Thursday, August 28, 2008

8 Pearls of Investment Wisdom

I did not post much lately because I have been very so busy over the past 2 weeks that I have to take the last train home almost everyday. Last night, on my way back, I noticed the Aberdeen bear on the MRT train and I find it so cute. I'm not a teddy bear lover, but the fur looks so soft that I really like to get one and put it beside my bed.

Anyway, the topic is not on the bear. its on the 8 investment tips I learnt on the MRT train as I walk down the cabins. Just to share these tips with you.

1) Volatility is not something to fear, but something to embrace
Its normal for market to be volatile at times. As long you know that you are investing right and know why you invest, don't let the volatile market affect our emotions.

2) Think Long Term
As an investor, we should align our time horizon accordingly. Over short term, price movemets are as good as random, while long term trend tell a different story.

3) Know the difference between gambling and investing
Successful investing is hard and often dull, requiring discipline and lots of study. If you approach investment like entering the casino, you are in trouble.

4) Be contrarian
Try rushing for the exit in crowded market and you might get trampled. This concept applies to behaviour in the stock market. Selling or buying behind everyone else is a sure formula for poor investment performance.

5) Consider the difference between price and value
Some people consider a $10 share as expensive and a 10 cents share as cheap. We cannot value a share by its price alone. Understand why a share is priced at $10 or 10cent before you invest.

6) Be humble, the stock market is smarter than you
If you think you are smarter than the rest and can predict the stock market over the next few months, try apply some humility and ask yourself honestly whether you are smarter than the millions of people who are also trying to predict the market like you do.

7) Avoid things you don't understand
Financial instruments are getting complicating. Think about shares as you read a book; if you don't understand it, put it down. If you know what you buy, you can sleep better at night.

8) Do your homework. Know more than others
If a woodpecker peck everywhere on a tree, it will not get any food. Do your research, know where to peck and focus on it, you shall be rewarded. Its prudent to diversify, but don't over diversify or diversify for the sake of it. If you know more than the average, you have a slight edge as to know where to put your money into.


Anonymous said...

Good tips, adrain.Obviously the salesmen don't tell investors. In the first place do they know?
A lot of investors failed because they had been buying from the "stock broker" salesmen who are freely with tips, not with the customers in mind but themselves.
Beware of the fund salesmen. They ruin your life.

Anonymous said...

Just to add:one of the most important keys to investing is patience and discipline.In fact,the lack of either one,has often resulted in many a costly mistake.

And,if someone tells you that they have a foolproof method to get rich in the stock market,run,don't walk for the nearest exit.

Lastly,Phillip Fischer,once said that the stock market was "filled with individuals who know he price of everything but the value of nothing." Perhaps,we should,then,focus on value,not price -- a trap which we is not easy to avoid either.