We were requested by some friends to share strategies on how they can start their investment journey. Understand that many are interested but have no or little clue on where and how to start. One of our authors has >13 years experience in investing in the equities market, he started young and is now investing and also trading various financial instruments. We have also shared in our previous article on where you can invest your money (legally)?
The aim of this article is to provide a simple step by step methodology to all our readers. If the way we approach investments does not align with what you have in mind, we seek your understanding as in the market no one is always right and we all learn with positive mindset and spirit. We also assume that the young investors would like to learn some fundamentals and invest in Malaysian stock market (i.e. Bursa Malaysia).
Step 1: Open a Trading Account
There are a handful of trading platform providers including CGS-CIMB iTrade, HLeBroking, Rakutentrade. I3Investor does offer a list of trading platform providers that you can go through and select what is suitable for your trading needs.
Step 2: Learn Fundamental Analysis
There are a lot of things to learn in Fundamental Analysis. What you can do is to start with understanding of the terms below.
a. Price to Earnings ratio (P/E)
b. Net Tangible Asset (NTA)
c. Current Ratio
d. Return on Equity (ROE)
e. Earning Per Share (EPS)
f. Dividend Yield
g. Price/Earning to Growth ratio (PEG)
h. Price to Book ratio (P/B)
Learning Fundamental analysis is almost a lifelong process as we learn the various valuation methods of the companies (i.e. P/E, P/B or P/NTA, PEG, ROE, Discounted Cash Flow, Sum of Parts, Premium or Discount to peers and/or Book Value). There is no one fixed valuation method and it's often market driven and changes over time when there is new development to the business. P/E is the most used methodology and you will see that Analysts used various combination of methodology to value a company.
Step 3: Practice with a Dummy Account and familiarize yourself
Most of the trading platform providers has dummy account facilities so that newbies can practice trading or familiarize themselves with the system. Take advantage of this while you're learning the Fundamental Analysis
Step 4: Repeat Step 2 and 3 until comfortable with investing
You will need a certain amount of courage to use your own money in trading. So practice until you feel comfortable. You should also read books like 'The Intelligent Investor' and books associated with Warren Buffett. Look for books that are easy to read and understand.
Step 5: Select a Stock and Start Investing
Step 5 may sound too easy to read than do - yes it is not easy for first timer. Which stock should you select and is the price right to buy now? Remember, "money is what you pay, value is what you get" - this is a famous quote in Value Investing Model. As this article does not intend to make anyone a value investor or momentum investor/trader, we assume that the first time investor will want to keep a stock for some time (i.e. a few months or years).
Stock picking is difficult hence to ease that burden, do select companies that you know (i.e. Maybank, Genting, Boustead, SP Setia), you are comfortable with and that you believe have a good future (and business is either growing consistently or recovering from a temporary decline).
Step 6: Sharpen your skillsets and understand your personality vs investment
You will need to continue to learn new things and sharpen your skillsets. You may have know Fundamental Analysis and connect the dots on how they tie-in to the stock prices. However, you should continue to learn Technical Analysis where charts will 'hint' you on where is the 'entry' and 'exit' prices.
You should also ask yourself what is suitable for you - are you going to be a longer term investor or day trading (not investment) is a better choice? It's a very personal question to answer hence I have no answer here for our fellow young investors. For me, I used a hybrid model where I have positions which I hold for a longer term (i.e. using Value Investing and Growth stocks methodology) and I trade some shares over few weeks cycle (i.e. using a combo of Technical Analysis and Fundamental Analysis). To add some thrill to my mundane day, I trade some derivatives like Futures (FCPO, FKLI, Mini-HangSeng Futures) as well.
Bottom line is you will need to find out what is your "investment personality". However, a word of caution is the most successful investors "hold their position over a longer period of time". Those who got rich like Warren Buffet, Elon Musk, Jeff Bezos, Bill Gates have big positions (a lot of shares) in their companies and they didn't trade it (frequent buy-sell) like traders. Investing in a growing company will certainly yield you a lot of good returns but you will need to select the right stock (going back to Step 5).
So, who says Investing is easy? No, it's not difficult but to manage an investment portfolio which consistently earns a good returns and beating the market is very very difficult. Even the professional managers have difficulty doing that. But as an encouragement, you will have to start somewhere if you are keen, else it will never happen. Good luck and take action today.
