Stock beginner guide – Final word

Part 7

This guide is just a basic pointer to what you need to do to start stock investing. I would dedicate it to my friends who are keen to learn about stock investing.

Stock investment is a big subject. Around the world, so many people are crazy about it, because of the potential return. Yet, we often heard people losing money in stock market. The problem lies with the fact that many are rushed into the market thinking they can make quick money. Without spending time to understand the basic concept and risk of stock.

I believe in order to excel in one subject, one has to spend a great effort to learn it. A successful stock investing journey needs

Patience

• wait for the long term compounding effect to kick in

Discipline

• stick to one's game plan

Independent thinking

• know when to buy and sell, not following the herd blindly

Back to Index

Stock beginner guide – IPO

Part 6

IPO (Initial Public Offering) is a way for the company to get listed on the stock exchange. There would be an underwriter to help the company prepare the listing process. Once the approval is given for the company to list, they would start offer the share to public by IPO.

You can apply the IPO by using ATM or internet banking. Some broker house which underwrite the issue would also offer the client to take up the IPO. You can buy the share at IPO price. Once the allocation is successful, the share would be deposited directly to the CDP account holding. There is no brokerage charge but commission charge, typically $1 or $2.

Another way for a company to list is via RTO (Reverse Take over). A listed shell company would propose to buy a private company by offering large amount of share. Eventually, the private company's shareholder would get the majority of share and become major shareholder.

Back to Index

Stock beginner guide – Buy and sell stock

Part 5

Once the broker account is opened, you are ready to buy/sell stock. You are excited and raring to go, but what to buy?

If you are following the fundamental analysis way, this is the typical process.

Research -> Wish list -> Buy -> Hold -> Sell

Research – Perform research on the market to identify stock that you are interested.

Wish list – Compile a buy list base on the research and set the entry price for each of them

Buy – When the price is right, you start buying the share

Hold – You continue to hold on to the company share

Sell – When the stock price hit your target or does not meet your objective anymore, sell it

This is just an illustration on the steps you can take. Many investors have their own decision making system. Of course, at the end of the day, everyone wish to make money.

Back to Index

Stock beginner guide – Open a broker account

Part 4

Now, you have learned the basic and understand the fundamental concept of stock. You want to start buying stock, but how?

In Singapore, the stock exchange is SGX. Stock listed and traded on a stock exchange. It is a common platform to enable investor to buy/sell stock.

First, open a CDP account. CDP stands for Central Depository. In the early days, investors would receive a physical certificate on company share they hold. This has been transformed into a paperless way by having CDP to keep track of the share you own.

After that, you need to open a broker account. You can go to individual broker website to know the details of account opening. Generally, there are two types of account. You can choose to have a broker to service you or open an online trading account. The broker account would have to link to your CDP account.

Personal broker – More personalized service and broker can advise you on the investment decision. The minimum brokerage charge is higher, at about $40.
Online trading – Basically, it is a DIY method to buy/sell on internet. You would use user name and password to log on to online trading account to buy/sell stock. The minimum charge is about 25.

You can check whether the broker would help you to open the CDP account at the same time. Then, step 1 CDP account opening can be skipped. During the broker account opening, you can link the broker account to bank account via EPS (Electronic Payment for Share). This would allow you to pay the broker through bank account.

Here is a list of broker available (not an exhaustive list).

Lim & Tan
Philip
Kim Eng
UOB Kayhian
DBS Vicker
OCBC Securities
CIMB GK

Example online trading charge:
Minimum $25
First 50k 0.28%
Next 50k 0.22%
100k onwards 0.18%

In a typical transaction, you instruct the broker to help you buy/sell a stock. You pay/receive the money to/from broker. Once the transaction is cleared, your CDP account balance is updated with latest holding. You can refer to SGX website for more information ww.sgx.com

After the account opening, you are ready to buy/sell stock.

Back to Index

Stock beginner guide – Fundamental or technical analysis

Part 3

Generally, there are two ways of analyzing stock. Some buy stock base on fundamental analysis and some uses technical analysis.

In fundamental analysis, investor would study the company business, strategy, macro environment and perform some financial ratio analysis to decide on the value of stock. They would then buy if the stock is undervalued or meet the investment objective.

