Lesson 4: Believing in yourself

Most friends and relatives I know in real-life do not believe that they could grow rich simply by investing.  Many successful full-time investors are media-shy and they do not come forward to share their stories.  However, if you follow the media stories and read the posts posted in Valuebuddies.com and Nextnsight.net, you will be able to identify a handful of successful investors who are based in Singapore.  One very good example is Issac Chin, whose story could be found at Nextinsight.net (http://www.nextinsight.net/index.php/story-archive-mainmenu-60/912-2011/3451-isaac-chin-).  Nextinsight has also featured the Canada-born Robert Stones (http://www.nextinsight.net/index.php/story-archive-mainmenu-60/36-2009/1408-robert-stone-reaping-the-rewards-of-3-decades-of-investing) who was reported to have achieved 29.6% gain a year compounded over the last 11 years prior to August 2009 when the article was published.  His known investment in a few S Chips (Chinese companies listed on Singapore Exchange) turned out to be not so successful subsequently though it is not clear his investments in the emerging regional stock markets remain to be good.  At valuebuddies.com, if you follow the posts of dydx, D.O.G, greengiraffe and Boon etc, you will find them to be very successful investors.

I have started to dabble in stocks in mid 90’s, my endeavor was not so successful hence I did not really develop the passion for investing at that time.  Some way down the road I paid $100 a year for about two years to be a member of the now defunct Wallstraits.com (I will write about the story of Wallstraits in a later article based on my memory).  Wallstraits advocated investing in small cap stocks and has a model portfolio that included many S Chips which, on paper, have excellent valuation. That was when I invested in a few S Chips and got burned one to two years down the road. At some point (I cannot remember it was before or after I joined Wallstraits as a member) I started to read many books on trading and value investing.  I was really inspired by One Up on Wall Street written by Peter Lynch (though the strategy I adopt today is quite different from Peter’s).  After the S Chip episode, I started to be more selective in stock selection and scrutinize a company’s account in more details before I invest in the company. Since then I have started to make money consistently and refining my stock investment strategy in the process.  I did not really track my investment return until 2012 when I decided to invest all my spare cash and Supplementary Retirement Account (SRS) balance. 

Unfortunately many, like me, have to learn stock investment in the hard way and suffer losses in the process.  I believe this is because there are many pitfalls in stock investment, especially for young and inexperienced investors and the initial failures have caused many to give up.  For this reason, I advocate young and inexperienced investors to start small and be conservative.

My personal experience and track records have convinced me that I can realistically achieve more than 15% annual compounded return over the long run.  My only regret was that I did not get serious about stock investment earlier to enjoy the power of compounding return.  Hence, I strongly advise you to start learning about investment.  Stock investment is not rocket science and it is certainly much easier to learn and master than earning your first degree.

There will be a lot of naysayers around you, including your parents, siblings, spouses and friends because they believe that investing in common stocks is risky and equate that to gambling.  Investing is about taking calculated risk and managing the risks.  It is important to understand your own personality and risk profile to find an investment strategy that is suitable for you.  Few realize that keeping money in the bank is letting inflation eroding its value because the best fixed deposit rate is far less than 1% while inflation is between 2% to 4% in Singapore.

The traditional thinking of a salaried person is that he/she will work hard to build up a nest egg for the old age; failing which, he/she will count on the children. In my opinion, one should start building up a portfolio that will give you investment return.  The investment return should grow while your salary income peaks and then decline over your career.  Before your retirement, your annual investment return should have exceeded that of your salary income.  This way your wealth will grow even beyond your retirement.

Let me end this article by inviting you to visit the blog of dividend worrior, who is in the early thirty and have built up a decent dividend portfolio: http://dividendsrichwarrior.blogspot.sg/.