At this moment, I have approximately 70% of my liquid net worth (sans pension and retirement account) in individual stocks. Individual stock selection is also my favourite way of investing because of the potential to beat the market and the opportunity to partake in the growth path of my selected businesses and economies, without me actually working in the company/companies.
However, I understand it can be a little overwhelming or even daunting to start picking stocks if you’re very used to investing in mutual funds, unit trusts, ETFs or even bonds. Stocks or equity investing, essentially means that you are buying into the company to own the business, so it is important to have a robust system in selecting the most suitable one, particularly if you’re only starting out. I have provided a quick snapshot of the 5 aspects that you should consider when you are about to pick your first stock!
The first thing you have to decide is the stock exchange that you want to invest in. I highly recommend you to start from your home country’s exchange, like for example I am currently living in Singapore so there’s the Singapore Stock Exchange – the SGX, if you’re living in Malaysia, there’s Bursa Malayisa, in Hong Kong there’s Hong Kong Stock Exchange, in Australia there’s Australian Stock Exchange, in the UK the London Stock Exchange and of course there’s the New York Stock Exchange and the NASDAQ.
There are several reasons and benefits to start investing from your home country’s stock exchange:
- Not exposed to currency risk
Granted there will be a few exceptional stocks that might be traded in a different currency due to the nature of their businesses or maybe they are dual-listed so it makes more sense for them to trade in another currency, but most of the stocks listed in the country will have their share price quoted in the country’s respective currency. So for your first stock to buy into, it will really help if you focus on the stock itself and don’t bother with any forex differences or additional brokerage or custody fees for holding stocks in another country. That really just eliminates unnecessary uncertainties for your first stock.
- Avoid time differences
If you’re investing in another country’s exchange, say for example I’m here in Singapore and I want to invest in the New York Stock Exchange for my maiden stock, I probably want to monitor the share price when it’s being traded at – maybe not all the time, but well, rather regularly maybe and the time difference is going to either make it difficult or detrimental to my health.
- Get information about the economy/policies fastest
The most important of all, the country you know best is going to be the country you’re living in, and while stock prices might not be a direct reflection of the country’s economy, it is a combination of the economy’s outlook due to political policies, social trends and overall business environment.
After you log into the website of your home country’s stock exchange, you’ll be able to find all the company’s filings, a directory of what companies are listed in the stock exchange and more often than not, they are being categorised according to the sectors or industries that they belong in.
It could be the sector that you’re in even though you might not be in the corporate office or what not, it could be a sector where your family members are in or have dealings with. If you’re a nurse, you probably know more about the healthcare industry than in say construction.
You want to be speaking the same language as the company you are putting your money into. You also really want to understand the business jargons that the company is going to use otherwise it’s going to be yet another learning curve, and we don’t want that, stock investing is stressful enough. Beyond financial metrics and indicators, you really really want to understand the underlying businesses of the stock because you want to invest in something that’s good and if you’re in the industry, you know what’s good in that industry.
Finally you’re about to select the stock you want to buy into. You can buy into a stock that has a great brand name, or you can buy into one that gives great dividend, or one that you think has a great prospect in the next couple of years. There are indicators that help you to assess and I’ll talk more about various analyses available in other articles but one thing you definitely have to be sure is – how the company make money, what is their revenue source, who are their customers and how much does it cost for them to make money.
So on that, just visit the company’s website, read their latest annual report, know about their Chairman’s outlook, read the part about their business overview, if you’re confused by the jargon, do a news google search about them, read about how other people view this company. Read their announcements for the last 6-12 months, and see what’s going to impact them moving forward. Once you’re comfortable with whatever you’re reading, you know what? This might just be the first company you’re about to buy into!
So, you’ve gone through the entire process of selecting the stock that you want. but you know what’s another burning question?
How much should you put in?
On this, I’d suggest to set aside a budget you’re comfortable with first rather than looking at the price of the stock. It’s the same logic as going shopping, you set an amount you’re OK to spend and then you look for the items you want to buy. If the item you want is cheap, just buy the amount that meet your budget, likewise if it’s a little more expensive, just buy less of it but still buy it because you want it anyway, right? For example if I set aside a budget of US$1000 and I wanna buy into Coca Cola, I’ll buy $1000 worth of Coca Cola shares, which is around 20 shares. But if I wanna buy into Tesla with a budget of US$1000, I’ll only get 1 share of Tesla because it’s around 8-900 per share now.
The most important thing here is not getting it at the right price or cheap price, it is about getting into the market and be part of the company you have selected.shirleah
And the very last step, also the most important one. Wait. Don’t panic sell.
Investing is really just 5% intellect, 15% research and 80% patience.
You’re not going to get your returns like the next day.
Nobody can time the market, but the longer you are in the market, the higher the chances of your stock increasing in market value. But how long should you wait? Well that’s one thing you have to ask yourself. I’d recommend a year at least so you get to collect the dividends (if they are paying) and you get to see the entire year of how the market reacts to the company you’ve bought into. For me, I typically hold a stock 2-3 years before I decide if I wanna take profit for capital gains. You would also want to monitor your company closely to understand how its businesses will get affected by any external factors or what, so it will help you to assess other companies better.
And really, investing in the stock market is really just that and repeating the process all over again for every stock you buy into, you just kinda get better at spotting good ones from the normal ones from the bad ones. Because of all the research you put in, you’re going to internalise this process and you’ll get into the groove of things. You will refine your own investing process and find your style as you invest more, you’ll start to appreciate other exchanges or other sectors better so you can start to diversify your portfolio and add in more stocks to hold in case one flops.
If you’re still not into stock investing, well, there’s always the ETF where you just have to select the market that you’re comfortable with – for example the top companies in the most developed markets, then there’s the S&P 500, and you can pick an index that tracks their share price performance. It’s like buying into all the top 500 companies of the world.
Individual stock selection definitely is not easy and yes there’s a lot of work involved compared to index fund or ETF or bonds investing but I assure you the returns, when invested rightly, is immense.
If you actually lose money despite all the research you’ve done because well, this is life and it’s kinda never a sure thing, well at least you’ve earned the knowledge of assessing a company. Just keep reading and keep analysing and keep refining your investing process. To a certain extent, it is also a great way to understand yourself too.