A Foolish Guide to Investing in Singapore

A Foolish Guide to Investing in Singaporewith David Kuo

Singapore

2015 The Motley Fool

Good information is useless without the willpower. -- Peter Lynch

1 Motley Fool Singapore

Welcome to the Foolish Guide To Investing in Singapore.

Th is booklet on investing was written specifi cally for you. We hope that it will help you understand a bit more about why you need to invest, why you might already invest the way you do, and how you could become an even better investor.

It may come as a surprise to those who think they dont invest that they are already investing without even knowing it.

When we put our money into a savings account, we are eff ectively investing. Yes we are. We are making a conscious decision to exchange the money in our pockets for something called a risk-free asset. It is called a risk-free investment because our money can be returned to us intact whenever we want.

Risk free By putting our savings in a bank there is virtually no risk to our money. Whats more, we could even earn a bit of extra money on top otherwise known as interest.

For some people, salting away money in a savings account is about as far as they are prepared to go. But there can be a problem with taking the safe option.

Unless the interest rate paid on our savings account is higher than the rate at which our money is being eroded by infl ation, then our money is slowly losing its buying power. It can be a bit like trying to run up a down-escalator. From my experience, it is neither an advisable nor enjoyable act.

2A Foolish Guide to Investing in Singapore

Th at is why many of us will try to get a better return for our money, which is also why some of us turn to the stock market. Admittedly there is more risk involved when we buy shares but we hope and expect to be rewarded by a better return.

Speed bumpsMany young investors (and some older ones too) like to buy shares in fast-growing companies. Th ey believe that companies that could grow faster than the overall market could have the potential to deliver better returns. Th ey are not wrong.

Growth companies are expected to increase their profi ts at a faster rate, which is why their shares could also rise quickly. However, growth companies could also hit unexpected speed-bumps along the way. Th at is one reason why their shares can also be more volatile.

Older investors (and some younger ones too) like to invest in more established businesses. Th ese are companies that have been around the block a few times. Th ese oft en familiar businesses have read the book, seen the movie and even got the t-shirt to prove it.

Th ese established companies generally dont need to retain as much of the profi ts they generate to grow their business. Th at is why they can aff ord to reward their shareholders with generous dividends. Th eir shareholders are commonly known as income investors.

A lifelineElsewhere, some investors believe they are able to correctly identify companies that might be in temporary distress. Th ink of it as


throwing a drowning man a lifeline. Th ese businesses may - for one reason or another have fallen from grace. But value investors are hoping that they have correctly identifi ed businesses that can turn around their fortunes and subsequently return to favour.

Many new investors (and some seasoned ones) dont exactly know whether they are best suited to growth, income or value investing. Consequently, they might try their hand at some or all of the diff erent types of shares. Th ere is nothing wrong with that.

Eventually, though, they could settle on one particular style of investing that either fi ts their temperament or suits a particular stage in their life. Interestingly, our investing styles and focus can change appreciably over time.

While younger investors could be attracted to growth shares and older investors to income investing, there are no hard-and-fast rules about who should do what. In fact, it is not uncommon for investors to have a blend of shares in their portfolios.

And that is why investing in shares can be so powerful. It allows us to change the mix and focus of our portfolios depending on the objectives we have set for ourselves at any point in our lives.

I hope you will enjoy reading this guide to investing and appreciate why it is vital that we put our money to work as soon as we can.


Th e Growth InvestorSer Jing Chong

If a business does well, the stock eventually follows. -- Warren Buffett

Growth investors, as the name suggests, are people who like to buy shares in fast-growing companies. So, the obvious question is this: Exactly how fast is fast?

As a general rule of thumb, a growth company should have the potential to grow its profi ts at a faster rate than the rest of the market, for a long time. But why, you may ask, are growth investors attracted to this particular style of investing?

Doctor, doctorPerhaps the best way to illustrate this is to consider a company such as Raffl es Medical Group.

In 2003, the healthcare provider earned 1.9 cents per share. At that time its shares were worth $0.36. Now fast forward 10 years to 2013; a decade later, Raffl es Medical Group was earning 15 cents a share, which translates into an earnings growth rate of around 23% per year.

