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Why it’s Important for You to Find Your Investing Style

Credit: Paurian's Art Textures

If you are a new investor who’s just starting out, I understand that the experience can be quite daunting. There are so many styles of investing around, how do you know which would suit you best?

Rest assured that this is a common challenge faced by nearly every new investor who’s still finding his or her way around the stock market. (Fortunately, there’s an easy way for you to find your groove and jump-start your career as an investor.)

But, why is it even important to find a strategy that suits you? Should we not be looking for strategies that are the most profitable regardless of whether it is our “style”?

Thing is, finding the right investing style can be far more valuable to you than finding a widely profitable strategy that’s used by someone else. This is because investing is very much a game of controlling your emotions. If you’re practising a style that you’re not comfortable with, it’s easy for you to make mistakes.

For instance, let’s say a successful investor you know had mentioned to you that Sarine Technologies Ltd (SGX: U77) might have an interesting investing thesis that’s based on the firm’s high sales growth and large market opportunity ahead.

The snag here though is that Sarine Technologies’ prospects have resulted in its shares carrying a high valuation, which may lead to short-term price volatility.

At its current share price of S$2.71, Sarine Technologies has a trailing PE (price-to-earnings) ratio of 25.6, which is nearly twice as high as the SPDR STI ETF’s (SGX: ES3) PE of 14 at the moment. The SPDR STI ETF is an exchange-traded fund which tracks the fundamentals of Singapore’s market barometer the Straits Times Index (SGX: ^STI).

If you happened to be an investor who is less comfortable with high volatility in your portfolio, an investment in Sarine might give you many sleepless nights. Moreover, you might even end up selling the company’s shares at the first sign of any temporary distress in its business, bringing you more pain and losses.

In such an instance, your friend may be right on Sarine over a multi-year period. But, the share would still not be right for you.

For someone who’s unable to stomach the interim volatility that highly-valued growth shares can bring, perhaps a more suitable portfolio would be a diversified one made up of shares which have a market price significantly lower than their current business values. This will give the investor a portfolio with a wide margin of safety and shares whose intrinsic values are not dependent upon their future growth potential.

Foolish Takeaway

We have to understand that there is no such thing as a one-size-fits-all investing style. Investing styles can be analogous to different styles of martial arts; there’s no “best” when it comes down to it. It all depends on the temperament and skill of the martial artist in question.

So, the faster you can find an investing style that suits you, the faster you can focus on becoming the best investor that you can be.

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