My preparation before invest:
Main mistake I made for pass few years.
- Fund to cover personal/family urgent usage. This is to avoid Force Selling (force to sell share at low price to cover urgent used.) :
- - Daily Expanses and also 3 to 6 month Urgent Fund.
- - Necessary insurance coverage.
- Recurring Fund for investment and isolate it.
- - Monthly allocated fund for investment. Example MYR 500.
- - These investment fund must be isolated, keep in liquid place like short term FD and only will be used for investment purpose.
- Understand Compounding Concept and set a annual growth Target
- - Personally i set it to 8%. It is not that simple as these 8% need to be Consistent.
- Portfolio Sizing Strategy
- - Although a lot people say cannot own too many share to be success. But my experience tell me Don't Overweight in 1 stock.
- - Anything can happen to a company/country/world, let say fundamental is good, but building will collapse, earth will quake, Covid-19 will come, too many thing can happen.
- - Portfolio Sizing is good way to distribute risk and achieve 8% growth. Take Covid-19 as example, there are company who rise and drop, by owning both, you never lose.
- Even BRKA also didn't All IN in Coca-Cola or Apple.
- Learn and setup Criteria for Stock Pick/Build watchlist
- These step is to screen a list of GOOD Company and WATCH them, don't buy.
- At this stage, our target is only to find Good Company, they might be still overprice so just keep them in watchlist.
- I use multiple way, easiest way is follow YouTube, investing website to get some company name. Then do self study on their 3-5 year annual report.
- Learn and setup Valuation on your watchlist
- We have a list of good company now, but what price and when to buy them?
- There are multiple indicator and method to do valuation to ensure we buy the share at fair value or undervalue.
- We can use PE (price/eps), DCF (discounted cashflow), PS (price/sale), and etc. But definitely NOT ONLY SHARE PRICE to decide a Share is cheap or not.
- Continuous Learn and Improving
- Investment is a long way to go. We need keep improving and learning to ensure we are up to date.
- Investment related to Business. Business changed from time to time, 1st, 2nd ,3rd and 4th Industrial Revolution. We need to learn to adapt to changes.
Main mistake I made for pass few years.
The mistake I made was only do step 6 and ignore all other Step. Often, I buy because I "Feel it's Worth".Without portfolio sizing, without proper planning and without proper study and evaluation. Just get some tips and purchase the stock. Moreover, I also set a High Expectation on target growth 50-100%. End up I learned a big lesson from this.
2019 onward, I cut loss all my old portfolio and reviewed my failure then setup above criteria.
A simple math that show why consistent low return better than unstable high return. Scenario 1 high return but risky:
1st year +100%
2nd year +100%
3rd year -80%
Initial cost 100 , 3 year later you left 80. Suffer in loss for 20%
1st year +100%
2nd year +100%
3rd year -80%
Initial cost 100 , 3 year later you left 80. Suffer in loss for 20%
Scenario 2 lower return but stable:
1st year +8%
2nd year +8%
3rd year +8%
Initial cost 100 , 3 year later become 125. A increase of 25%.
1st year +8%
2nd year +8%
3rd year +8%
Initial cost 100 , 3 year later become 125. A increase of 25%.