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4 Golden Rules of Equity Investing
- August 31, 2023
This article requires an average reading time of 1min 12sec.
Like any other investment vehicle, equities come with risks of their own. This is why we need advice from the top experts in the field before investing. We surveyed fund management houses on their investment approaches. There are many “rules” to equity investing but we found the below four to be common golden rules of equity investing shared by the fund managers:
1. Examine the behavior of the company management: Before investing in a company's shares, you should know who controls the company and whether they can be trusted to treat you fairly. The company's past management decisions are some of its indicators to predict its future possible behavioral inclinations. Make sure the company treats minority shareholders fairly. A company that has a history of treating its minority shareholders unfairly may continue to do so in the future.
2. Examine the company's numbers (but of course): Before considering any company, it is important to look at its balance sheet, income statement and cash flow statement. These numbers tell you whether the company is being properly financed and is generating enough cash to give it adequate liquidity. It also tells you whether the company has a cavalier attitude or a cautious and calculated approach towards investment and expansion.
3. Know what you are buying: You should acquire at least some working knowledge of a company's business before buying its shares. For example, if it is a silicon chip maker, you should educate yourself on what they are used for as well as the basics of the manufacturing process. You need to know if the company is currently in a sun-rise or sun-set industry to know its long term viability. If something about the business doesn't make sense, it probably isn't worth investing in.
4. Be wary of over-ambitious companies: Be aware of companies that are on a rapid expansion spree especially via borrowings or investing in areas outside of their core area of expertise. This may make them lose focus and may lead to their downfall. If they fall, no prize for guessing who goes down with them.
The author of this article, Mr Sean Ong is a Certified Life Coach, a Master Practitioner in Neuro-Linguistic Programming and a Chartered Financial Consultant who has been featured on the local TV and radio. Having begun his career in the finance industry since year 2002, he is currently leading a top-performing advisory group as a Senior Advisory Group Partner in IPPFA. In his efforts to contribute to the society, Sean ran 1,000 km over 87 days to successfully raise more than $13,000 for a children charity in year 2012. He also published a book subsequently where sales proceeds were donated to charity. Sean completed his Masters of Science Degree in Technopreneurship & Innovation in year 2020 and was honoured in the Director’s List for academic excellence. He has keen interests in InsurTech projects and mental wellness initiatives for the youths. Above all, Sean counts knowing Jesus Christ as the most significant event of his life. He can be contacted at seanong@ippfa.com.
Looking for an investment strategy that works in any market conditions is like searching for the proverbial fountain of youth. Neither exists in reality. The financial market is subjected to too many unknown factors eg the collapse of oil prices that can hurt blue chip stocks like Keppel Corp or a sudden war (God forbids) that may take place in any part of the world; all these events will affect the performance of the stock market. Every kind of investment strategy has its limitations but what are some time-tested investment strategies out there for us to consider?
