In my portfolio now, I have DBS Bank (D05), Ascotts (HMN) and Food Empire (F03), having recently sold Bumitama Agri (P8Z) at a 17.5% profit and is now ready to reinvest my capital in other stocks. I have a clear objective in mind for each one of my stocks although these objectives are different and less vague than the objectives I had in mind when I first started.
Before I delve into the important lessons that I have learnt, it is important to highlight to my readers that the stock market should be seen as an opportunity first and foremost. Sure, the stock market is risky. There is a possibility that one lose a lot of money by investing heavily into the stock market but the same possibility applies if you put that same money into a bank or worse, lose it in a scam. As you will read in my points below, you will find out that it really is pretty hard to actually lose money in the stock market.
The 4 Golden Lessons
1. Exit Strategy
When I first bought DBS stocks (D05) at $25.30/ share, I planned to cash in on the dividend payouts which was a generous ~5% per annum. That was definitely more than the 0.05% interest I was getting from the banks or around 2.5% from my SGS bonds! In the next few days, I saw D05 share prices drop below my buying price to around $24 and I found myself checking the share price every few hours or so. My heart sank every time the share price fell because I thought I actually lost money. However, D05’s share price eventually roared in the coming weeks ahead to reach a high of around $28. I was elated. A few months later, on the back of news about digital bank licenses, the stock plummet back down to around $24 and I thought to myself if I were to sell these stocks now, I would be making a loss. In reality, I would actually be making a profit of 4% as I was already paid the dividends for the year.
I decided to stick to my long term plan for D05, to earn dividends in the long term, but lo and behold, the covid-19 crisis struck in March 2020 and the D05 share price plummet to a record low of around $18/ share in April 2020. I was devastated as I would have lost thousands of dollars if I exit at that moment. I was filled with regret and kept telling myself, I should have sold and rebought the shares to make a tidy profit. Afterall, a stock market crash is an excellent opportunity for investment, and is where fortunes can be made! It was the same feeling that I had when the stock price fell from $28 to $24. The feeling of not having sold earlier, the continuous feeling of regret, was not a pleasant experience as a first-time investor.
Hence, I realise that what one needs to thrive in the stock market is an EXIT STRATEGY. With an exit strategy, you can never lose money unless, of course, you bought into a bad company with poor management and fundamentals. With the kind of transparency that is required for companies to be listed in the SGX, you just need a little bit of research and know-how to spot such companies. Thus, for each of the stocks that I buy or already possess, I make it a point to create a SELL order, one that is aligned with my financial goals that I set out for my money. For example, if I aim to get a 5% profit from my investments in a year, I will create a Sell order with at least 5% profits and the stock will automatically sell at the desired price point. If it does not sell, I will just keep the stock and continue earning the dividends. According to my investment exit strategy, two factors plays a role in my choice of stocks: dividend yield and how undervalued a stock is (thus, potential to go up given a long run).
The stock market, especially one like the SGX, will always go up and down and it is impossible to time the market. It does not really matter when you buy a stock, but it is absolutely crucial to exit at the right time.
I took this advice and bought and sold Bumitama Agri (P8Z) in a matter of weeks, helped by a sudden boost in share prices in the SGX when Phase 1 of the covid-19 phase moved into Phase 2. The day after I sold P8Z? It fell below my selling price. Lesson learnt.
2. 2. Buy Big, Save More
When investors first start, it is understandable that they would want to invest in smaller amounts. Less money equals lesser risk. But it is actually a bad investment strategy because you waste your money on commission fees. I started with $5000 invested in D05 and HMN. $5000 is okay, but anything less such as a transaction of $1000 or $2000 is really not worth your investment. Or to put it more accurately, not worth the time you spent to research on investment opportunities.
DBS Vickers, the investment platform that I use for investing charges a minimum $25 fee per transaction (Buy or Sell). If I bought $2000 worth of stocks, I would have to pay more than $50 just on transaction fees alone which amounts to 4% of my principal outlay. Thus, if I planned to earn a profit of 5% on my investment, I have to account for these mandatory fees. Hence, the larger the capital, the less I will lose on just transaction fees.
Also, DBS Vickers also has a Cash Upfront feature that only charges a minimum $10 per transaction for Buy transactions. Thus, this would also help reduce your transaction cost when trading in smaller volumes.
3. 3. Trust SimplyWallSt
I kind of forgot how I stumbled across this wonderful platform. Mind you, this is not a sponsored post so what I will be sharing with you, this website, is absolute gold. SimplyWallSt is a data-powered platform that analyses stocks from across the world and present their data in a really easy to digest format. They have teams of accountants who write write-ups about a company based on the company financials and they also write about investment opportunities on potentially undervalued stocks based on the data that they have and a comparison across the stock market.
What I like about the platform is the accurateness and clarity of their analysis, which translates to almost seer-like predictions of the market. Don’t get me wrong, SimplyWallSt did not anticipate the covid-19 crash. In fact, SimplyWallSt continuously revise their analysis daily for the popular stocks. In the pre-pandemic market, SimplyWallSt was accurate to the T. I bought D05 after SimplyWallSt valued the company at $30 and gave really great justifications as to why it should be $30. In a few weeks, it reached $28. It valued C09 at $12, back when it was priced at around $9. Soon enough, it reached the $12 mark. SimplyWallSt reveals hidden gems and highlight the risks that an investor should note when investing in any company.
When making my first stock purchase, I looked up several supposed investing guru platforms such as the Motley Fool. The problem with these other platforms is that they are often based on opinions and interpretations of the market, unlike SimplyWallSt that tells you a company’s performance based on available data and comparison with similar stocks or industry. In fact, I found a number of bad calls by some of the other investing guru platforms where some of the stocks which they ‘expected’ to do well but was badly valuated on SimplyWallSt turned out to do badly over the next months. So yes, this made me view SimplyWallSt as my go-to platform for investing decisions.
You can, of course, do your own research to understand the company that you are buying into, which you really should if you are planning to invest in them. Afterall, understanding the stock market and the stock that you are buying into is like understanding the economy and society itself. It is just good knowledge and responsibility everyone should have. SimplyWallSt is simply a tool that can make the process of understanding the world a lot easier.
4. 4. Keep to Your Exit Strategy
With the tools in hand to choose a good stock to invest in and capital in place, the only thing that really should concern an investor now is the exit strategy. Which I have already mentioned in the first point, because it is very important!
Your money is there because you want it to work for you. Once it has done the work for you and benefited you, as you expected it to, don’t be greedy or emotional! Afterall, if you do not, the only profit that you have are all ‘paper profits’, profits on paper but you do not actually physically own these profits (like my $28 per share D05 stocks). Another pandemic or global crash might occur that you simply cannot time or know is happening and the stock price will plummet again, as it has done time and time again.
Unlike the US stock market which can show ludicrous amount of growth over the years with no sign of abating until something major happens, the SGX-listed companies are fairly stable in terms of growth (and decline). Hence, it is more likely that the share price will go up and down at whatever price point that you buy in especially for the blue cap companies (which most first-time investors should be looking to invest in, if they are afraid of risks). Bought at a high before a crash? Stay as the company will recover, although it will take time. The dividends alone should still be better than just saving in a bank. Bought at a low? Cash out once you profit because you will not know when the next crash will happen. To thrive in the SGX, you really just need some discipline and a good old exit strategy plan!
