Tuesday, January 12, 2016

The Art Of Investing

Investing seems like the easy way where we can make our fortune or can give us a hope for a better life. There are so many ways to investing and each one of us have different investment styles and strategy. There is never a one size fit all approach. To me, investment is more of an art than a science.

I've been investing for the past 5 years and there are certainly ups and downs in my investing journey. I would say that over the years, I've come to realize that investment is really an art. We can have the best investment knowledge but in the end still lose money from our investments. There is no guaranteed way of making money from our investments.

With that, here are some pointers for those who are just starting out investing or even if you've been investing for quite some time, I hope these reflection of mine will be beneficial for you too.

1. Focus on taking care of the downside, not on making money

Risk management is very important in investing. We do not want to put all our money into one stock or one investment thinking that its going to make us a lot of money. Even if you've researched about this company for many years, situation can still take a u-turn, catching us off guard.

In this era where information moves very fast, competition can come in very fast too and affect a company's profit entirely. Nokia and Siemens were two of the biggest mobile phone and telecoms giant 10 years ago but now they are defeated by competition from Apple and Samsung. Kodak was one of the biggest photographic film company many years ago but it has now been replaced by digital cameras and smart phone cameras.

In investing, we should think about how much we are willing to lose and if we lose this amount will we still be able to live our lives normally? It would be foolish to borrow money for investment as we could lose more than what we have in an instant. That to me is too much risk. I would only invest the money I am able to lose.

2. Investment is not a get rich quick scheme

Do not treat investing as some kind of scheme where you can get rich quick very fast. This happens mostly for people who do not have too much money now but want to have more money faster. The temptation of getting huge passive income and double or triple the money we have from investing is always there.

It is true that we can get passive income and capital gains from investing. But it certainly does not happen as fast as we thought it would be. It would be prudent for us to manage our expectations of the investment returns which we can get from investing. Is 10% p.a achievable in the long term or maybe just 5% p.a? I would say it is not easy to make more than 15% investment returns consistently for many years. You may be lucky for a few years but things may turn around.

3. Focus on accumulating more capital from other sources

Throughout the years, the capital I accumulated did not come from investment mostly. It came from the income I had from work and other active income. While we are investing and learning all we can to grow our money, do not forget to build up your skills and increase your active income as well. The more income you have, the easier and faster it is to save money provided you do not spend it all away.

A person who has accumulated 1 Million dollars can just invest with an investment return of 5% and he will get $50,000 a year. If we only had a capital of $50,000, 5% investment return is just $2500 which is not a lot.

Over the years, I have been trying to create multiple streams of income. Today, I have income from at least 4 different sources. It wasn't an easy task and requires a lot of time and effort. What I want to highlight is most of my income still does not come from investments alone. It comes from learning new skills and working hard to increase my active income. Passive income, although important, does not come easy and fast. My passive income has been increasing but its still not a significant amount yet.

In conclusion, investment really takes experience. Getting your hands dirty, falling and picking yourself up and going through some pain in order to learn it the hard way is part and parcel of the the process to invest better. Sometimes, it does require patience to ride through cycles and see your investment profit after a few years. Yes, sometimes it takes years to see results. Those who have the patience will get to eat the fruits at the end.

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Related Posts:
1. The Top Down Approach To Investing
2. Why extreme savings is more powerful than investing


  1. Hi SGYI:)

    Couldn't resist dropping by to say hi.

    I've been reading your blog for awhile and the more I read, the more I realise we are rather close in age as well as our career (process of elimination if you're wondering:p).

    Just like to add that it has been a delight reading your blog and your postings serve me well as an inspiration as well as motivation.

    Inspirational cause you know, your posts have been quite enlightening with its trove of knowledge and tidbits of wisdom.

    Motivational cause we are so close in age but yet I am so behind in terms of financial knowledge and assets (Gosh what have I been doing all this time).

    Do keep up with the blogging please:) You have indeed affected changes in some peoples' life (me and me and me, for example).

    All the best in your journey to financial independence man!

    Cheers! :D

    1. Hi PassivePoen,

      Thank you for your kind words. You're definitely not far ahead. Its never too late to start and we're both still young. I'm glad my post motivated and inspired you and yes i will continie writing.

      All the best to your journey to financial independence too!

  2. Hi SGYI,

    Thanks for your honesty and open sharing. Investing is indeed not a smooth ride, as I've found out starting out a year ago. This funniest thing is that even certain happenings can run contrarian to common investing knowledge (e.g. company stocks going down when it's earnings are actually increasing). A lot of it isn't instant as well, and it takes a lot of patience, perserverence and belief to see results.

    Please keep the sharing going on! I believe you are not just sharing knowledge, but the spirit of investing as well. Anyone could just say that made money in the markets and how well they have invested, but it takes more than that to admit to mistakes and losses. It's the one who keeps going forward who finds the treasure at the end :)


    1. Hi Gideon.

      Market is driven by sentiments. It takes patience to wait for a stock to realise it true value. There will always be ups and downs to investing. How we finish is more important than how we start.

  3. Hi SGYI,

    Thank you for another great article. But I have a differing view on investing, which in my views, require both art and science approach. With the right data and a disciplined strategy, money can be made from the stock market.

    SG Wealth Builder

    1. Hi Gerald,

      Yes I agree in investing, the science part is important too. But really, in the end its an art to have the experience of how things work. Portfolio management is an art too.