IF you are still grappling with questions of when and what stocks to buy, then you may want to revisit your investment objectives.
Investing in the stock market is certainly not for the faint-hearted and the debate continues whether markets are predictable or unpredictable.
But still, lots of people have made money from the capital markets.
One such person is the world’s famous investor Warren Buffett. He is the chairman and CEO of Berkshire Hathaway.
In 1988, he bet on Coca-Cola shares at the height of the financial crisis. He bought 6.2% stake for US$1bil and has made tonnes of money since. Coke remained one of Berkshire’s largest holdings.
His entry was when markets were crashing and to him then, it was a “good company with great value, it could withstand competition and was poised to recover.’’
It says a lot about his investment strategy. Today, this man is worth over US$85bil (RM351.9bil) and still drinks several cans of coke every day.
Some of his famous quotes include “Don’t watch the market closely, ’’ “Whether we’re talking about socks or stocks, I like buying quality merchandise when it is marked down, ” and “Only invest in ‘simple businesses’ that you understand.’’
All those make a lot of sense, but is this a good time to buy stocks?
Schroders wrote in a research note recently that the arrival of successful vaccines was a catalyst behind a rotation, though it is still in early stages.
The research house had identified 10 potential themes that emerge in the months and years to come.
When markets crashed in March last year, many were selling stocks but a select few braved and took positions.
Timing is a factor and so is the stock you are investing in, experts said.
Entrepreneur Tan Thiam Hock said there is a lot of liquidity in the market as every government across the globe is pumping money into the system.
“So, there is a lot of liquidity. People can’t find returns elsewhere, then they go to the stock market, ’’ he said.
He added that “everyone is expecting the bull run to continue, but the big asset bubble will burst. Go in fast and come out fast. There is still money to be made in the stock market.’’
That is his view and there are enough skeptics out there too.
For a beginner, there are some basic rules to investing in the stock market.
Understand the exchange lingo, know your investment objectives – whether you are investing, saving or speculating – and what is the timeframe to accumulate wealth?
There are various asset classes, and stocks is one asset class to invest in since fixed-deposit rates are at low levels.
Decide whether you are in for the long haul for dividends and value appreciation, or whether you are a mid to short-term player. This is vital for your investment strategy, and equally important is to have the right skill sets, time and emotion to be successful.
Short positions; margin trading; what makes up the large, mid and penny stocks; the indexes and global events can affect markets worldwide.
Research is key. One should know the fundamentals of the companies that one wants to invest in and one can start by looking at the annual reports.
Stocks are shares in which ownership of a company is divided. Trading of these stocks are done over an exchange.
In Malaysia, it is via Bursa Malaysia and what happens in the US, European and Japanese markets can affect sentiments here.
To start off, one must open a trading account from a licenced brokerage firm to buy and sell stocks and also a central depository system (CDS) account. Brokerage fees apply for trading in stocks. With online platforms, it is possible to buy foreign stocks from the comforts of your home.
There are over 900 companies listed on the local exchange to choose from and as Buffett put it, “Only buy something that you’d be perfectly happy to hold if the market shuts down for 10 years.’’
What stocks to buy and how many to buy will depend on one’s investment appetite. Experts often say, start small to get a feel of what it is to own shares.
Anyone can trade in shares but what can set you back is following the herd mentality, fear and greed.
Know your investment strategy, risk appetite and direction of markets and the economy. Invest wisely to accumulate wealth, as in any investment, there are risk and rewards too.