Th at is fast. Th at also helps to explain why the companys share price grew to $3.11 by the end of 2013. Shares in the medical group


rose nine-fold, or 24% per year. It is because of the returns of that magnitude that growth investing attracts the attention of investors.

Th is doesnt mean that growth investing is without risk. In fact, growth investing can be quite risky. You see, growth shares are oft en rated quite highly by the market.

How much?What that means is that while the market might pay, say, between $10 and $15 for every dollar of profi t that a run-of-the-mill company might make, growth shares can be valued at $20, $30, $40, or even more, for every dollar of profi t that they deliver.

Th e rich valuation is where risk comes into play. When a share carries a high rating, investors expect bigger profi ts in the years ahead. Or put another way, it is because the market expects the growth company to deliver bigger profi ts in the future that it is prepared to pay up handsomely for its shares now.

For instance, a company might have grown its profi t very quickly, say, over the last two to three years. Investors who recognise the growth might be willing to pay a high price for the shares because they expect even higher profi ts in the future.

But what if the company cant or doesnt deliver? Well, the shares could fall very quickly. And here is why.

Cant grow, wont growLet us consider Company A, which has seen its earnings per share increase, for whatever reason, from $0.20 in January 2012 to $1


in January 2013. Investors who believed that Company A was a genuine growth company might be willing to pay $40 for every dollar of profi t that the company made in 2014. Th ey do this in the hope that the company could make an even bigger profi t the following year.

But take a look at what could happen if the following years profi t failed to grow as quickly as expected.

As the companys profi t had only grown by just 10%, investors might now be reluctant to stump up $40 for every dollar of profi t. Instead, they might now only be prepared to pay, say, $20 for the earnings. Th is is known as a re-rating. Admittedly, the profi t has still grown. But the impact of the re-rating on the share price, as you can see, is not pleasant.

Whats the secret?But how can we tell the diff erence between a real growth company and one that is just pretending? What separates the genuine article from the wannabe?

Th ere are diff erent ways to tackle this problem. One approach could involve looking at companies that have enough space to grow into. In other words, they have a big market opportunity to tap.

Company A

Profit Per Share

Share Price

January 2014

$1

$40

January 2015

$1.10

$22

% Change

10%

(45)%


We can, perhaps, illustrate this with Raffl es Medical Group through its fl agship Raffl es Hospital in Singapore, which services both foreign and local patients. Foreign patients accounted for one-third of patient arrivals in 2013. Th at year, Raffl es Medical Groups Hospital Services segment pulled in $215m of revenue. So on average, foreign patients could have contributed about $72m in revenue.

Meanwhile, market researcher Frost & Sullivan reckons that medical-tourism spending in Singapore could grow at a compound rate of 13% per year between 2014 and 2020. Elsewhere, analysts estimate that medical tourists in Singapore spent around S$1b in 2013. So, by inference, medical-tourism spending could theoretically rise to more than $2b by 2020.

With foreign patients spending just $72m at Raffl es Hospital in 2013 and with the potential market expected to grow signifi cantly by 2020, Raffl es Medical Group could have lots of opportunities to tap into.

Wheres my crystal ball? But heres the thing: Can we really be that confi dent about any companys future prospects? Aft er all, Danish physicist Niels Bohr reportedly said: Prediction is very diffi cult, especially about the future.

In fact, there have been many studies which suggest that richly-valued shares oft en underperform shares with lower valuations. And some investors have used that as a reason to steer clear of investing in fast-growing companies.


Th eir reasoning goes something like this: Fast-growing companies oft en carry rich valuations. Since richly-valued shares tend to underperform as a group, it can be extremely hard to predict which fast-growing companies can perform well in the future. Consequently, we should avoid fast-growing companies.

Th ose investors who stay away from fast growing companies are not wrong. It is true that richly-valued shares tend to perform poorly as an undiff erentiated group.

Tell me moreBut there are other clues about a companys ability to grow besides its addressable market opportunities. Th ese include the strength of its fi nances, its employee culture, the social relevance and attractiveness of its products or services, and the integrity and innovative capabilities of its management. When all of these things are considered together, it can help us separate the wheat from the chaff .

Th at said it is not easy. It is never easy and there are also no guarantees.

