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The Gigantic Advantage of Investing Small – Part 2

For some, investing with a small sum of money may sound like a waste of time.

But I don’t think that’s true – I base my own investing approach on “investing small,” hence this two-part series on why there can be hidden advantages to investing with small amounts.

In my first article I talked about how small sums can help investors stay in the game for the long-term, a vitally important aspect to a satisfying experience in the stock market.

In this article, I would like to move on to the next advantage of the “small investor” – adding to winners.

Adding to your winners

“Buy a stock, if it goes up, sell it, if it goes down, don’t buy it.” – Yogi Berra

While we all would love to only invest in shares that go up, none of us will know for sure ahead of time as to which will be the winners. This is where small positions can help us diversify and spread our money across different opportunities.

With a small initial investment, we can worry less about whether we are right or wrong, and instead focus our time on learning about the companies we’re invested in and only add to our positions when our accumulated knowledge of any particular company gives us a knowledge-advantage.

In my opinion, few financial analysts actually follow a company’s progress over five years or more. As such, having a repository of accumulated knowledge over the long-term gives the “small investor” an advantage.

Take healthcare services provider Raffles Medical Group Ltd (SGX: R01) for instance. Its business performance for the past decade – in the form of its revenue, net income and free cash-flow growth – is summarized below:

Revenue, FCF, Net Income Raffles Medical

Source: S&P Capital IQ; author’s calculation

Let’s assume that an investor had invested in Raffles Medical at the start of 2005 at S$0.44 apiece. If the attentive investor had stuck around through 2009, he or she may have realised how resilient the healthcare company’s business was even during the Global Financial Crisis period. The investment in Raffles Medical would also have done very well over that time frame considering that the firm’s shares were trading at S$1.45 apiece at the start of 2010.

If the same investor had then added to his or her initial position made in 2005 at the start of 2010, he or she would have stood to pocket another handsome 213% in capital gains with Raffles Medical trading at S$4.58 currently. This return would have comfortably beaten the Straits Times Index (SGX: ^STI), which only rose about 13% from the start of 2010 to today.

Foolish takeaway

Investing for the long-term is not about finishing faster than others but rather, fulfilling your own financial goals.

I hope that I have shown that investing with small positions, accumulating knowledge about the companies we’re invested in, and adding to our winners can have its advantages as it can help us focus on what matters most: The long-term returns a company’s shares can deliver through a growing business.

For more investing analyses, insights, and important updates about Singapore's stock market, sign up for The Motley Fool Singapore's free weekly investing newsletter, Take Stock Singapore. Written by David Kuo, it can help you grow your wealth in the years ahead.

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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 companies mentioned.