Investing Can Be Easy

Jigsaw puzzle pieces

“If calculus or algebra were required to be a great investor, I’d have to go back to delivering newspapers.”

This is a famous quote by Warren Buffett, arguably the world’s greatest investor.

Buffett’s quote can be interpreted as such: Successful investing doesn’t have to be complicated, and in contrast, professionals armed with sophisticated tools may not even be able to invest well too.

Buffett sticks to his principle of investing in companies within his circle of competence, using the conventional method of looking through annual reports or the newspapers in search of undervalued gems.

In fact, part of the reason why he resides in Omaha instead of Wall-Street is to be isolated from the frenzied activity prevalent in the financial capital of America.

Unfortunately, many retail investors can find themselves overwhelmed by the abundance of financial information out there and end up not knowing what to do with that much information.

Thing is, more often than not, keeping it simple in investing can help you sleep soundly at night, knowing that the companies you’ve invested are hard at work making profits for you, slowly but surely.

Below are 3 guidelines on how to simplify your investment process:

1) Look at stocks as small pieces of businesses

There are likely to be many who find themselves fixated at the short term fluctuation of stock prices instead of the long term underlying fundamentals of businesses. In the process, they forget that each share they own actually represents a real, fractional (no matter how small) interest in a company.

When you think like a business owner, you are more likely to see the overall picture associated with the firm. You would then be able to start taking steps to understand the growth prospects and risk factors of each company.

Let’s use Japanese restaurant operator Sakae Sushi (SGX: 5DO) as an example.Even without looking at its annual report, there are several questions that you can ask yourself: 1) Are there busy crowds during meal times, 2) Are the outlets expanding and is there constant innovation on the food choices available, and 3) How is the company tackling the issue of adhering to a quota of foreign workers, which may lead to higher labor costs?

A visit to Sakae’s restaurants may already be enough to answer many of your questions. Furthermore, viewing the restaurant in a completely different manner – that of a business owner – may even bring out a whole lot of new fun!

2) Invest in Tangible Businesses

Occasionally, I get questions from a few of my friends who are new to investing in the stock market. They’ll be asking me for tips on names of counters that provide low risk in addition to moderate returns..

But as the saying goes, “Give a man a fish, and you feed him for a day. Teach a man how to fish, and you feed him for life”. My usual reply to them is thus to ask them to look for tangible businesses as potential investment targets.

That’s because when you can see and feel the operations of the business at first hand, it could give you more conviction to invest in the company itself.

CapitaMalls Asia Limited (SGX: JS8), which owns more than 10 shopping malls such as Bugis Junction and Jcube, is one such example of a tangible business – you can actually experience those malls in action.

3) Focus on the long term

Behold the main benefit of investing over the long term – all the emotions associated with trying to time the market are removed in the process.

One simple method for long-term investing is to practice dollar cost averaging. Moreover, like what my fellow fool Ser Jing has mentioned in his article, you ought not to care about where the market is heading next. Over the long run, stock prices will eventually converge to their underlying intrinsic values and you only need to focus on how well the company will fare in the years, or even decades, ahead.

Foolish Bottom-line

All told, the big secret to successful investing is that it’s actually not all that complicated. Most of the mumbo jumbo doesn’t matter. To manage your own money, you don’t even need to know the difference between a credit-default swap and a credit card, or a convertible bond and a convertible car.

In fact, using a simple, common-sense approach to investing could get you further than those who don’t.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor James Yeo owns shares in Sakae Sushi.