But, if we can improve our chances of being correct from, say, 10% to 40%, then the mathematics could work in our favour. Let me explain.

Consider a portfolio made up of Raffl es Medical Group and seven other shares. Th e healthcare providers 764% gain from the end of 2003 to the end of 2014 could have helped the portfolio achieve an average cumulative return of 8%, even if all the other shares made 100% losses.


Additionally, if we could fi nd just one or two more winners, then the portfolios returns could have been even better.

Lets go shoppingMost of us will be familiar with pan-Asian retailer Dairy Farm International Holdings, which owns Cold Storage and Guardian in Singapore. Its profi ts grew at an annual compound rate of 7.2% between 2004 and 2014. If, say, Dairy Farm was included in the portfolio, its gains of 456% would have given the portfolio of two winners and six losers an average return of 59%.

Getting two stocks out of eight correct represents a batting-average of just 25%.

So here is what we have looked at:

1. We have looked at why growth investing can be lucrative with the example of Raffl es Medical Group.

2. We have highlighted some of the risks involved with growth investing, such as high valuations.

3. We have addressed the risks by looking at how to diff erentiate real growth companies from the pretenders.

4. We have reiterated the risks of trying to predict an uncertain future and how we can go some way to overcome it.

5. We also looked at how we can use simple arithmetic to improve our chances of success.


But here is a question that only you can answer: Is growth investing right for you?

We can look at the question through the eyes of Mr Lee.

Mr Lee is in his mid-30s. He has roughly another 30 years before he would like to retire. He does not think that he needs any additional income to supplement his current salary. So, as such, any savings he has at the end of each month could go towards his retirement investment, which could be some three decades away.

In Mr. Lees case, investing in growth shares could be suitable, given the potential returns and the fact that he does not need to generate income from his investments.

But it is also important to consider volatility, as the price of growth shares can fl uctuate signifi cantly. So even though Mr. Lees fi nancial circumstance might be right for investing in growth shares, his emotions might prevent him from doing so.

It is also important to think about what could happen if his emotional make-up and fi nancial circumstances changed over time. As such, it is important to fi rst understand yourself and why you are investing.


Spotting Turnaround OpportunitiesBy Stanley Lim

What goes up must come down -- Isaac Newton

Just because an industry is booming doesnt mean that it can carry on booming forever. Th at can be one of the dangers of buying shares in popular industries or companies.

Imagine what could happen if the stock market was a fully-laden lorry speeding along an expressway. With such huge forward momentum, it will not be easy to safely stop the lorry immediately. But if the vehicle should come to an abrupt and juddering halt, the consequences could be quite disastrous.

During a boom cycle, investors could easily get carried away by the forward momentum brought about by crowd behaviour. Th is could happen even if the fundamentals might not justify it. But by the time market participants realise the glaring gulf between reality and expectation, it might already be too late.

But look on the bright side. Aft er a crash, share prices tend to be overly depressed. So, investors who have the presence of mind to be greedy when others are fearful could be rewarded. Buying into


companies in the hope that a bad situation could improve is known as investing in turnarounds.

Bubble troubleBefore we delve into how to go about investing in a turnaround situation, it is perhaps instructive for us to look at fi nancial bubbles.

By appreciating how typical bubbles are formed, we can not only improve our chances of avoiding them, but we could also be in a better position to benefi t from the recovery that could follow, eventually.

Th e typical lifecycle of a fi nancial bubble comprises of four key stages. At the beginning, a company could undergo some fundamental changes that might go unnoticed by many investors. As the improvements in the company become more apparent, investors could start to show an interest.

Next, the bubble could develop through stealth, with only a handful of people aware of the situation. Th en comes the awareness phase, where other investors start to take a real interest in the company too. Th is is when we could see the fi rst share price rally.

In some cases, this could also be the stage where market participants experience the fi rst challenge to the companys share price. If the company is able to withstand the sell-off , then it might gain suffi cient momentum to reach the next phase - the mania phase. At this stage, the company could attract some media attention. Th e added interest could even pour fuel to the fi re.


Such undeserved attention could lead to delusion, though. As greed sets in, the investing public could potentially be caught in a game of the biggest loser. Th is could be the point where a self-reinforcing cycle comes into play the ever ascending price could lead to the justifi cation that the idea behind the purchase was wise and on it goes.

