I am a firm believer in the stock market. I believe that despite all the enthusiasm in property, investing in sound companies is still the best way to increase one’s wealth. In Singapore, I believe that the property boom which occurred in the past 10 to 15 years may not be replicated. This is not to say that property prices will not increase. Property prices will still increase but they will not increase in the same magnitude as before.
Stocks are different. Unlike property, stocks are extremely liquid. This makes the ease of transaction a whole lot smoother. It takes just mere seconds to dispose of a stock with decent trading volume whereas it can take months and sometimes years to find a buyer for a property and another couple of months to complete the transfer of the property to the prospective buyer. Most investors in Singapore have a portfolio of illiquid properties and few liquid stocks. In some cases, an investor’s portfolio may be so skewed towards property that he may have negated other forms of investment.
Moreover, due to Singapore’s clear obsession with property, our local news often places property news on the front pages. For the last 13 quarters, property prices have been falling. In that same period of time, the stock price of Apple has risen from approximately USD$70 to the current price of around USD$144. As many investors held on to their monies and waited on the sidelines, they failed to turn around to glance at the stock market which went on a huge bull run.
So why then is investing in stocks not as popular as investing in property? For one, the Singapore stock market is a pretty boring place to be if you are not the type that can sit down and digest a copy of The Business Times at one sitting. Simply put, the Singapore Stock Exchange (SGX) does not have many “sexy” stocks to attract investors. A couple of years ago, Manchester United was considering placing its stock for trading on the SGX. i.e. they wanted to have an initial public offering (IPO) of their stock on the SGX. However, they decided against it and listed on the New York Stock Exchange (NYSE) instead. Imagine if we could secure such a global brand on our SGX. There would be much more interest in stocks from the man on the street.
Secondly, not many people understand the concept of stocks. In essence, a stock represents a fractional ownership of a business. It is a chance for investors to be able to own part of a business. If you think that Apple makes great products and would like to participate in the growth of the company, you could purchase some Apple stocks. You would just have to find the market where Apple places its stock up for sale. Essentially the stock market is literally a place where sellers put up their goods, in this case, their company stocks, up for sale. Just imagine the stock market to be like a typical shopping mall or market and every seller is placing stocks of his company up for sale. Investors do have to take note that companies are either publicly listed, which means that the general public can buy company stock, or private, whereby the company is owned by a small group of people and they are not putting part of their company up for sale on the stock market.
Generally, I broadly classify people who invest in stocks into three categories.
First, there are the day traders. These people attempt to profit from short-term price movements in the stock market. They are extremely price sensitive and even mere cents can affect their decision. They keep themselves updated with regards to any business news and decide whether there are short-term positions to be taken up in certain companies. To the layman, this is the general perception of people who invest in stocks.
Second, there are the long-term investors. These people take a very long-term view of the market and literally buy certain stocks to hold and wait. Usually, they prefer companies that pay dividends. i.e. companies that distribute the profits to the investors, usually quarterly.
Lastly, there are the mid-term investors and the style of investing which I personally follow. These investors look at the market long term as well but usually hoard some cash to take advantage of short-term opportunities. These investors usually have a certain matrix to follow and when profits are decent enough, they will lock in the profits. Investing is about making money, no point holding a stock or even a property forever. There is a saying that profits are not profits until they are taken.
I hope that in the coming weeks, I can shed light and demystify the notion that investing in the stock market is difficult. As the weeks go by I will attempt to guide those who read my posts as to how to get started in investing in the stock market.
p.s. I am currently running a private equity firm and we trade our own monies as well as for some private clients. I am also currently a licensed real estate salesperson.