Wednesday, July 13, 2016

Finding Your Own Suitable Investment Style

Many of us may wonder what is the best way to invest our money? We see and hear many successful investors making tons of money from the stock market and try to follow their footsteps but fail miserably. How is it possible that these investors can be so successful but when we follow their footsteps, we still end up failing? The reason is simply because we did not first find our own suitable investment style. In this article, let's find out how we can find our own investment style so that we too can be successful in investing.

Finding Your Own Suitable Investment Style

There are many ways to invest and each of us have different risk appetite. Investing is partly a psychology game where if we invest beyond the level of risk we are willing to take, it can drive us crazy to make stupid decisions.

In our quest to find a suitable job for our careers, we may see many successful individuals who are in the sales line such as property agents, insurance agents etc. We may think that maybe joining this industry will make us successful too. In the end, many young people join, and many leave also.

Finding a suitable investment style is crucial in our investing journey. To know what is our own suitable investment style, we must first know the different styles of investing.

Trading in the stock market

The first and most common style is trading in the stock market. I wouldn't consider trading as a type of investing but since many people mistake trading as investing, I feel I should mention it in this article.

Trading offers the potential of high returns. Making thousands of dollars per month can be a reality. We even see advertisements where we can use a software to trade successfully then quit our jobs or use only a few hundred dollars and make thousands of dollars. Making money always attracts people to join in just as in investment scams which offers very high returns.

Yes there are successful traders around but they don't just appear out of nowhere. They have experienced failures before and learnt from their mistake. However, what made them successful is not just the skills or the experience they have but its because trading is their style. If you're a low risk taker who cannot sleep at night because of a few thousand dollars portfolio loss, then trading is not for you.

Investing like Warren Buffett

The next common style is to follow the investment philosophy of Warren Buffett, a very successful investor in his time. Many people read about Warren Buffett and are amazed that he can make so much money in investing. They try to learn his methods of calculating intrinsic value, value investing etc.

Yes calculating intrinsic value and learning value investing can help us buy companies at cheaper valuations but investing is all about business. If we blindly follow the financial ratios such as PE, PB or even intrinsic value, it won't really make us successful investors. Warren Buffet himself said that a young person should learn the skills of accounting as this is the language of business. To learn Warren Buffett's style of investing is to understand a business totally so that we can buy good business with potential. If we get bored reading financial statements in an annual report, probably following Warren Buffett's style of investing is not our style of investing

Investing For Income

Investing for income is a popular investment style in Singapore as we have the opportunity to invest in high yielding investment products such as REITS etc. There are REITS listed in Singapore which gives as high as 10% yield. If you're not sure what REITS is all about, read here.

Nevertheless, investing for income is not suitable for everyone too. It can be a slow process of seeing your money grow. If you're not a person who have the patience to slowly accumulate to grow your money, then investing for income may not be your investment style. I've been investing for income for quite sometime now and see the benefits of it as this is my investment style. It is over a period of a few years then I realise that when I patiently accumulate and buy in more while getting the yield, the investment return was much higher and more stable than when I invest using other styles.

Investing for income is not about finding the highest yielding stock which you can get out there. If it was that easy, everyone would be rich. It is about finding the right stock to get the right yield and having the patience to accumulate while getting the income from the stocks.

Investing in Funds/Unit Trusts

Investing in funds or unit trust in another way to grow our money. This style does not require us to read up on individual companies but instead, we invest in a more macro view of industry and sectors. We can also invest base on countries. A fund is made up of many individually companies which represents the industry or sector. We can view the fund performance and decide whether to invest in it.

Another popular option is low cost index funds which is easily accessible to investors now in Singapore. You can read more about index funds here.

What Is your investment style?

After reading on the various different investment styles, what do you think your own investment style is? It took me sometime to finally find my own investment style so be patient, it may require some trial and error to eventually find the right style that suits you.

A tip on finding your investment style is to take making money out of the equation. Once you do not think about making money, are you still passionate to learn the ropes of that investment style? If you are, then that could be your investment style which you're suitable for. Some people prefer to invest by themselves, analysing and researching on companies while some may choose to invest in funds through their financial adviser. Ultimately, investing is for the long term and should not be for any short term gains. I hope this article helps you to understand your investment style better.

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  1. Don't forget the Suitable Investment Style must also be fitting into our account size too.

  2. Great post, you toch on some really good points. I think of investing like going to gym. Everyone has their own style, goals and process for doing things and what may be succesful for a 20yo might not be the same for someone who's 50. :)