Next comes the I was right because the price went up and the price went up because I was right phase. But there could be a big divide between the price and inherent value of the business. More oft en than not, value prevails. Th e intrinsic value of the business will normally dictate the market price and not the other way around.

Sooner or later, value and reality triumphs and the bubble could burst. Th is could lead to a bull trap, where market participants hope that the downturn might only be temporary and things would carry on as before. However, those who stay around for too long could also be the ones who get hurt the most.

Bubbles may not form in exactly the way I have described. But hopefully it will give you some idea about why prices and valuations can sometimes get out of kilter with reality.

For example, if we look at the Straits Times Index from the 1980s to the Asian Financial Crisis of 1997, we can see that it went through a similar boom and bust cycle.

Financial cycles, unfortunately, happen all the time. Th ey could happen in any sector and with diff erent levels of magnitude. But if we can spot a company or an industry where a bubble has just burst, we might just be able to buy depressed shares at realistic prices and wait patiently for the company or industry to recover.


Th is is because just as the valuation of a company might become too rich at the peak of the cycle it might also be too cheap at the bottom of the cycle.

Where do I begin?Once we understand the basics of the fi nancial cycle, we can start to fi gure out how to put the various pieces of the jigsaw together.

In this section, we will examine some of the ways that investors could identify turnaround situations. We will be looking at the strategy through the eyes of Mr. Tan Mr. Turnaround Tan.

Mr. Tan is a 45 year-old investor. He has been investing for about 10 years and likes to invest in cyclical companies and turnarounds. He is fi nancially comfortable and could easily live off his investment. But he chooses to continue working, as he enjoys his job. Typically, Mr. Tan would look for companies that are wallowing around their 52-week lows. He does this about once a month.

Mr. Tan has come up with a set of criteria to help him decide which companies he would like to take a closer look at. For example, he prefers to focus on larger companies. So, he has set a minimum market value of S$1b.

Here are some of the other criteria that Mr. Tan has chosen to help him narrow down his search.


TransparencyIf the company is newly-fl oated and lacks a long track record, the information could be a little too opaque for Mr Tans liking. So he would give these shares a wide berth.

High leverageIn Mr Tans opinion, a company that has borrowed too much money could be vulnerable in an economic downturn. So, Mr Tan would leave these alone too.

No operating profi ts or cash fl owCompanies without a record of sustained operating profi ts or operating cash fl ow could indicate some fundamental issues. Consequently, Mr. Tan has also decided to rule out these companies.

Large non-recurring income and expensesCompanies with regular high non-recurring incomes and expenses are also a no-no. As far as Mr Tan is concerned, they might be involved in a bit of creative accounting. Whilst there is nothing wrong with creative accounting, Mr. Tan sees this as a possible red fl ag.

And fi nallyMr. Tan repeats this process every month and only studies those companies that fulfi l his criteria.


On the buses Lets say that in March 2014, Mr. Tan found a company that fi t the bill. Th e company was SMRT Corporation Ltd.

SMRTs earnings and operating margins had decreased signifi cantly since 2010. Its earnings dropped from S$163m in the fi nancial year ended 31 March 2010 (FY2010) to around S$83m in FY2013. Its net profi t margins were also on the slide down from about 18% in 2010 to just 7.4% three years later. Th e share price followed suit. It more than halved from a high of S$2.31 in 2010 to S$1.01 per share. Th at is a 56% drop.

Th e company continues to operate effi ciently, though, and the demands for its services were still growing, as seen from its revenue growth from S$895 million to S$1.2 billion over the same period as above. Th is situation appeared to warrant a deeper study.

Mr Tan spent his weekends researching SMRT and the public transport industry in Singapore. He discovered that SMRT Corporation operates in many diff erent segments of public transport. Th ese include the MRT, LRT, buses and also taxis. Apart from its taxi operation, the other businesses are regulated.

He also found that SMRT together with SBS Transit Ltd are the only bus operators in Singapore. Both have seen the margins for their bus and MRT operations decline.

