5 rules for stock investors to begin with.

THE common thing in today's capital markets is that many people are watching share prices than investing in stocks.

Most do not know where to start and often have misconception that socks and shares seem to be for the rich; and it often gets novices burned.

But there must certainly be away to get started without getting burned?

Here are five quick rules for stock market investing.

Rule  1 – Build a stock portfolio of more than 20 shares.

A portfolio gives you a certainty that bad luck won’t hurt you and that your choices on average will deliver the return your share picking deserves. 

This portfolio return over the years will outperform anything a bank will offer you on deposit and will compound.

A diversified portfolio will mean you will miss out on good luck, but investing isn’t about good luck. Bad luck and good luck cancel out over time but if you have too much of your money in too few shares then bad luck can knock you out of the game.

Rule 2 – Until you own at least 20 different shares never buy more than RM5,000s worth of any share.

Risking too much on any stock investment is a recipe for disaster, even for the sophisticated stock market investor. Keeping your individual share investments small keeps your capital pot safe and lowers the stress that can make investing unpleasant. Once you have 20 stocks you can grow the scale of each investment, but until that day stay small.

Rule 3 – Get online and get the stock picking tools of modern investing.

You must be subscribed to a software service that provides you with real time share prices, fundamental information, portfolio tracking, live news and strong opinions.

Researching your stock market investments might seem like work. That is because stock market investing is work.

Sadly investing is not a short cut to wealth, you need to treat it like any other way of making money -with focus and determination. Hopefully you will find it a lot of fun and more like a pastime than a chore.

Rule 4  – Always pick stocks using charts.

There will always be new ways to make money using charts and over time they will stop working. This is the way it is with markets.

To be successful you need to be constantly on the lookout for new methods; old ones are always eaten away by the efficient market. To make gold you must slowly destroy your philosopher’s stone and then make another.

Rule 5 – Invest in shares for the long-term.

Buy shares you think you will hold for three or more years.

Do not make your broker rich and yourself poor by trying to trade.

When the world’s most successful investor, Warren Buffett, claims sloth as his most profitable investing trait you should take note. 

Slow and steady wins the stock market investing race. 

Excerpts of lecture by Datuk Dr. Elamaran Sabapathy, Fellow Member of the Institute of Public Accountants (IPA), Australia and a Certified Management Accountant (CMA), Australia.    Datuk Dr. Elamaran also holds a Bachelor’s degree in Applied Management and a Master in Business Administration from the University of Ballarat (Australia), an Executive Master in Advance Management from HEC-University of Liege, Belgium, and, a Ph.D. in Business Administration (Recipient of Outstanding PhD Thesis Award) from the Bulacan State University of the Philippines. He is also an Accredited Certified Financial Planner (Financial Planning Standards Board, U.S.A.).