On occasion, my friends would ask me to ?teach them about investing? over a casual cup of coffee. Unfortunately, the ad-hoc nature of the request typically leads to a series of convoluted conversations which I feel doesn’t do justice to the topic of investing. As such, I decided to organize my thoughts a little bit better and start with three timeless lessons that I feel any new investor can start with.
Here?s my take:
Buy businesses, not tickers
Friend: ?Hey, I just bought ?
Me: ?Wow, what does the company do??
Friend (laughs nervously): ?Erm, I don?t know. I heard it might go…
On occasion, my friends would ask me to “teach them about investing” over a casual cup of coffee. Unfortunately, the ad-hoc nature of the request typically leads to a series of convoluted conversations which I feel doesn’t do justice to the topic of investing. As such, I decided to organize my thoughts a little bit better and start with three timeless lessons that I feel any new investor can start with.
Here’s my take:
Buy businesses, not tickers
Friend: “Hey, I just bought [Company X]”
Me: “Wow, what does the company do?”
Friend (laughs nervously): “Erm, I don’t know. I heard it might go up.”
Unfortunately, the little conversation above happens way all too often for my comfort.
I strongly believe that it is well within any individual’s capability to invest well if shares are treated correctly. This brings me to the first maxim: when we buys shares, we are buying a stake in a living, breathing business.
Said another way, when you buy shares of a company, you become a shareholder of the company. For instance, when we buy shares of BreadTalk Group Limited (SGX: 5DA), we are taking a stake in the profit the food retailer makes each time a pork floss bun is sold.
Furthermore, you are entitled to a few things as a shareholder:
- Attend annual general meetings
- Ask management questions on matters related to the company
- Vote for major acquisitions and/or appointment of directors
As a shareholder of a company, you can benefit when a company performs well, and pays out dividends. If the shares appreciate, you can also stand to gain from capital appreciation.
A Fool’s take
"Investing without research is like playing stud poker without looking at the cards." - Peter Lynch http://t.co/5D1BZjWV0M
— Tycoon Investors (@TycoonRE) February 6, 2015
Now, I can understand that some folks may roll their eyes on the simplicity of this statement. However, I would argue that this statement is easy to understand, but frequently forgotten.
The slip of mind becomes more evident when share prices of a company tank and petrified investors scramble to seek the reasons behind the fall. The problem with that action (“find reasons”) is that it is motivated by the movement of the share price and not the business behind the shares.
As such, it is my belief that the phrase “buying businesses, not tickers” is one timeless maxim that you should frequently remind yourself as you head out on your journey to invest. In my view, investing can be profitable, but only if we start treating shares as stakes in businesses. If you choose to buy shares without knowing the business behind it – it may quickly amount to nothing more than speculation.
Stick around for the second part of this conversation tomorrow.
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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 Chin Hui Leong doesn't own shares in any company mentioned.