Mr Tan concluded that the shrinking margins were not a company specifi c issue but rather an industry-wide problem. Mr Tan decided to dig even deeper by looking through the news and commentaries in various trade journals. He concluded that the situation, as it stood, was unsustainable. He also discovered that the authorities


were already working with the operators to fi nd a workable solution.

Mr Tan came to the conclusion that SMRT is operating in an industry with only one competitor. Th e problems it faced were industry specifi c and cyclical in nature.

SMRT provides a vital service for Singapore commuters and the demand for its service is actually increasing, despite the poor performance of the business. Th e companys balance sheet looked healthy and its operating cash fl ow was strong. It had cash - more than S$500m of it in FY2013.

More importantly, it seemed that both the company and the authorities were already aware of the challenges and they were working together to fi nd an answer. He felt that SMRT Corp has been unfairly punished by the market for a cyclical problem. He also concluded that once the challenges were resolved, SMRT Corp could even regain its earnings capabilities.

But Mr Tan, being a cautious man, doesnt like to leave anything to chance. So he went one step further. He looked at the possible downside risk because there is always a downside.

He learnt that there was no clear indication as to when the various issues might be resolved. So, the problems could drag on for a very long time. He also discovered that the regulator has to approve any hike in ticket prices. Given the infl ationary pressures facing the company, SMRT could experience serious cash fl ow problems or it could even go bust if fares were not raised. However, he felt that this was unlikely.


Aft er Mr Tan has weighed up the risks and the rewards of investing in SMRT (and if he is still comfortable with them) he could have concluded that at a 52-week low of S$1.01, the shares could turn around.

Mr Tan is a typical turnaround investor. But his method and the criteria he has set might not be suitable for everyone. Th at said, there is nothing to stop us from adjusting and adapting his style to arrive at a process that we may be more comfortable with because we are all diff erent.


Th e Income InvestorSer Jing Chong

Th e only thing that gives me pleasure is to see my dividends coming in.

-- J.D. Rockefeller

It is not unusual to encounter jargon in the world of investing. Tune into one of the many fi nancial news channels and your eyes could quite easily glaze over with perplexity.

But the term income investor is pretty self-explanatory. Income investors are simply people who invest in shares that can deliver a stream of income in the form of dividends.

When do I get paid?Dividends are the main way that a company distributes a share of its profi ts to shareholders. Some companies might pay dividends quarterly. Others could pay them half-yearly or even annually. Th ey can also be paid on an ad-hoc basis.

Income investors like to invest in shares that can pay a dividend for good reason Stock market researcher Ned Davis Research looked at the returns of American shares going back to 1972. It found that over a 38-year timeframe, companies that either increase or start paying a dividend tended to outperform other types of shares signifi cantly.


Th e power of dividends in generating long-term returns for investors should not be underestimated either.

For instance, in March 2011, the infl ation-adjusted value of the S&P 500 Index (a US stock market index) would only be 74 points, if it was based solely on prices going back to 1 January, 1871. But if dividends had been reinvested, the infl ation-adjusted value of the S&P 500 index in March 2011 would have been more than 38,000 points.

Silver liningHere is another example of the power of dividends. Between the end of 2007 and September 2013, the Straits Times Index in Singapore declined by 1.6% a year. But if dividends were reinvested, the index would have generated an average annualised total return of 2.0%. Th at is quite a pleasant silver lining on an otherwise gloomy dark cloud.

For investors worried about their future income, dividends could play an important role too.

Consider, for instance, Jardine Matheson. At the start of 2004, an investor could have bought shares in the conglomerate for US$9.10 per share. Th at same year, Jardine Matheson dished out US$0.40 per share in dividends, which represented a dividend yield of 4.4%.

Fast forward to 2014 and we fi nd that Jardine Matheson is paying out US$1.45 per share in dividends, aft er growing its dividend every calendar year. Th at equates to a 15.9% yield on the original cost of the share. So, growing yields can make dividend investing an attractive proposition.


But there is a downside to consider. Aft er all, investing - even income investing - is not free of risk. For instance, a company might reduce its dividend or omit a payment altogether. Th erefore the onus is on us, the investor, to identify the right companies to own.

Tell me more What should investors look out for, though?

Th ere are many things to consider. Here are a few important ones that could help us identify good income shares. But bear in mind that not every good dividend-paying company will necessarily exhibit all of the following characteristics.

