Making your first stock investment? Here’s what to look out for

Buying shares in a company is exciting. You’ll own part of a well-known brand in Singapore, and the firm may pay you part of the profits in the form of dividends. You can even tell a high-profile CEO, whether it’s Mr Ho Kwon Ping at Banyan Tree or Mr Wee Ee Cheong at UOB Bank or someone else, how you think they should run the company, by voting or asking questions at the annual general meeting.

Investing in shares has also historically provided a better return than other investments. Looking at return and risk, for example, national financial education website MoneySENSE said shares have had the highest risk but generally have also produced the highest returns compared to bonds or cash.

Finding the right company to invest in, however, is more challenging. If you bought shares in ComfortDelGro at its low of S$2.52 in January last year and later sold it in June at S$3.27, for example, you could have made nearly 30 per cent. If you bought shares in Keppel in 2014 when shares cost just above S$11, on the other hand, you would have lost about half your investment now.

Fortunately, good information is readily available about where and how to invest.

CHOOSE THE RIGHT COMPANY

The key to successful investing is indeed choosing the right company with good potential for growth in share value. While there is plenty of information available, starting with down-to-earth advice from several well-known investors is quite practical.

Renowned investor and author Peter Lynch, for example, suggests buying shares in companies or industries you already understand. “The best way to invest is to look at companies competing in the field where you work,” he explained to Dow Jones. “Use your specialised knowledge to home in on stocks you can analyse, study them and then decide if they’re worth owning.” It’s important, though, to understand the company well. “If you’re prepared to invest in a company,” Mr Lynch also said, “then you ought to be able to explain why in simple language that a fifth grader could understand.”

Taking a similar though slightly different approach, Singaporean investor Peter Lim has said he starts by looking at sectors and then figures out which companies in the industry are the best investments. He also invests with a longer-term outlook, buying shares that he believes will rise and planning to hold them for at least about half a dozen years.

Singapore resident and billionaire investor Jim Rogers also emphasised in in his book, Street Smarts, that analysis is essential. “Get the fundamentals right and the good news keeps coming,” he said. “Lucky? If you want to be lucky, do your homework.”

ANALYSING THE COMPANY

Once you decide on a company that you may wish to invest in, it is important to follow Mr Rogers’ advice and dig deeper so you can find out whether the company is actually likely to grow in value. Analysing the industry and the company’s performance as well as its business prospects is essential. Many firms offer booklets or videos that can help you understand how to research a company effectively as well as information to use in your analysis.

The Singapore Exchange (SGX) has nearly 20 videos on investing, for instance, while sites such as TradeHero Academy have dozens of videos on buying shares.

A number of brokerage firms, including PhillipCapital and Maybank Kim Eng as well as others, offer seminars or online booklets that range from introductions for investing to highly technical insights for experienced investors.

There is also a plethora of other information and advice online. Online tools such as WeInvest, for instance, can provide suggestions for investments based on your profile. Yahoo Finance, The Motley Fool and Bloomberg are among the many sites that collect articles and information that may be useful as you look at particular companies.

INVESTING

Once you do your homework and analysis, you can decide whether you want to own shares in the company you’ve selected or to look at others instead.

Once you’ve decided on which shares to purchase, you can sign up with a brokerage firm or a bank to buy shares. Sites such as MoneySENSE have details about how to select a firm and go through the actual process of buying shares.

Mr Peter Lim’s practices notwithstanding, simply buying share and holding them may not be enough. Given how quickly companies and markets can change, it is important to track the company regularly and even to consider selling shares if the investment outlook turns negative.

While you’ll start with buying shares in one company, over time it is better to buy shares in several companies so that you can diversify your investment and reduce risk. Whichever company you choose to start with, though, select it carefully and then take time to follow the company to maximise the value.