Last weekend, I attended the INVEST Conference organised by ShareInvestor and because I am quite new to investing, I went for the Novice programme. When listening to all the different speakers, there is some common advice that would serve beginners like me well as we dive into the world of investing.
8 things I took away from the INVEST Conference that would be helpful for novice investors
1. Always be in the market, not out
Speaker Ms. Teh Hooi Ling, Portfolio Manager of Inclusif Value Fund started her presentation illustrating to us the significant difference in returns between fixed deposits (1.5% p.a.) and the stock market (6.2% p.a.) over 12 years.
If you put S$10,000 in a fixed deposit at 1.5% p.a. in 2005, you would have gotten S$11,881 in 2017. But if you put the same amount of money in the stock market in 2005, you would have S$20,636 in 2017. In the former case, you only got $1,881 in returns while in the latter case, you doubled your money.
Mr. David Kuo, CEO of The Motley Fool Singapore also said, “Whatever you do, invest. Inflation is the biggest danger to our wealth. It is a silent tax on our savings. But it’s a tax we can beat.”
2. It’s harder to lose money than to make money investing
Mr. Kuo also challenged us with a notion early in his second presentation that it’s harder to lose money than to make money in the stock market. That got us shifting in our seats wondering how that’s possible.
Well, his argument was that the STI in the past decade or so has yielded a return of 8%. And if you had just invested in that, without doing anything else, you would have made money.
3. Start by investing in index funds + 1 stock you like
Mr. Kuo’s suggestion for beginners is to start investing in index funds and one stock that we see most potential in.
The proportion of investment between the two can be adjusted with time and you can diversify more as you get more experienced.
4. Be prepared to ride out the tough periods
As Warren Buffet is frequently quoted, “Be fearful when others are greedy and greedy when others are fearful.” Don’t freak out when the market corrects or crashes and start selling. Every economic crisis is followed by a recovery and if you are not in the market when it recovers, you will never profit from it.
5. Evaluate stocks using PB and PE
Ms. Teh also shared that we shouldn’t buy stocks based on intuition or guesswork but on proper valuation. You can do that by calculating the company’s PB and PE.
PB (Price to book ratio)
Everything else being equal, a stock with lower PB is considered to offer more value to investors, and hence should deliver higher returns.
Singapore’s market median PB was at 0.93x at the time of her presentation.
PE (Price to earnings ratio)
Everything else being equal, a stock with lower PE is considered to offer more value to investors, and hence should deliver higher returns.
But because earnings are volatile year on year, you may want to take an average EPS instead of a one year EPS. Singapore’s market median P/7 year average earnings was at 12.3x at the time of her presentation.
6. Don’t only invest in Singapore
Kim Iskyan, Global Investment Expert of Stansberry Churchouse shared with us during his presentation that most investors invest disproportionately more in their home country.
The STI returned 187.4% in the past 20 years while in comparison, the MSCI Emerging Markets returned 461.3%. That’s not to say you shouldn’t invest in Singapore but that it’s wise to include investments outside of Singapore too, especially in cheaper markets like Bangladesh, Spain, and China.
7. Know when to sell dividend-paying stocks and REITs
Some people think that dividend-paying stocks and REITs are for buy-and-hold. But Tolmas Wong, Director, Corporate Broking of CIMB Securities (Singapore) argues that “today’s more volatile investment environment demands a vigilant rebalancing of portfolio and understanding of one’s own risk appetite.”
He advocates for a buy-and-review approach to ensure that it still makes sense to stay invested in a particular stock or trust.
For example, you should consider selling dividend-paying stocks when:
- Dividend is cut or suspended
- Free cash flow dries up
- Growing debt burden or operating costs
- Aggressive acquisitions
- Skepticism on corporate strategy
- There’s a better alternative and risk-return tradeoff turns unattractive
- Deterioration in corporate governance
REITs are sensitive to economic and property market cycles, and changes in interest rates, amongst other factors. Be active in reviewing your portfolio.
8. Invest, diversify, and rebalance with time
At the end of the day, you have to start investing to beat inflation and get satisfactory returns. Learn to diversify by looking at index funds, individual stocks, REITs etc. and don’t forget to consider different markets outside of Singapore as well.
Always review your portfolio, buy or sell, and rebalance it if necessary.