A Simple Way To Understand Your Investment

The stock market can be a confusing place. With so much information out there for investors, how do we know which information to rely on? Moreover, when we come across conflicting information, how can we make an informed decision on our investment? Here is how I do it.

Look at the basic

We read in the news nowadays how the Federal Reserve of the USA might be raising rates and how that might dampen economic grow in future. News about the slowdown in China is also well-publicised.

However, as an investors, what we want to do is to find in a business is basically

  1. Financially strong
  2. Good long-term business prospects
  3. Prudent and honest management

Therefore, when we are reviewing a company, all the information that we obtain could be referenced back to these three points.

For example, when we are looking Singapore Telecommunication Limited (SGX: Z74), we want to link back to how the Fed raising interest rate might affect the company? Singapore Telecommunication has about S$8.6 billion worth of debt and pays roughly S$300 million in interest charges in FY2015. A slight increase in interest rates might raise interest costs, but it seems insignificant to the overall Singtel group as its net income for FY2015 was closed to S$3.9 billion.

Secondly, if China is slowing down, how is that going to affect the company? Singtel largest market is Singapore and Australia. It currently has no presence in China but has investment in India and Africa. In the long term, how would demand for telecommunication be for these countries? With the internet infrastructure building up in lighting speed and population growing in these countries, it seems the demand for telecommunication services could increase in the future, regardless of how much China’s economy would slow down.

Foolish Summary

How the events happening around the world might and how it affects your investments might be extremely complex to understand fully. However, if we break down our reasons for investing in a company, we can see that most of the time, the theses are fairly simple and straightforward. As long as we stick to the basics, we should be more able to digest the information. In the worst case scenario, when we still have doubts about investing in a company, we can always do NOTHING. With about 800 companies listed on the Singapore Exchange, investors can definitely afford to be choosy.

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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 does not own shares in any of the companies mentioned above.