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How to Stop Worrying and Start Investing

Do you feel that you’ll need up-to-the-minute updates on current affairs in order to invest well? Do you find yourself reading just about everything you can get your hands on about a company in the hopes of finding some ‘inside scope’? How about going out of the way to listen to any opinion you can find about a company?

In this day and age, where information flows rapidly and freely, we’d soon experience a massive information overload if we were to invest that way. We’d likely even end up confusing ourselves even before any investing decision can be made.

Here’s an example of how information overload can occur, if we were to to hypothetically be looking at property developer CapitaLand (SGX: C31) as a possible investment target.

For worrywarts and those obsessed over information, they might start by reading about the company, move on to industry journals, then find every forecast there is about the property markets in China and Singapore (Capitaland’s primary markets), which would likely include many diverse opinions. That’s not all. They might move on to look into its investment property business; understand the structure of the REITs that’s managed and sponsored by it; how the tenants occupying the company’s various properties are doing; and for good measure, the rental trends over the past five or 10 years. Now imagine having to go through all that. At the end of the research process, you will likely end up more confused than you were before you had started.

This is not to say that research is not important. What I am suggesting here is that investing need not be too complicated. We will never be able to find out every single detail about an industry or a company. Furthermore, there are many things that are not even in the control of a company’s management. So, stop worrying too much and just focus on the basic but important things. Here are three such things you need to know when investing.

1. Diversify and invest for the long term

Due to the fact that certain things are out of our control, we have to diversify our investments to ensure that no one investment can cripple our portfolio. It is also important to view your investments with a long time horizon. Remember: The market is a voting machine in the short run but a weighing machine in the long run.

2. Know your risks

There are no investments that come without risk. But so long as we understand the risks we are taking on, we can always make a decision to exit the investment if any negative events occur.

3. Do  not leverage

This is perhaps the most important point here: We should not invest with borrowed money. If we invest with what we have, we have the ability to withstand any temporary downturn. However, if we have invested with borrowed money, we might be forced to sell out at the worst possible time when our creditors come knocking and thus lose more than we can afford. And that’s not even mentioning, the lost opportunity to participate in any recovery thereafter.

Foolish Summary

Although others might subscribe to different views when it comes to investing, those three above are principles I have adhered to throughout my investment career. They have served me well and I hope they can be of use to you as well.

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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 Stanley Lim doesn’t own shares in any companies mentioned.