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Three Golden Rules in Shares Investing
This is a follow-up article on my previous post, The Penny Stocks Debacle in Singapore.
Obviously, when it comes to stock investing, there are many techniques and rules that a person can adopt.
I’m not going to go into too much details here but here are my three quick golden rules on investing that you can follow:
1) Be Clear About your Investment Objectives
Is it a short term directional trade or is it a long term investment? Too many people change their so called directional trade into a long term holding because the price did not go in the direction they want. But because the fundamentals of these holdings are quite hopeless, they end up holding their (losing) stocks forever. If your earlier plan does not work out, be quick to cut the position.
2) Know the Fundamentals and Technicals
Always research and check on the company that you are buying. For the directional trade, technical indicators are more important than fundamentals. If it is a long term investment, both are equally important. Avoid trades where the risk reward ratio is not particularly attractive. There is always another opportunity another day. If a particular company keeps on getting queried by SGX (either on their price movement or earnings report), it can be a red flag.
3) Don’t Use Money You Can’t Afford to Lose
This is especially true when you are doing directional trading because if the trade goes bad, your entire capital could be at risk. For this reason, all forms of contra trading with capital that you do not have should be avoided. The same thing applies to margin trading. I have witnessed first hand how margin trading can wipe out entire portfolios. As markets go through periods of big corrections, inevitably, a margin call will happen. Don’t let it happen to you.