Welcoming 2020! It’s easy to get caught up in the optimism of each new decade as we enter a new decade. All our resolutions are written down (OK, no pineapple tarts for the lunar new year). We also have our goals that we hope to achieve in twelve months.
We all know that resolutions often fall apart quickly. This is because we don’t have clear, definable targets to show us that we’re getting closer to our goals.
1. Save money, lots of it
While investing invariably requires a good amount of research and analysis to be successful at it, we often overlook the very first step when it comes to investing – your ability to save money. There’s really not much point reading all the books, poring over charts, or learning about key financial ratios when you don’t even have the money to invest in the first place.
If you’re having trouble saving money, then now may be a good time to re-look your spending habits and where your money is going. Is it because you’re spending too much on shopping and entertainment? Is it because you’re still paying sky-high interest payments on your credit card debt? Or is it because you keep buying extra lives, colour bombs, and lollipop hammers because you’re just not very good at Candy Crush?
2. Pick an investment framework – and stick with it
It’s crucial to understand how to invest your money long-term and what to do once you have a pool of investable funds. Saving is not a good idea. However, losing your hard-earned savings is going to make you feel worse.
You should learn how to research great companies, analyze financial statements, calculate the intrinsic value of a stock, and manage your risks. You will need anInvestment frameworkThis guide will help you choose the best stocks to invest in your portfolio.
For us, we use a framework called the Investment Quadrant which focuses on four areas of a company: its business model, management team, financial performance, and stock valuation. Before we add a company to our portfolio, it must meet all of the required criteria and benchmarks.
3. Interest rate risk
The third major risk is the impact of interest rates or cost of financing. A REIT with a high cost-of-finance can lead to missed opportunities. The higher finance costs will eat away valuable cash that could be used to make accretive acquisitions and organic asset enhancements. A REIT can have a sufficient buffer in case of another financial crisis by having more cash.
Investors should be aware that REITs with a higher financing cost (4% or more) are often foreign. Sabana REIT, which only holds industrial properties in Singapore, has a 4.43 percent financing cost. In the event that interest rates rise north, it is important to be aware of REITs with high financing costs as this could put additional pressure on cash flow.
It’s easy to get lost in your emotions and make poor investment decisions without a clear, logical investment plan. If you bought stock because you were afraid you would miss out on the potential price gains, you may have acted on your greed. If you sold a stock because you were afraid its price would continue falling, then you also acted on fear. Many investors end up selling low and buying high. To avoid situations where your emotions might influence your investment decisions, it is important to have a process that is based on hard facts to make informed decisions.
Dividend Machines is a site that focuses solely on passive income investing. Investment Quadrant is a site that focuses on capital-gains value-growth investing.
You don’t have to use our methods. However, you can agree with the investment process of any framework that you choose and continue using it if you are getting results.
4. Attend AGMs
The company’s annual general meetings (AGMs) are another excellent source of information. You have the chance to meet with the directors and top executives of the company face-to-face, and ask them any questions. This gives you an idea of how transparent and open the board and management are, especially when it comes to hard questions. Asking your fellow shareholders questions can give you unexpected insight that you may not have considered.
AGMs are a great opportunity to see the CEO highlight key developments and give a detailed overview of the company’s past year. It makes it much easier to read the annual report because I have already had a lot of context.
Continue reading: Five reasons to attend the annual general meeting
We’ve attended numerous AGMs in Singapore, Malaysia, and Hong Kong over the years and you can read our summary of all the meetings here. But nothing can beat the experience of attending an AGM in person. If you are able, make a commitment to attend the AGMs for at least three of your largest portfolio holdings this year. Although you may need to be absent from work, it is a great excuse for you to visit your investments and get outside the office.