Author: Ho KhinwaiKhin Wai is a Year 3 Banking and Financial Services student from the School of Business Management (SBM). He started his foray in finance in 2011 and has his roots in value investing. Archives
December 2013
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Stocks. Shares. Many people are familiar with these two words in the investment arena. After all, these words are flashed every single day if you watch the business news, along with “up by 4%”, “down by 5.2%” and the like. However, do you REALLY know what a stock is? By definition, a “stock” or “share” is a part ownership in a company. It is NOT an invisible gambling ticket which will earn you millions instantly if you hold the right one. Using the definition, we can understand that when we hold stocks or shares, we are partly invested in a company. We become owners of a company, in a theoretical sense. This is the simplest concept, yet the most foundational and essential concept, if you want to be on your way to financial freedom through stock investing. Many people ask me, “There are so many stocks for me to choose on the market, how do I go about picking one?” Well, there are certain investors who use the dart-and-arrow method (which I do not recommend). There are others who invest because of tips from friends and family (which I also do not recommend). Then, there are others who select stocks solely based on quantitative factors (such as ROE%, EPS, PE Ratio). And, there are people, like Warren Buffett, who choose stocks that are familiar names, and that both quantitative and qualitative factors show signs of good growth. Well, I’m not going to say which method is more “correct”, but using the initial definition of a stock, I would go with Mr. Buffett’s way of stock selection. The reason is simple. Imagine you could be the CEO of ANY company in Singapore. Which company would you choose? You’ll obviously have so many choices, right? And, you’d obviously pick the one that looks financially stable, prospects look good, and is not taking on too much debt, right? Yes you would! Now, apply this thinking to your stock selection, and you’ll never have any problems with finding the wrong stock again. Look at DBS Group (D05.SI). The largest local bank in Singapore since merger with POSB in 1998, DBS Group Holdings is one of the strongest banks, with steady cash flow, low borrowings, and worldwide presence. Unsurprisingly, the stock has also been giving shareholders a pretty decent return (with dividends) if one was to invest in it two or three years ago, right after the Financial Crisis of 2008. Regardless of whether you’re a growth investor, value investor, technical trader, market timer or any kind of investor, the definition applies. A great stock with a great business will never go wrong in the long run.
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18/3/2017 07:16:41 am
Well I really liked studying it. This subject offered by you is very effective for proper planning.
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