 4.71% over the last 10 years.
Read Also: Why Singaporeans Should Buy The STI ETF As Their First Stock
Investing Takes Time And Effort
At the end of the day, executing the right investments takes a lot of time and effort. And after taking the time and effort to delve into it, we need to have the discipline to stick with our strategies over the long term for it to pay off. There is no shortcut to investing, if it were simple, there would be many more millionaires among us.
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