If you are looking to invest in stocks during these times of uncertain market conditions, you will need to mentally prepare yourself before you can start making profitable trades.
We feature insights from one of our trainers, Collin Seow. Many people wanting to learn how to trade in Singapore flock to him to seek his expertise in how to confidently make winning trades.
To find out how you can be a better stocks investor, here are 9 questions you need to answer truthfully before you venture into investing.
Question #1: What Is My Investment Objective?
Being clear on the purpose of investing is the most important question you need to answer. This has an impact on the rest of the questions you are about to see.
Investing can be for short term profits, or long term growth of your money. At least, for every counter you are about to buy from the stock market, you should ask yourself the question – What is my objective?
Question #2: Will I Need The Money In The Near Future?
Decide if you will be doing anything with your money anytime in the predictable future.
For instance, if your house is ready in the coming 6 months, you probably want to keep the money for renovation. Say if your calendar looks clear for the next 6 months, you are in a better position to start making trades.
Question #3: How Much Time Can I Put In For Research?
The amount of time you can set aside for research can affect the investment product that suits you.
For instance, if you are working at a full-time job, reading annual reports over weekends is not something you may not have time for. You’ll have to find investment instruments that suit the amount of time you have to invest.
Question #4: How Much Effort Can I Put In For Research?
If you are a total newbie starting out in investing, you may find an overwhelming amount of information available on Investopedia.
How hard are you prepared to work to understand the stock trading environment, from analyzing stocks to the psychology behind making winning trades?
Question #5: What Is A Good Company To Invest In?
For people with little life experience, this may come across as a real challenge.
As you see more of how things work in the world, it gives you a better idea of how world events affect the companies listed in the stock market.
Perhaps that is the reason why Warren Buffet often stresses the importance of knowing the company you invest in.
Question #6: How Long Is A Comfortable Period To Hold For Me?
This question may be hard to answer because to someone that hasn’t started investing, they really won’t know what is long or short holding periods to them.
Knowing your own level of patience might be a good estimation of your investment strategy. For instance, If you are able to wait for your girlfriend to finish trying 20 pairs of shoes before making a purchase, you may be able to stomach longer term investing.
Question #7: What Are My Expected Returns?
Without prior experience of investing, it may be hard to have a desirable return on investment in mind. How does 10% on your investment sound? Is it better than most investors’ performance?
How many people can get returns better than the STI index’s performance? Its annualised returns was 8.4%, between 2004 to 2014.
That should give you an idea of what is overly ambitious, and what is safer.
Question #8: What Are Yours Costs Of Buying, Holding Or Selling?
To trade for short term profits, you will have to factor in the transaction fee for every trade.
With most brokers, it costs you 0.275%, with a minimum charge of $25. That means if you put in $1000, that means you’re paying the broker $25 already. That leaves you with $975 to trade.
Remember to also deduct $25 from your earnings, and your cost amounts to $50.
To hold the stock will be the opportunity cost you may be losing out on for a possibly profitable trade.
Question #9: Can I Afford To Lose The Money?
Fear of failure is a reality you need to address to be a stocks investor.
If everyone is right, everyone will be profiting. The feeling of making a winning trade is delightful, because it feels like you are making your money work for you.
But trades do lose you money.
Depending on your ability to handle the feeling of defeat, you have to be prepared for your emotional response when a trade goes bad.
Armed with the 9 questions in hand that you will answer truthfully before investing, you can approach the stock market with better mental preparation.