This article was written in partnership with IG, the world’s No.1 CFD provider (by revenue excluding FX, June 2019). All views expressed in the article are the independent opinion of DollarsAndSense.sg
Education is an important part of our lives growing up. In fact, it’s not only important, but compulsory. Despite the requirements of compulsory education, there are still many important areas of our lives that our school don’t teach us.
Financial education is one such area. According to the OCBC Financial Wellness Index results released earlier this year, 34% of Singaporeans do not invest while 33% also think of investing as a form of gambling. Suffice to say, when it comes to financial education, there is a lot more that Singaporeans can do to improve their knowledge.
Stanley Lim is an individual striving to improve investment education for people in Singapore. He is the Co-founder & Chief Editor of Value Invest Asia, an independent website that teaches people about value investing. In 2018, Value Invest Asia was also shortlisted by the Singapore Exchange (SGX) as one of the three “GoTo.com” website in Singapore for investors. Stanley was also a writer and analyst of The Motley Fool Singapore from 2013 to 2017.
In this edition of #myfirsttrade, we sat down with Stanley to find out more about his investment journey, and what got him motivated to start his investment education website.
DollarsAndSense (DNS): We like to start off every interview with this question. Can you still remember your very first trade, and how did it end up performing for you? #myfirsttrade
Stanley Lim (SL): Yes I do! I invested in a small speculative company called Green Packet in Malaysia back in 2006. I got lucky and the stock rallied after a few months. At that time I thought I was a genius for making a profit on that stock. On hindsight, I clearly was just lucky!
DNS: We know there are many ways to make money from the financial markets. Why did you decide to pick value investing as your ‘weapon of choice’?
SL: To me, I think there are two key strategies in the stock market: fundamental investing and technical trading. I see value investing as a subset of fundamental based investing. And it seems like a logical choice for me because I intend to invest for many decades.
DNS: You went from writing full-time at Motley Fool to starting Value Invest Asia. Explain to us the reasons for this decision?
SL: Yes, I was with The Motley Fool Singapore for about 3 years before I started ValueInvestAsia.com with two of my buddies. The main reason was personal. I had two kids at that time and other family commitments that require more of my time. I felt guilty that I was not able to give my full attention for The Motley Fool and still take a full-time salary from them. So I decided to try creating ValueInvestAsia.com to be more flexible.
Secondly, from an investor’s standpoint, I don’t really invest that much within the Singapore market. I always felt that investing should be borderless and it is the best asset class to be international. But at that time, Motley Fool was still focused on providing research for the Singapore market which I felt was slightly restrictive. So ValueInvestAsia.com was created to highlight the different markets we can trade into and the fact that we should widen our view as investors.
DNS: Why do you look beyond the Singapore market to search for good investment opportunities?
SL: A key factor for us is the fact that we are not Singapore-focused. I feel that stocks are the best asset class for an investor to diversify beyond our home market. So we try to show to our audience that as investors, we should invest beyond Singapore so that we can diversify our portfolio.
DNS: Markets can sometimes be very volatile. What’s your personal advice to new investors who may be shaken when they experience a volatile market and incur losses during this period?
SL: I think we have to clear on why we are investing on the first place. Markets are always going to be volatile so we should expect it to go up and down. If we are investing to grow our wealth over the longer term, it is good to think about creating a solid long term portfolio. I always tell my audience that if you are investing, have a time frame of at least 3 to 5 years at the minimum. This is because a typical market downturn is around 1-2 years and the worst ones may take 3 years to recover from. So if we have a longer investing time frame, we would be able to ride out the storm.
If we are trading over a short period time, then it’s likely we are using volatility to capture profits and this can be done, with leverage, over a short period of time. But we should be aware of the risk we are taking.
As for hedging, it depends on each person’s portfolio and situation. I do hedge, mainly through options or ETFs. This is because I own close to 50 stocks and trimming position on them individually is quite hard.
DNS: If you meet your younger self today before you have made your first trade, what advice would you give to him?
SL: I think the most important lesson I learned over the past decade is I should have focused more on the quality of a stock rather than the valuation of a stock. In the past, I tend to put more emphasis on how cheap a stock is. But it is actually more important for us to buy into a high-quality company than just a “cheap” company.
“Cheap rubbish is still rubbish” is my motto now.
Invest & Trade Correctly Based On The Timeframe That You Are Looking At
Stanley rightly recognised that there are two main ways that an investor or trader can make money from the financial market. The first is to buy an asset such as a stock that we think would appreciate in value over time. The other way is to make profits in the short-term by taking advantage of the fact that prices are fluctuating, even if they remain constant in the long-term.
While investors may hold stocks for at least 3 to 5 years (as what Stanley recommends), traders hold positions for far shorter period of time, such as from a few minutes up to a few weeks. However, the aim of both traders and investors is similar – make gains because of the everchanging prices in the financial market.
So if you are looking to make profits in the short-term, technical trading and analysis may work better for you. If you are looking to make profits in the long-term, then fundamental analysis strategies such as value investing would work better.
Whether you are investing or trading, there are some tools that you can use to create the positions that you want. Instruments such as Options, Contract For Difference (CFDs) and even Knock-outs – a limited-risk CFDs – can be used not only to take up trading positions, but also to hedge your current investment positions.
Similar to Stanley, a long-term investor may consider using CFDs to hedge their portfolio against the risk of their stocks declining without having to liquidate their holdings. On top of that, traders can gain access to more than just stocks with CFDs, trading into commodities, 24/7 indices and FX are ways to also add into your portfolio for better diversification.
IG is the world’s number one provider of CFDs (by revenue, excluding FX, half-yearly as of June 2019) making them a suitable choice if you are looking to trade CFDs, whether to make profits or to hedge positions.
Read Also: Inside IG: We Took A Inside Peek Into Their Singapore Office – Here’s What We Saw
Lastly, expecting to make money, whether through investing or trading, from the financial market without the right education would be unrealistic.
If you are looking to learn how to trade, you can also consider getting started by tapping on the extensive range of free online trading courses, live sessions and articles offered by IG Academy. There is also an IG Community where you can discuss trade ideas and market opportunities with other like-minded traders in Singapore.
It would also be prudent to start off your trading journey by practising on a demo account first. This allows you to get familiar with the trading platform and to try out trading strategies before putting in actual money into your trade. You can also download a free e-book published by IG in partnership with Bloomberg that can explain more about alternatives to FX CFD trading.
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