Investment decisions

Various methods that will help in making better investment decisions

"The safest way to double your money is to fold it over and put it in your pocket"
Wise words in today stock market?

Strategy an investor decides to employ depends on a number of factors.

Rule No.1.............. "Dont panic"

Company's fundamentals
Before buying any stock, it is important to do the necessary homework to assess the stock's fundamentals, citing the profile of the company, the company's strengths and weaknesses, and studying industry trends as examples.
For a more formal approach, discount the firm's projected profits or cash flows using a suitable discount rate that reflects the stock's risk. This should not be a one-off process.
One should revisit and perhaps rework this process every now and then, to keep up with changes in the economy, industry, and the firm. In the event that an investor thinks the fundamentals have changed, it may be necessary to sell the stock and cut losses.

Time horizon
The general rule of thumb states that property and shares are growth investments that are best suited to those with time on their side - at least 5 years.
Having a longer time horizon is useful, in that it allows investors to wait for markets to recover, given that stock markets are exposed to fluctuations and are sensitive to global shocks.
Assuming that a long-term investor has done his/her due diligence, dips in the stock market "may present an excellent opportunity to add to the portfolio if the stock's fundamentals remain good". Do not subscribe to the view that one should time the market by buying or selling when sentiments are good or poor, as such sentiments can easily change and lead to surprises. It is far better to adopt a buy-and-hold strategy for quality stocks.

Risks vs returns
Investments that yield higher rates of returns are also ones that carry greater risk, which means face a higher chance of losing money or bearing greater losses along the way.
While there is a fine line between being too risk-averse and missing out on good investment opportunity and making overly risky investments, the question of how much risk one's feel comfortable with is something only one's can answer.
Relook priorities and ask - what i want achieve by investing? Am i trying to build up wealth in short term, or looking to grow for retirement fund in long term? After that, assess risk appetite. These 2 factors will figure prominently into the shaping of investment plan.

Rebalancing portfoilo
When constructing investment portfolio, it is important to allocate assets wisely to ensure they support the risk appetite. Despite the best intentions, portfolios often go out of balance in the course of investing. It is thus important to rebalance it from time to time, to bring the proportions back to its previous weight.
If portfolio has veered off-kilter and find it exposed to higher level of risk than able and willing to accept, it might be time to consider "safer" alternatives like government bonds or term deposits.
While these investment instruments give relatively low returns, they produce fixed incomes and can go toward balancing other high-risk investments.
While bonds are stable and give regular returns, they are not designed to keep pace with inflation. In time of high inflation, it may see this investment shrink in value.
Index-linked instruments such as exchange traded funds (ETFs) are also a good alternatives. Given that ETFs alow investors to buy a basket of stocks that mimic the performance of the entire stock market, they may be a useful tool to diversify risk.

Dollar cost averaging
"Don't try to guess if the stock market has bottomed" is perhaps the golden rule in equity investments. The modern-day equivalent of crystal-balling, even when stocks seem to be at the cheapest, there is no guarantee that the market will recover in the immediate future.
In order to minimise potential losses, investors may consider investing continuously through all the market cycles - a strategy called "dollar cost averaging".
Instead of investing all the money in a lump sum, investors gradually build up a position by purchasing smaller amounts over a period of time. This process spreads the average cost over a period, hence providing a buffer against market volatility.
While it is impossible to constantly beat the market, thoroughly understanding the investment vehicle, industry, and company fundamentals of a stock/fund will go a long way in helping to make a better decisions.


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When buying stocks, if your buying decisions are based on "insiders' information or rumours" and not sound analysis, then you are gambling.

Many investors enter the market when stocks prices are high (lacking of confidence to enter beforehand when prices were low). Once the stocks market crash, they tend to sell out their shares out of fear and pessimism, swearing to "chop off their fingers" and never enter the stocks market again. If such situation happens, all their previous gains may be wiped out and suffered a loss.

Investing is an art and highly emotional and subjective. Subjectivity is largely controlled by our emotions. There are times when we are optimistic or pessimistic. If we are unable to control our emotional weakness, we are unlikely to become successful investors.

To be successful, you must first understand yourself, in particular your emotions and the degree of pressure you can tolerate.

The investors should also analyse the country's economic prospects together with the earnings outlook of the major listed companies.

It is imperative that you like Mathematics as the sound mathematical knowledge plays a key role in investment.

Dr Chan