24 February 2013

What Makes Your Investment Result Better?

Over the years, I learnt a lot of investment. Some prefers passive investment. They tend to rely on passive income and gradual capital gain. Some tend to have multiple time of capital gain by leveraging on their investment. I believe that everyone must have their own strategy to stay longer time in investment journey. I have some friends who believe more in their own business rather than putting their hard earned money to other investment products such as unit trusts, shares or real estate. They have their own mind to achieve financial freedom. To me, I believe in all the ways to achieve financial freedom. But what makes me feel more is that, I will still always stick to my current job, even if I already achieve financial freedom. It is a great pleasure for me to share my thought to others especially when we have different thought. To me, I can learn more from the rest when I share more of my thought here.

Few points that I think it can help you on your investment result are listed as below:

  1. Asset Allocation - In modern investment theory, I always believe in asset allocation. For example, if you always put your excess cash in Fixed Cash Deposit, you can only earn up to 1.x% in Singapore. But if you put your excess cash in Fixed Income, you may earn around 1%-5%. If you put it under REITs, you may earn more than 5% a year in long run. If you further put your additional cash under equities, you may earn around 5%-10% a year. Nonetheless, above is just "theory", you must have your own plan in actual world. 
  2. Circle of Competence - Most of us, who do not have any investment experience, would tend to avoid risky product, until we find out the ways to manage the calculated risk. The most critical risk I would think of is the risk of being innocent or ignorance of your investment. For example, if you are working in Oil & Gas sector, you do have a competitive advantage against the others in analyzing this sector. You may have a better chance of finding the hidden gem in this industry. 
  3. Margin of Safety - The factors that determine your investment result are the price you enter and the price you get out from the investment along with the dividend you receive during your investment period. So before you get into any investment, you must first figure out the margin of safety that you require. For example, if you believe that the intrinsic value of the stock price is 1 dollar, you may wait until the shares price fall below 70 cents. So you could have 30% margin of safety. It can help to reduce the possible losses of calculating intrinsic value wrongly along the investment. 
  4. Hardwork - The more hardworking you are in analyzing the shares, the more confidence you are with your investment, so you could hold for long term regardless of the volatility of the share prices until it reaches your intrinsic value. There are a lot of ways to do your homework, such as reading newspapers, annual reports, attend AGM and talk to Top Management, and of course you must know the entry price and exit price for all your investment. Always switch your investment only when you find out another better return investment. 
I hope this article can first setup your mind correctly that, to avoid you to fall into the trick " Investment = Gambling", you must think that investment is just like a business, that require your time and energy to build up. The more experience you have in this business, the better profit you would get in long run. 

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