How to get started in value investing

Quite a number of my friends have asked me how to get started in value investing. They want to start investing and want their savings to work harder for them instead of just earning a paltry 0.1% from the bank. Inflation is eating money left in the bank daily. Personally, I learnt investing by reading lots of books, going for some free and some paid courses and reading articles from the internet.

Firstly, before investing, you should have a strong enough reason why you want to invest your money. Maybe it’s because you want your money to work harder for you, maybe you want to earn enough dividends (passive income) to pay for your daily expenses or maybe you just want to live comfortably during your retirement age. I wrote an article some time back about having a strong passion for what you are doing. Passion is paramount in anything you do, not only in investing.

Next, always remember this: you must only invest with surplus cash. If you need money for daily expenses and are living paycheck-to-paycheck without much savings, then it’s best to take care of your daily needs first. Then, you have to look for ways to save more money. It can be done by two ways: increase your income or decrease your expenses.

I would also recommend you to keep aside an emergency fund of at least 6x your monthly income or 12x your monthly expenses. This fund should not be touched at all, no matter what. Financial advisors usually recommend socking aside 3x your monthly income or 6x your monthly expenses before investing. I’m just a bit too kiasu. The emergency fund will help when one gets retrenched or when something unexpected happens. So, now you have monthly savings and emergency funds set aside. Use your monthly savings to invest. There’s no minimum amount needed to invest in the stock market.

You also need to open a brokerage account. I mainly use DBS Vickers broker. More information on how to open a brokerage account can be found at http://www.sgx.com/wps/portal/marketplace/mp-en/investor_centre/investor_education/getting_started.

Now comes the crux of the post. How to learn how to invest in good companies? This is the hard part as it involves lots of time, reading and research. I would recommend people to start off by reading a few books. They are as follows:

  • The Secrets of Millionaire Investors by Adam Khoo (highly recommended for simplicity)
  • The Neatest Little Guide to Stock Market Investing by Jason Kelly (highly recommended)
  • Buffettology by Mary Buffett and David Clark
  • One Up on Wall Street by Peter Lynch
  • Common Stocks and Uncommon Profits by Phil Fisher (highly recommended)
  • Warren Buffett and the Interpretation of Financial Statements by Mary Buffett and David Clark
  • F Wall Street by Joe Ponzio (highly recommended)
  • Rule #1 by Phil Town
  • The Financial Times Guide to Value Investing by Glen Arnold
  • The Five Rules for Successful Stock Investing by Pat Dorsey

You have to read the first book “The Neatest Little Guide to Stock Market Investing” to get a good overview of how the stock market works and how companies make money, among others.

I would also recommend some sites to start off with. They are:

Investing is not a get-rich-quick thing. It takes lots of time, patience, discipline and determination. If you are looking to make money within a few days and run, then value investing is not for you. If you are willing to learn and invest for the long-term, then investing is one of the best asset classes to accrue wealth.
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12 thoughts on “How to get started in value investing

  1. Hi MW,

    I think they are too advanced for beginners who are just starting out. But then again, I think Phil Fisher’s book is alright for beginners. Thanks for pointing it out. I totally forgot about them. I will edit my blog post.

  2. I do think Phil Fisher’s book is for hardcore investor. lol. I think not many of us would follow his way of investing like to seriously look into every aspects of the company and to question the management about the company thoroughly.

    But yeah, Pat Dorsey’s book and Buffettology is definitely a must read for beginners. :)

  3. Hi CJ,

    Phil Fisher’s book covers other aspects like when to sell once you have bought a stock, among others. Personally, I would like to visit the HQ and talk to management before investing. However, the question comes whether the management would entertain such a small investor like me.

  4. I actually just decided to make a change in my life and get into investing for real this time! I figured my best bet would be to model after someone that has done this and has been successful. So naturally I looked into Warren Buffet.

    He recommended “The Intelligent Investor” as the bible for value investing. So I picked it up 3 days ago and I’m in chapter three now. It is a little tough to comprehend, but I’m going to muscle through it. I look forward to reading more of your articles!

  5. Hey I just finished The Neatest Little Guide to Stock Market Investing by Jason Kelly and wow! That book was great! So easy to understand I think I might have a fighting chance to start investing now. Are any of the other books put together this well? You have a couple other highly recommended ones. I wasn’t able to find them at the book store though. Are they worth picking up online?

    • Hi Seth,

      I’m happy that my recommendation has changed someone’s life. Yes, that book is really awesome!

      You can read “F Wall Street” and “Rule #1” too. Rule #1 shows step-by-step on how to look at companies with the websites to go to. F Wall Street is good too in the sense that it emphasizes on free cash flow of the business. Cheers!

  6. Hello again! So I took your advice and just read FWall Street. I’m going to go get Rule #1 this week.

    I really want to get started with investing now but I’m not sure which discount broker I should use. So far from the reviews I’ve read I would want to go with either Scottrade or TradeKing. I’m leaning toward TradeKing, but I’ve also seen mixed reviews..

    What would you recommend? It’d be great to have a chat sometime.
    Thanks again for all the advice!

  7. Do you recommend greenhorn to attend those value investing courses out there? They cited many success stories.

    • Hi,

      It depends on the course. Some courses are good while some are not so. You can go for the previews and ask friends who have attended for reviews. One of the things I like about courses is that shortens your learning curve.

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