1. A history of growing dividends

2. A track record of growing free cash fl ow

3. A history of generating free cash fl ow in excess of the dividends paid

4. A strong balance sheet and

5. Room to grow the business

Th ese fi ve criteria are all important. Some might even say that they all are equally important.

A companys track record of growing its dividend could give investors some useful clues as to how seriously a company considers rewarding its shareholders. Aft er all, a company is not obliged to pay shareholders anything. But even if a company might


want to pay a dividend, it may not be able to do so unless it is making enough money.

Th is is where the second, third, and fourth points come into play. Dividends, contrary to popular belief, arent paid out from a companys earnings they are paid out from a companys cash fl ow.

Free cash fl ow is the money that is left over aft er a company has deployed any cash it needs to keep it as a going concern. It can then allocate the rest of the cash to grow the business, buy back shares, pay down debt or pay out dividends.

Th is highlights the importance of keeping an eye on the growth of a companys free cash fl ow. Th e more free cash fl ow there is the more dividends the company can, theoretically, pay to shareholders.

What else do I need to know?A strong balance sheet gives a company the ability to withstand temporary shocks to its business. It can also give a company some breathing space, should it have taken a wrong step.

Th e fi nal point is the growth potential of the business. It is important for a company to grow because it could give investors some confi dence that a company could become bigger in the future. A bigger company could in turn mean bigger payouts.

Consider the payout history for a company such as Vicom.


Year Dividends per share (cents)

Free cash flow per share (cents)

Net cash (total cash minus total debt)

20042005200620072008200920102011201220132014

5.758.5011.915.59.2511.816.117.618.222.527.0

12.912.913.020.424.025.219.120.829.532.336.8

$5.7$9.6$13.8$14.3$28.3$42.5$49.2$55.2$66.0$78.5$91.2

millionmillionmillionmillionmillionmillionmillionmillionmillionmillionmillion

Source: S&P Capital IQ

Vicom is an example of a company that exhibits the fi nancial characteristics of a good income company. It has a strong balance sheet; its free cash fl ow has been increasing steadily and it has also grown its dividends over time.

But Room for growth is not something that you can easily determine from a set of company accounts or from historic data. Instead, it is important to understand something about the operations of the business.

Vicom has two main lines of business. Th e fi rst is vehicle inspection and testing. Th e second part is involved in testing, calibration, inspection, certifi cation, consultancy, and providing training services to a wide range of industries. Th ese include oil & gas companies, aerospace, marine, food, electronics, and the construction sectors.


Wheres the growth?Th e companys vehicle inspection and testing business runs seven out of the nine vehicle inspection centres in Singapore. What is interesting is that the company has not felt it necessary to raise prices for the mandatory testing of cars in Singapore since 2006. Th is could suggest that raising prices at some time in the future could be a possibility.

When it comes to Vicoms other business, which is grouped under the SETSCO subsidiary, it has managed to grow in the face of keen competition.

SETSCO was acquired by Vicom in 2003 for S$15.7m. In that year, the division reported annual revenues of S$22.8m. At that time, SETSCO was regarded as a small player in an otherwise large industry. Its competitors included SGS SA and Bureau Veritas. Th e two companies reported global annual revenues of around S$3.37b and S$2.75b, respectively, that year.

But Vicom has managed to more than double SETSCOs top-line to S$55.0 million by 2011. SETSCOs profi tability grew even faster, as operating profi t shot up from S$1.5 million in 2003 to S$10.6 million in 2011.

Vicom stopped reporting segmental results aft er 2011. However, given the companys overall growth since then, it would seem fair to assume that SETSCO has not stopped growing. Such strength and consistency could suggest that SETSCO might have the potential to continue growing in the future.


What else do I need to know? A company such as Vicom, with all the above characteristics, namely strong fi nancials and room for growth, could be a potential dividend candidate for income investors.

Income investing can therefore be summed up as follows:

1. From a historical perspective, dividend shares have been good investments over the last four decades.

2. Dividends can be a vital part of delivering long-term stock market returns.

3. Growing dividends can be a source of greater income for investors over the years.

But heres the rub. Is income investing right for you?

