Nothing in the world is certain, not your life, your relationship, your body or even your mind. Same goes with stocks. Stock market is a zero-sum game, you win the money that other loses. There are always times where you can make a quick cash in an instance of this, but what If you buy in and it starts dropping? You wait for rebound and it continues to fall. You ended up losing a lot of money and blaming that stock market is just about luck. So what should you do?
1. Make sure stock market is the right place for you.
Why did you invest in stock market? If you are looking to generate extra income, there are tons of other options like:
a) Fixed Deposit and Bonds up to 4% annually (Okay you said interest too low)
b) Amanah Saham 7-10% (Okay you said only open for bumiputeras)
c) Unit Trust/ Mutual Funds (Okay you said management fee too high, not stable return)
d) Peer-to-peer lending like Funding Societies (You said What's this never heard before, isit money game?? Don't want unknown stuff <-- No Its not I have used it for 3 years and annual return is around 10%) Read more from Security Commission.
e) Stocks (The best laa cuz you think it gives you fast cash)
Okay finally you select stock market, mainly because it gives you the highest return. Nothing in the world is free man. If you're looking for something that gives high return but low risk, better pinch yourself in the face to face the reality, it doesn't exist. If you are not willing to sit down on the table researching and analyzing before buying any stocks, you are better off handling your money to others which is option (a) to (d).
Basically in all investment, you borrow out your money to others to make investment for you, in (a) bank lends out your money as loan, (b) and (c) you let a fund manager handles your investment, and (d) and (e) you have the ultimate decision to select which company for you to invest in. I put most of my portfolio in (d) and (e). As a young adult with low commitment, I can afford to lose most of my money so I better select the option that gives me the highest return, but this is not the main point I prefer stock market. It is because I enjoy the thrill it brings me when your judgement and decisions are correct. If you are in the stock market for 5 years, and you tell me you don't even know what is a balance sheet, I apologize but stock market is not for you. You need to enjoy what you are doing.
2. Have a few strategies and prepare to lose money
Next, do some homework and go lose some money. I always tell my friend go lose some 10 to 20% first when they just started. Unfortunately, so-called 'beginner's luck' always guide beginners to win some 10 to 20%, and they started to believe that they can be the next Warren Buffet. When they started to lose money, they continue to believe that their previous "strategy" works, which is mostly by listening to friends and remisiers, news without doing any homework and planning. Eventually, they run out of money and quit stock market for goodness sake.
Now what it really mean by losing some money first is to always test what kind of strategies are suitable for you first. There are so many investing strategy books out there so which one are suitable for you? Do you have the mental strength to be aggressive? Do you prefer passive investing? Learn to feel the emotion when you lose money because you trusted your "instinct" even when you know you shouldn't. Nevertheless, No matter how long or how experience you are in the stock market, you should constantly adjust and tune your investing strategy.
3. Win Consistently (Don't Go Big or Go Home）
Finally, Here is the thing I want to talk about. Should you 'Go Big or Go Home’? If you ever played Poker, you should know its very hard to win with small capital, because you only got that small amount to lose. Big players can easily avoid your bluffs and only play when they have good cards. In the stock market, we are the player with small capital (individual investors), and the banks, institutions are the one with big capitals. To win over capitalist, you need to be careful not to lose money, wait and strike when opportunity arrives. Warren Buffet's first rule of investing, Don't lose money. You need to avoid losing money to keep building your pathway to financial freedom.
There's fund manager A and fund manager B in the market, and you have RM10,000 to invest in either one of them. A invested your money and earned a consistent return of 5% for three consecutive year; B is more aggressive where he invested your money and made a 50% gain in first year, another 50% in second year, but loses 50% in third year. So which one will you choose?
A : 10,000 X 1.05 X 1.05 X 1.05 = 11576.25
B : 10,000 X 1.50 X 1.50 X 0.50 = 11250.00
The obvious option here will be A, where he made consistent return of 5% each year, as compared to the aggressive B. Brain always gives us an illusion that you can actually recover the loss that you made, truth is NO. Consistently winning is more effective. You might say you will choose B and stop investing on third year, you would make 22,500, TWO times more than A. The question is, how do you know B will make a 50% loss on third year? Kodak and Nokia failed because they believe their previous method works and should continue to work the same in the future. The point that I wanna bring up is most people won't be able to convince themselves that they're wrong, and they need to change, because truth always hurts. Always remember winning consistently is always more rewarding.
These are my thoughts after years in stock market. I can't assure you that what I said is 100% correct, but I only intend to share my thoughts and feelings without any intention to advice or recommend.
Newspaper summary will continue tomorrow.
At last,good luck to all the youngsters building their way to financial freedom!
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