Fundamental analysis could be further broken down into macro economy analysis, sector analysis and company analysis.

Macro economy analysis – Study the macro economy environment and its impact on stocks. E.g. Singapore economy is going to do well in next few years, so buy Singapore shares.

Sector analysis – Perform analysis on a particular industry/sector outlook and pick the company that could benefit from it. E.g. healthcare and oil & gas sector etc.

Company analysis – Analyse the company management, business strategy, industry/market and financial ratio to decide whether to purchase the stock.

In technical analysis, investor would plot company’s share price chart. Base on the daily movement or even hourly movement of the stock, they would buy and sell depends on the technical signal. Technical analyst believes that share price fluctuation would form a pattern that is likely to repeat itself. One is able to profit from this recognized historical pattern.

It is hard to say which style would produce better return and some investor actually combines both of them. I would say just pick a style that suits you.

Back to Index

Stock beginner guide – Learn the fundamental

Part 2

Stock is one of the most common forms of investment that people do. However, before you ever start, keep this in mind. Use only the money that you can afford to lose. Even you lose the money completely, it won't affect your life.

Next, if you are a beginner in stock, what do you do? Learn the fundamental and basic of stock investing!

You can start by doing research in the library. Get a couple of beginner’s book which teach you the basic concept of buying stock. Alternatively, you can go to the bookshop investment section and try to find a suitable book. Start at basic level and slowly progress up.

You can also turn to internet for the learning. But, it is usually more convenient to read a book than to read from computer screen. Once you have learned the basic concept, you can start to practice it. Take a few thousand dollars for try run. This would be your tuition fee. As your confidence and experience grow, most probably you would know what to do next. Investing is a continuous learning process.

After much reading, if individual stock picking is not your cup of tea, there is still another option. That is by buying unit trust. Many found that individual stock investing is too time consuming and tiring. By buying unit trust/mutual fund, you don’t have to do intensive research. Just pick a fund that is suitable for your investment objective and let the fund manager help you to invest.

You can buy unit trust from bank, financial adviser or online portal. Read up more on the basic of unit trust before you start.

Back to Index

Stock beginner guide – Why buy stock

Part 1

Most people know the existence of stock market and know that they could make money from the stock market. When we talk about making money, many are interested. However, before you plunge into buying stock, have you ask yourself “why buy stock”? In general, buying stock should be part of your financial plan, and you should not treat it as a form of gamble.

Let’s start with the very basic concept - personal financial plan. As a start, you will need to have a stable job and prudent spending habit. Preferably, every month you should have some residual money left after all the bills. First, keep a few months of living expense as rainy days fund. Second, engage insurance agent or financial planner to get sufficient insurance coverage. This is to prevent any unfortunate event that could derail your financial plan.

After that is done, the next stage is wealth accumulation. In simple word, how to grow your money. Some would say I only have few thousand dollars and it is impossible for me to get rich. That means you haven’t hear about the magic of compounding.

For example, let’s say you have 1000 dollars and a bank is willing to give you 10% interest. How much is your money after 20 years?

1000 x 1.1^20 = 6727.5

A thousand dollars actually grow to over six thousand dollars after 20 years. That’s the magic of compounding which your interest would also earn interest. Given 20,000 of saving and investment return of 20% a year for 20 years. You would get

20,000 x 1.2^20 = 766,752

This sound a bit tempting. To grow the money, many turn to stock market.

What is stock? In simple term, stock is a share of business. When you buy a stock, you are not just buying a piece of paper but a share of a business. Behind every stock is a company and behind a company is a business. Business is out to make money and grow. When business grow, that means you earn return.

Typically, company makes money and the yearly earning could be channel back to the company for future growth. Your investment return could come in the form of share price appreciation or yearly dividend. Depends on how well the company is doing, the company share price would react accordingly.

Back to Index

Stock beginner guide - Preamble

The purpose of this series of articles is to help the stock market beginner to know the basic of stock investing. This is not meant to be a complete guide, but a summary to guide the newbies on what to do.

Content

Part 1 - Why buy stock

Part 2 - Learn the fundamental

Part 3 - Fundamental or technical analysis

Part 4 - Open a broker account

Part 5 - Buy and sell stock

Part 6 - IPO

Part 7 - Final word

I hope this would be helpful to those just started.