We can look at the question through the eyes of Mr Lee.

Mr Lee is retired and he is in his early 60s. He could, quite easily, have another 25 or more years to invest. He would like his investments to provide some income, so that he can enjoy his golden years in relative comfort.

In Mr Lees case, income investing could be something worth considering. Th e dividends he receives could provide him with a reliable source of income. But any dividends that are not required for his regular expenses could be put back into the portfolio, resulting in more shares and more dividends in the future.


Income shares, if they can deliver reliable dividends could also be less volatile when compared to, say, growth shares. Th at might suit an investor, such as Mr Lee, if he is not comfortable with shares that could move violently.

But it is also important to consider how income investing might not be the best option for Mr Lee. Aft er all, he still has nearly three decades of investing to look forward to.

If Mr Lee only needs, say, a small amount of income from his portfolio, then buying only income shares could slow down the rate at which his portfolio could grow. With a longer investing horizon, a few growth shares could, potentially, deliver a bigger return.


ConclusionDavid Kuo

Th e key to making money in stocks is not to get scared out of themPeter Lynch

I hope you have enjoyed our brief guide to investing. As you have probably gathered, investing is not a one-size-fi ts-all discipline. Th ere can be a lot more to investing than that which meets the eye.

In this booklet, we have only highlighted three of the more popular strands of investing. Th ere are many others, as you will fi nd out when you embark on your own exciting investing journey.

When we invest, we should try to remember that it is a way of putting our money to work in a considered way.

Th e operative word is considered. We should consider carefully, our investing time horizon. In other words, we should think carefully about how long can we aff ord to leave our money invested in shares for? In the main, we should not consider any kind of stock market investment unless we are prepared to leave the money invested for at least fi ve years or more.

We should also consider carefully why we want to invest. Simply saying that my friend has made a mint from playing on the stock market just doesnt count. You need to understand your ultimate investing goal.


Some people might invest so they could have a better life when they retire. Some people might be investing for their childrens education, which could easily be a decade or so away. Others might put money into the stock market to help pay for their childrens wedding at some time in the future.

Th ese are all laudable reasons to invest because they relate to investing with a long time horizon in mind. But having a punt on shares today in the hope that you might have more money to spend when you go on holiday next week is not a good idea.

It is also important to consider the type of investor we are. Trying to fi t a round peg into a square hole can be a pointless and painful exercise. In a similar way, trying to be a growth investor when you are really an income investor can be frustrating.

Th at said, many of us dont always know, at the outset, whether we are round pegs or square pegs. Th at is why it is important to try diff erent investing styles fi rst.

It can sometimes take years before you discover your true investing passion. But once you do, it can be an enlightening experience. Once you discover the kind of investor you are, everything that you have learnt should fall neatly into place.

Until that moment arrives, gradually build a portfolio of stocks that you have thought about carefully. Write down the reason for buying each share.

You might be attracted by a companys dividend yield or you might fi nd that the company has unparalleled growth prospects. You might even fi nd that the company could be a potential turnaround.


Whatever you think are the reasons for buying the share, just write it down in your investing diary.

Keep your investing diary by your side and review your progress over a period of months and years. Take a look at your stocks that have done well. Take a look at the ones that have done badly. Take an honest look at how you have performed relative to the market. Are you beating the market or are you losing badly to a chosen benchmark such as the Straits Times Index?

Consider carefully the stocks that have performed especially well. Is there a discernible pattern as to why they have done well?

If you fi nd that most of your market-beating picks can be classifi ed as income stocks, then perhaps that is your forte. But if you cant even hit a barn door from three feet with a recovery stock, then perhaps you are not cut out to be a value hunter. Th ere is no shame in that.

Once you have discovered your investing style, develop a disciplined approach to investing. Buy when prices are favourable, regardless of what others might be doing or saying in the market at the time. A disciplined approach will help you to suppress even your own distress signals.

You should even start to feel good when the market falls a hundred points because you immediately know that bargains are abound. Th e moment you start to feel good about a market fall is the moment that you have become a true Foolish investor.


Notes

A Foolish Guide to Investing in Singapore

Documents

th ese businesses

th ink

extra money

th eir shareholders

growth companies

fastgrowing companies

older investors

savings account