To Keep Reading
Investing can be tough and daunting to the novice investor, but it really needn’t be. With some reading and research, most people can become above-average investors, but the truth is that you do need to work at it and show commitment to understanding how the investment process works. There is, after all, no free lunch in this world.
This is why I feel an investment guide can be very helpful for the beginner investor, as it summarises the key behavioural characteristics an investor needs to have, as well as the requirements for a basic analysis of a company’s financial and business performance.
Armed with an investment philosophy and a guide, the investor can then work on improving his investment acumen over time.
With that in mind, I have compiled four of my top tips on how to behave, act and react when it comes to investing.
Read and learn
Investors need to be armed with basic accounting knowledge in order to read and understand financial statements. This may seem daunting, but there are many books out there that provide basic accounting knowledge for the beginner investor. Gaining an understanding of how accounting works is important as it represents the language of business.
Analyse and assess
The next step is to analyse and assess the business performance of the companies you invest in. It’s simple as assessing if revenue, net profit or dividends had increased year-on-year and whether debt levels have increased or decreased.
An assessment of how the company is doing and reading up on its plans and prospects gives you a better idea on whether it will continue to do well in the future, or if the business may be facing serious challenges or headwinds.
Control your emotions
When faced with market prices bobbing up and down, some investors may panic and resort to selling their holdings. It’s important to control your emotions and be guided by the fundamental aspects (i.e. the financials and prospects) of each company rather than be fixated by the share price.
Controlling your greed and fear are key to doing well, as stock prices are affected by many events and may also be sentiment-driven.
Finally, investors should learn to be patient. Rome wasn’t built in a day, so the saying goes, and for companies with long-term growth strategies and plans, it will also take time for them to grow revenues and profits.
Patience is a virtue when it comes to investing in great companies, as they are able to grow and compound their profits, making them worth much more in future.
Putting it all together
In summary, investing is about the conscious and rational allocation of capital to generate a decent return. Investors who are able to learn, analyse and control their emotions are best equipped to benefit greatly, as their wealth will compound over time.
The quest to become a better investor is never-ending and ongoing, and investors should keep the faith and persevere in order to enjoy the fruits of investment success.
The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Royston Yang doesn’t own shares in any companies mentioned.