Stock investing is great for building and storing wealth. Personally, I’ve built and continue to add onto my stock portfolio to increase yearly dividend income and net worth. So is KC Lau and many of our value investing friends.
But still, many are confused about stock investing. It’s possible for us to be seen or perceived as people who know how to trade stocks, look at charts or possess insights as to where the stock market is heading in the future. Such perceptions are revealed to me via “rookie questions” asked during casual conversations. As an investor, I’ll be the first to say that I don’t know how to trade stocks, assess a stock chart with a bunch of lines and indicators or predict the market.
I’m not into all that stuff.
Here, I’ll like to reveal 5 of these rookie questions and answer them. In doing so (hopefully), you’ll get access to who investors really are and what they think, do and practice. You’ll learn of our differences and how we are different from what is being perceived. Let’s begin:
1. How is the Stock Market?
Typically, my answer is “I don’t know”.
Most who asked me were puzzled as they thought that I would know. But really and truthfully speaking, I don’t have an answer for this. The market could move up, down or sideways. To me, it is a normal occurrence.
Should I say that the stock market is doing well if it is going up? Should I change my mind if the stock market is coming down? That may matter to some but not me. This is because I aspire to build an all-weather portfolio, which consists of a portfolio of stocks (businesses) that can generate consistent growth in earnings and cash flows over time.
Personally, what matters are the ongoing business and financial performance of my stocks. The customers they sold, the more sales they generated, the greater profits and cash flows they earned and thus, leading to my ultimate bottom line which is dividend income. Hence I’m more knowledgeable of the stocks which I own in my portfolio than what’s happening in the market.
2. Is _____ Bhd / Ltd / Inc a good stock to buy?
In a way, picking stocks is likened to choosing a partner. Some are looking to get married and start a family. Some want fun without commitment. There are also some who merely just want to test it out. So, what are you looking for? Why do you want to find a partner?
Imagine matchmaking a person who intends to get married to another who just wants to have fun and not settle down. The same concept applies to stocks. My belief is this – It is appropriate to not answer this question.
Think about the word “Good”. What do you mean by “Good”? This is because it is common for us to have different definitions of “Good”. What seems good and great to me may not be as good or great to you. If you know what is “good” and you know how to define it well, you don’t need anyone to tell you what good is, right?
So, your definition of “Good” shall lead you to answering the question above.
3. How Much Can I Make From Stock Investing?
Let’s say you’re given an answer like “X%”.
What you might do is to compare this X% from stock investing with other forms of investments: real estate, unit trust, ETFs, P2P financing, cryptos, and so on. It is understandable to be expecting an answer like above. But, I don’t find that to be helpful because our returns and experiences of investing in any asset classes are different.
Take stocks as an example. Imagine we use a blanketed rate of 10% a year. Now, the question is: “Will you find a person that are achieving 10% a year?”. “Would you be able to find another person who did better or worse off than 10% a year from stock investing?”. Guess what? The answers are all yeses.
From experience, I find that the better educated, skilled, and policies you adopt in investing, the better your returns. So, the question is not how much returns I can obtain from stock investing? The better question is: Am I good at investing?
The quality of an investor is key. If the investor is good, the decision making will be better and thus, leading to better returns.
4. Which Stockbroker Do I Use?
The functions of a stockbroker is to facilitate buy-sell transactions, keep all cash and stocks in my accounts and execute corporate exercises, if any. Obviously, as an investor, I like a stockbroker that has multiple market accesses and would do all the above functions efficiently at low costs.
Their role is not to make me rich or wealthy.
The question is similar to asking which banks I deposit money with. Who cares? Is the bank’s primary role to make me rich? Nope. If I’m a depositor, I would like to know if my cash is safe with the bank. If I’m a borrower, it would be great for me to obtain low interest rate financing. For instance, if I buy a property, would it matter if my mortgage comes from Maybank or CIMB? My only concern is for me to obtain financing.
It’s the same with stockbroking services. As long as the stockbroker is licensed / regulated by the Securities Commission, that’s good enough. This is because for investors, what impacts our dividend income and net worth is the stocks we are investing and keeping for the long-term.
5. Is This the Right Time to Enter the Market?
There are multiple variations to this question:
a. How do I time the market?
b. Do I use technical analysis tools to enter or exit the market?
c. Has the market reached its peak or bottom?
To all the above, I don’t know. You see. These questions are trading-related and I’m not a stock trader. Generally, stock traders earn trading short-term profits in the stock market by entering and exiting the stock market. They use many tools and charts to perform technical analysis to guide their entries and exits. Here, it is my belief that they genuinely want “the money” but not the stock.
The mindset is similar to my grandfather who ran a sundry shop in a small town in Perak.
He buys school bags to cater to school children in town. During holidays, he can stock up school bags at lower prices. As schools are opening, he sells them for a profit to townspeople. After schools have reopened, demand for school bags in the town had dropped. Hence, he would sell leftover school bags at discounted prices. So, was my grandfather interested in owning “school bags”? Nope. What he was interested in was the profit margin from his inventories (school bags).
Stock traders treat stocks like how my grandfather treated school bags.
Such is different from stock investors. The key difference is stock investors want to own shares of the company for the long-term regardless of the economy. We genuinely want to hold onto these shares like how we hold onto our residential homes or like how my grandfather held onto his sundry shop. If that is the case, market timing is redundant. Rather, what is more important would be valuation of these shares. As investors, we value these shares before investing so that we avoid overpaying for them. After that, it’s a matter of allowing time to be a nice friend and compound wealth over the long-term.
Conclusion:
The above reveals some differences that value investors have, when it comes to what stocks are and how we approach investing. These concepts and principles are learnt from successful investors such as Warren Buffett and Charlie Munger. To find out into how you can build a Dividend-based or Growth-based portfolio, you may check out our free webinars as follows:
Dividend Investing: Free Webinar: How to Build a Stock Portfolio that Pay Increasing Dividends?
Growth Investing: Online Training: Case Study of 1 Actual Stock that I had Invested in and Why It Doesn’t Take High Risk to Generate High Returns in the Stock Market?
