I read with great interest LP’s post on “The youth and the stock market” and comments by readers that followed. In summary, LP’s view was youths should not invest in the stock market due to lack of capital and that it’s more worthwhile to focus on other things like getting a job or studying. Let me present my views on this ongoing debate that have been spotted in forums and amongst my friends as well. Youths in this post represent people in the age range of 18-24.
It is true that most youths lack the capital as most do not have formal employment. The savings youths came from parents, festive “ang pows”, part-time jobs, NS allowances, among others. Most would have amassed around $10k to $15k by the time they are 21? $10k may not be enough to have a substantial position in a blue-chip company, many would think. For example, buying 2 lots of SIAEC would cost around $8k. Anyway, why must a youth have a substantial position? Why can’t he just buy 2 lots, like in my example, to have an “experience” with the market. If the youth has done extensive research of the company and bought the company due to the strong business fundamentals, there isn’t anything wrong with buying a stock, no matter how small the capital is. Or another way the youth can experience the market is by buying the STI ETF that tracks the STI. With $10k, he can buy 3 lots of the STI ETF to experience the market. However, before investing, one should have done a thorough research on the company and know how the stock market works. To learn that, one should read extensively.
Buying a stock due to lack of capital is not the issue suddenly. The issue now becomes the temperament of the youth. At such a young age, without formal employment, a gain of $1000 from the SIAEC or STI ETF that he bought may seem a lot for the youth. He then goes around boasting to his friends saying, “Hey! I made lots of money in the stock market you know? No need to work lah! Just buy stocks can already!”. This is the point when things gets dangerous. Dangerous in the sense that the capital gains got to his head and he thinks that he knows everything and that making money in the stock market is as easy as making instant noodles. Youths, or adults for that matter, should always have a long-term view and not be excited about short-term gains. Arrogance kills an investor. We should always be humble before the market as the market is ALWAYS right. Investors should also have patience and discipline in the markets.
To add on, by starting young, youths have an upper-hand over many of their peers who are preoccupied with other “not-so-useful” things in life. For example, Youth A is an investor but Youth B isn’t. When both reach 35, Youth A would have seen at least one full market cycle but Youth B would only have started off investing. In that aspect, Youth A has got more “experience” than Youth B and has got an upper-hand. Warren Buffett started investing at the age of 11 and he regretted not starting early. So, starting early has its benefits. Having started investing, youths should also keep on upgrading themselves by reading books, talking to senior investors, analyzing various kinds of companies and going to forums.
Thus, I strongly feel youths can always start investing young even with minimal capital. Time is on their side and time is an investor’s best friend. However, they should always be humble and experience at least one full market cycle (bear to bear or bull to bull) before coming to any conclusion whatsoever. They should have a long-term view when investing. Remember, the market is always right!
P.S. Do let me know your comments/views if you don’t agree. Don’t be afraid to shoot me down! Not literally of course..