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The Secret To Making A Fortune From Shares

No one had ever asked me anything as personal as that before. Maybe it’s because no one has ever noticed.

In all my years of travelling around Singapore, nobody has ever stopped me to ask why I travel around by bus. That that was until one morning….

… when a gentleman, who was waiting at the same bus stop, looked at me with a quizzical look on his face.

He wanted to know why someone in my position would be waiting for the 167 bus on Robinson Road.

In my position? What could he possibly mean?

How bizarre

As far as I am concerned, travelling by public transport is as natural as drinking water from a Singapore tap.

Ever since I was knee-high to a grasshopper, I have been very comfortable going around Singapore by bus.

Our buses are a lot more comfortable today than they were in the 70s, when I used to catch them to school daily. But as far as the gentleman was concerned, I should be travelling around Singapore in a limo.

How bizarre, I thought to myself.

The next billion

Why on earth would I want to spend money unnecessarily? Every dollar that is needlessly spent, is a dollar that could be invested in an income-producing asset.

But it’s not just me who thinks like that.

Warren Buffett was once seen picking up one cent from an elevator floor on his way to the office. He remarked to the stunned witness: “The beginning of the next billion.

How true!

If we forgo spending money on something today, and invest it sensibly, we could have more money to spend later on.

Costs matter

That is why it is important to invest our money carefully. That is also why it is vital that we focus on keeping our costs to a minimum, when we invest.

The cost of investing comes in many forms. Sometimes they are as clear as daylight. At other times, they are not so readily apparent.

For instance, constantly trading shares can eat into our returns by ratcheting up our brokerage fees, trading fees, clearing fees, stamp duties, the spread between the buying and selling prices and GST that is levied on every transaction that we make.

A fraction of a percentage point here and there can, over time, eat into our overall investing returns.

Market timing

If you invest through unit trusts, the expenses that a fund manager charges are another cost that erodes our returns. It is little wonder that many money managers are unable to beat the market.

Some fund managers also trade too often. They jump in and out of markets, they jump in and out of shares and they jump in and out of sectors, in the belief that they can somehow time the market. Many get it wrong.

But as Warren Buffett pointed out: “We don’t get paid for activity we get paid for being right.”

Unfortunately many professional money managers don’t get it right.

A better option

It is far better for us to spend our time looking for great companies – companies that we can buy to hold for the long term, while they remain great companies.

Once you have identified those great companies, then you can keep adding more money to your investments, whenever you like.

Peter Lynch once said: “The best stocks to buy may be the ones you already own.”

Never has a truer word been said.

A good company doesn’t turn into bad one just because its shares have fallen. A good company does not turn into a bad company because of a quarter or two of poor results.

More fortunes are made by sitting on good companies for years at a time than by jumping in and out of its shares. Even greater fortunes can be made by buying shares in those companies at depressed prices.

That is the secret to making fortunes from shares. It’s really that simple.

A version of this article first appeared in Take Stock Singapore. Click here now for your FREE subscription to Take Stock – Singapore, The Motley Fool’s free investing newsletter.

Written by David Kuo, Take Stock - Singapore tells you exactly what's happening in today's markets, and shows how you can 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 Director David Kuo doesn’t own shares in any companies mentioned.