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Have you always wanted to start investing in stocks, but worry you will lose all your hard-earned money overnight?
You are not alone.
Individuals with minimal experience in stock investing are either terrified by horror stories of the average investor losing more than 50% of their portfolio value. The reality is that investing in the stock market carries risk, but when approached in a disciplined manner, it is one of the most efficient ways to build up one’s net worth.
If you want to start investing in stocks but you don’t know how and where to start, here are a few tips for you:
1. Open a CDS account and trading account
Before you start to buy your first stock in Malaysia, you need to open two accounts: Central Depository System (CDS) account and trading account with a brokerage.
A brokerage account allows you to trade shares through your broker. A CDS account records the ownership of Malaysian securities.
For example, you could have a brokerage account with both Maybank and CIMB, and you buy Stock A through Maybank and Stock B through CIMB. Even though you have bought two different stocks via two different brokerages, you still are listed as the direct owner of both stocks in your individual CDS account. As the direct owner, you can enjoy certain rights as a shareholder, which includes voting rights and the right to attend AGMs/EGMs.
There are so many brokerage houses in Malaysia. How do you choose the right one?
Compare The Brokerage Fees
Firstly, you should compare the brokerage fees. Brokerage fees are the costs of investing as they will reduce the total amount of your investment portfolio.
Below is a list of Malaysian brokerage firms and their minimum transactions fees for trading Bursa Malaysia shares:
Register under direct or nominee CDS account?
Another thing you should be aware of when you open a trading account is to clearly know that it’s a direct CDS account or nominee CDS account.
I’ve explained earlier on what is the CDS account. But, what is a nominee account? What are the differences between these two accounts?
For nominee accounts, Malaysian brokerages will use them to buy shares on your behalf.
For example, you buy Stock A through your X Stock Broker who will then place those shares in a nominee account assigned to you. So, you are not the direct owner of the shares. In this case, you will face some limitations, such as:
- You can’t apply for IPO using their platform
- You can’t attend the annual general meeting (AGM)/ extraordinary general meeting (EGM) unless you send a request to them
- You will not receive the annual report as it will be sent to them
- The dividend will not go directly into your bank account, and it will take time to transfer the dividend to your account.
2. Read Investing Books From Successful Investors
To start investing in stocks, you should master the basics of stock investing.
Reading books from successful investors such as Warren Buffett, Charlie Munger and Peter Lynch would be a way for you to gain a better understanding of the historical trends, essential criteria to invest in stocks, how to analyse stocks and the risks of different types of stocks.
Success stories aren’t enough for any stock beginners to start their stock investments. You must also know the failure or mistakes that the successful investors have made so that you won’t repeat the same mistakes.
This won’t make you a great investor overnight, but only when you understand the fundamentals of investing, then you can learn how to invest in stocks with confidence.
All said, don’t blindly follow investment methods from the books. It may not work for all investors as everyone has different investment goals and risks. And this comes to the next point.
3. Know Why You Want To Invest And Your Risk Tolerance
It always helps to know why you are investing. Think about why you want to invest.
Are you hoping to build up your nest egg? Do you want to quickly build up enough for a down payment on a home? Are you creating an income portfolio?
Determine why you want to invest. Being able to point to a specific reason for investing can help you set the right goals, and can provide you with a way to stay motivated as you move forward.
Understand how much risk you are willing to take is also very important for you to tailor-make an investment method. In other words, you have to know how much money you would feel comfortable losing if your investments have a bad year or bad series of years.
For instance, if you want to buy stocks for creating your income portfolio with low investment risk, dividend stocks are more suitable.
Dividend-paying companies tend to be more mature and stable than other non-dividend companies, so while they aren’t likely to skyrocket immediately, a solid portfolio of dividend stocks can create massive amounts of wealth over long periods of time.
But what if you have a higher level of risk appetite and you want to get better returns? Maybe you can look into small-cap stocks.
Small-cap companies tend to be riskier than large-cap companies. They have more growth potential and offer better returns. But they do not have the resources of large-cap companies, making them more vulnerable to negative events and bearish sentiments.
4. Keep Yourself Updated With Latest Market and Economic Trends
If you want to achieve success in stock investing, keep yourself updated and be flexible in your investment decisions.
In today’s environment, we have news available to us 24 hours a day, on smartphones, computers, television and radio channels. Reading news and features will give you more inputs and a better understanding of what’s happening outside and how does it affect your investment portfolio.
For instance, you should avoid investing in government-linked companies (GLCs) when the political tensions and uncertainties are rising during the general election.
Monitoring and analysing the latest news will help you to minimise the investment risks and maximise your capital gains.
But you have to be aware of fake news or rumours from an unreliable news source. There are a lot of gurus out there who share and post their views online with absolutely no idea what they are doing.
Some may have other agendas for pushing a certain stock. For example, they might be the speculators of certain stocks, so that’s why they keep sharing and promoting the stocks.
Learn from established and reliable sources instead. To be a smart investor, you have to analyse the news and thoughts with your own basic stock investment knowledge.
5. It’s Okay To Lose Money
If you want to start investing in stocks and be a successful investor, you need to learn how to lose money first.
It’s very important for you to learn from your mistakes and experience, as it will help you to avoid the same mistakes and develop a tailor-made investment method. Of course, you have to know how much risk you are willing to take so that you can set a cut loss level.
The learning process is most challenging. Many people give up on stock investments after they lose money at the start.
The stock market is a device for transferring money from the impatient to the patient.
— Warren Buffett
For investors, emotional intelligence is more important than IQ when it comes to investing success. According to Michael Batnick, director of research at Ritholtz Wealth Management, emotional intelligence plays a central role in successful investing.
“Emotions are a far more important driver of success than IQ. What made Warren Buffett such a great investor was not just superior intellect, but emotional courage to stay true to his strategy during deep drawdowns,” Batnick says.
IQ may be useful when it comes to analysing complicated investments. However, patience, discipline and perspective are all the more closely-tied to EI than IQ.
Start Investing In Stocks With Strong Mental Preparation
If you read books and know the stories behind the Billionaire investors, you will know that even these successful investors also made mistakes during their investment journey.
Take Warren Buffett as an example. His investment vehicle Berkshire Hathaway suffered its worst year ever and lost billions in 2008 during the financial crisis.
Update yourself with the latest news and analyse your stocks. More importantly, adjust your investment portfolio when things have changed. It will help you to minimise your investment risks and maximise your capital gains.
We hope these tips will help you to know how to start investing in stocks!