I am one of your readers of your blog, apologies if this email came as a surprise, I stumbled upon your blog while browsing the net on my iPhone.
Allow me to introduce myself. I’m John, a 3rd year polytechnic student. Though mentioning this might have made your head turn away, since I’m still young and probably in no position to search for any financial-generating opportunities like Stocks or Investments due to the lack of capital, but I believe it’s good to start young. I cannot find any tips that cater to someone like me, hence i wrote this email in hope to hear from you.
Problem is I don’t have any opportunity, or know of any methods to grow financially. hence I hope that through this email, I can get some guidance from you of what a person at my age and situation should do.
Hope to hear from you, thank you.
The above is an email from one of my readers but the name has been changed to protect his identity. Since I started blogging four years ago, I have received quite a number of emails from readers seeking financial advice from me and normally my policy is not to reply their queries. This is because firstly, I am not a financial adviser and do not work in the financial sector. So I am not qualified to advise readers matters pertaining to investments. Secondly, I have not achieved the level of wealth that allows me to quit my job and retire comfortably. So without any form of track record to speak of, I don’t think I have earned the bragging rights to share insights on achieving financial freedom. But for this case, I felt compelled to share some of my thoughts because I am heartened to know that there are young Singaporeans who appreciate my blog and are interested in stock investments.
In my view, John has the right altitude and potential to become rich in Singapore. This is because he knows the importance of creating sources of income through stock investments at a young age. And that’s an important advantage because this gives him a really good head-start as most Singaporean males his age are only interested in computer games or dating. If you start young, you will have a higher chance of building a significant amount of wealth in your lifetime as investment is a journey that involves experiences gained from trial and errors. Nobody is a born investment genius and we all learn through mistakes. However, the learning curve can be shortened if we made the effort to learn from other investors’ mistakes and avoid potential pitfalls.
Yes, I agree with John that to make money from stock investments, you need capital. After all, you need money to make money. So in order to become rich, you need to have a good career first, which means you should be a successful entrepreneur or salaried worker with high income. John is at a critical juncture of his life and his decision at this stage of his life would define his path towards financial success.
There are no secrets to become rich and sad to say, there is also no formula to attain financial freedom. Successful investors make their money through diligence, discipline and learning. In his email, John kept lamenting that because of his young age he don’t have the opportunity to grow financially. This is not true. I have many friends who works part-time when they were students and saved enough money to pay off their university tuition fees. So to me, to cite age as a form of financial handicap is an excuse. What John should focus now is to develop building blocks in two aspects – personal finance management and investment knowledge.
To build wealth, John should understand the basics of insurance, budgeting, credit card management and knowing how to save effectively. These are key elements that can shape our financial wealth. One caution to young Singaporeans is not to purchase whole life insurances. If you are seeking protection, go for term insurance policies. I had seen so many of my friends, myself included, being misled into buying expensive life insurance policies by insurance agents keen on making fat commissions. These agents are not bothered by the fact that many young Singaporeans who are still studying cannot afford the premiums for these policies. They are only interested in making money from selling these policies and obviously would not safeguard their interests. So don’t be fooled by these bunch of people.
Some people said that investing is all about timing, some said it boils down to luck. To me, investing is half-science and half-art. Sometimes you can analysis as much as possible on a particular stock but when the market suddenly crashes, all your profits and capital are gone. That’s the hard reality. Therefore, successful investing also requires the right skill to make critical judgement call and look at things from the big picture. To be a winner, you must remain calm in the face of market swings, and be prepared to go against the crowd. That will not be easy, and not many people, including myself, can achieve that. But if you are able to do so, the rewards can be substantial.
The difficult part of assessing a company lies in the qualitative analysis. This is because it is not easy for investors to come up with the intrinsic value of the business, especially for those novice ones. I have seen many Singaporean finance bloggers making investments in local stocks based solely on NAV or P/E. Some of them also invested in Reits or ETFs, with investment criteria based solely on potential dividend yields. These are very narrow measures to gauge a company and may not reflect accurately the value of a stock. Most Singaporeans don’t even bother about the fundamentals of the business before making investments in stocks. Many of them buy shares of company whenever there are media reports of new contracts secured and panic sell when stock prices fell. Many Singaporeans don’t even understand the concept of asset allocation and thought that investing is all about stock investments. Many don’t even know the pros of diversifying their wealth in gold and bonds.
To be a good investor, we must not only focus on the fundamentals of the company, but also the macro economy. This means that investors has to read broadly and sense-make the surrounding environment. Keep an open mind and always have the desire to learn new things. This will require a lot of discipline and efforts, especially if you have family or other commitments. But once you have developed a habit of reading, your sense-making ability for investment analysis will improve.
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