GoHuat recalls.. “How did I start my personal investment journey?”

One common question posed to me by my friends is “How did I start my personal investment journey?” 

Let me answer this question through a sharing of my personal profile. My investment journey started around 6 years ago. I was a fresh graduate and started my career in the public sector. I was particularly inspired by the Rich Dad author - Robert Kiyosaki - to achieve passive income so that I can get out of the rat race fast. Later on, I was influenced by Warren Buffett’s style of investment. Recently, I adapted different styles to form my own style so that it can be better suited to my present needs. I believed that my investment style will continue to evolve as my lifestyle and needs changes in the future.

Lifestyle and Needs..

My lifestyle and needs have been relatively simple. I prefer to eat at hawker centre and home instead of at restaurants unless it is for a social gathering. My mode of transport is usually by train, bus or “bus 11” aka walk. My monthly recurring expenses are: $600 for my parents, $100-120 for public transport, $300-$500 for food and outings. I also built up the habit of recording my savings and spending to gain deeper insight of my own balance sheet, cash flow and income statement. Subsequently, I used the data to optimise and forecast my future income and expenditures. Even until today, I am still consistently recording my daily income and expenditures!

Invest in Singapore Stock Market

My investment efforts were mainly focused on the Singapore stock market as it is easier to monitor and gain access to. Before buying my first stock, I spent around 9 months monitoring the prices and analysing the financial condition of selected blue chip companies on the Singapore Exchange. I also read many investment blogs to find out mistakes made by other investors to accelerate my learning curve. Concurrently, I built up my investment fund aggressively. At the start, I was allocating up to 85% of my monthly take-home pay for investing. My idea then was to maximise my cash returns through the stock market while young and am able to stomach more risk.

I soon realised how volatile the stock market could be. Within a few months, most of my stocks went well below their buying price. Then, I chose to hold on to them despite low dividends return of less than 2% as I was confident of the company’s long-term potential due to my extensive research into its business fundamentals. Still, it was very painful to watch other companies offering better returns over the same period. I also found out that different business requires different financial indicators to evaluate (i.e. Net Asset Value is often used as one of the indicators to evaluate property companies - why?); the importance of the company’s management and strategic directions; as well as having good situational awareness of the global business and economic climate so that I can spot potential market risks early. it was really stressful when a large portion of my cash was locked in the stock market. Adding on to the anxiety was the fact that I have bought them at a considerable high and the market was starting to head downwards.

Sufficient cash for immediate or future expenses?

1 year after making my first stock purchase, I performed a thorough review of my investment approach. It dawned on me that investments should not have affected my day-to-day life and the existing approach was definitely not suitable. I analysed and identified the cause to be primarily not having allocated sufficient cash for my immediate or future expenses. Without realising the importance of doing so, I have given myself a lot of stress subconsciously whenever I looked at my investment portfolio.

Spare Cash for Investment!

To solve this, I decided to immediately build up my cash-on-hand equivalent to 2 months of my pay. Gradually this was increased to around 6 months. In doing so, I felt that my “back” has been covered and whatever amount left is now “spare cash” which can be freely used for investment. My definition of “spare cash” is the amount of money, without it, will not affect my daily lifestyle for the next 6 month. In the next few years, I will likely increase my cash-on-hand to 1 year as my number of dependents increases. These earlier experiences went on to form my first investment guiding principle: ONLY INVEST WITH MY SPARE CASH.

Over the past years, this approach has served me well against using cash that is needed for near-term expenses such as credit card bills, wedding cost, renovation costs or any emergency cash needs. I admit that it does feel uncomfortable to have a good amount of cash sitting in low-interest rate deposits, especially during favourable market conditions. However after many rounds of consideration, my final decision is to stick to my approach so that I can perform my daily duties without worry and sleep soundly every night!

Hope you enjoy my first post here! I will be sharing more in my following posts: “How I build up my spare cash”. Feel free to drop your comments here to share on your experiences too!

Together, let us all Go & Huat ah!

GoHuat