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:
- How to read an annual report
- F Wall Street articles