Habit #1: Circle of Competence
Always invest only within your circle of competence! If you are in the telecommunications industry, then start looking at the products, brands and companies you deal with. SingTel, StarHub, M1, Apple, Nokia,
Samsung are just some examples.
Investing within your circle of competence allows you to have a working knowledge of that industry. This allows you to understand the dynamics of the industry better than most investors and even analysts out there. But if you have no experience in your circle of competence, then the furthest you can get to is to read or listen to others’ opinions on that industry, or in worst case, even guess about what’s going on!
A lot of people (including myself) have invested in lots of companies based on brokers’ or friends’ recommendations, and yet we don’t know anything about the company! That is pure GAMBLING and that is the reason why so many people out there got BURNT by the stock market!
Habit #2: Margin of Safety
It is always important to invest with a sufficient margin of safety. This can range from 20% to 60% depending on the type of company you are investing in. Calculating the margin of safety is crucial because it allows you to have a safety barrier after you invest and in case the market crashes the next day (set a stock loss line).
If you have a sustainable margin of safety, you wouldn’t be losing money at all….In fact, it is the best time to invest your money in great companies because it gives you an even BIGGER margin of safety! During the Value Investing Foundations Program, I will be sharing a lot more on how you can calculate the margin of safety for ANY company!
Habit #3: Company Management
Before investing in any company, you will first have to assess the integrity of the company’s management. Many investors never bother attending Annual General Meeting. That is DANGEROUS! Just a few quick tips on attending Annual General Meetings:
– Note their body language
– Listen to the language used
– Observe the general atmosphere
This is because the way they hold their Annual General Meetings is a reflection of how they run the company. For example, if everyone speaks openly and candidly in their events, then chances are the company has got a good management which places importance on being open with their shareholders.
WDew Research Centre 