Lessons learned in investing in stocks

Investing in shares requires time. You cannot be on top of the game with those whose pre-occupation are to watch the stock market every trading day. With a full-time career, it is difficult to know what is happening in the stock market. By time you hear any news, you will probably be one day late. You would have missed the chance to capitalise on the news.

Keep watch of certain stocks you are following and read up news relating to these stocks. Quarterly financial results and annual report are also important source of information. Knowing the history of price movement over a period of time is useful to time the purchase or sale of stocks. It might prevent an investor from buying and selling too soon or too late. This is easier said and there are many factors, including historical price movement, influencing the decision.

Be willing to cut losses. Emotion has no place in investment. If certain share stayed depressed for a long time and business’ outlook is not optimistic, do not hope that it will rise eventually. Better to sell the stock and move on to other shares with better prospects. I continue to own Informatics, which was bought in 2002 at $1.33 and was now at 13.5 cents. Informatics was a darling stock during its heydays but had lost its value permanently through years of business setback.

Do not be sentimental over stocks. If a stock has risen and profits are decent, sell it. Do not hold on to it and try to catch the peak. Two recent examples include selling SGX at $10.14 from original cost of $7.25; selling OCBC at $10.26 from original cost of $7.70.

Holding on to too many stocks is not a good strategy. It is difficult to keep track of all these stocks. At one stage, I bought into too many real estates investment trusts (REITs) because of the attractive distribution yields. When the recession hit in 2008/2009, these REITs lost values because the investment community frowned on the financial leverage of these REITs.

I am now more wary about stock recommendations from stock analysts. Buying stocks based on buy recommendations can be painful. Some examples include Tat Hong bought at $1.95 and sold at $1.07; Tiong Woon and Lian Beng declined during the recession and had not recovered to original cost of purchase. Like Tat Hong, I had decided to cut losses and sold the last two stocks.

In order to be level headed in investment, one must have the money for investment. Stock trading on margin is stressful and risky. Fear can be minimised if one can afford to lose the total amount of investment set aside for them. One must not be too greedy and together with fear, these form the twin obstacles to rewarding experience in investing.

Copyright © 2010, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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