A Foolish Guide To Investing in Singapore

A Foolish Guide
to Investing in
Singapore
with David Kuo
Singapore
2015 The Motley Fool
Good information is useless without the willpower.

-- Peter Lynch
Welcome to the Foolish Guide To Investing in Singapore.

This booklet on investing was written specifically for you. We hope
that it will help you understand a bit more about why you need to
invest, why you might already invest the way you do, and how you
could become an even better investor.
It may come as a surprise to those who think they dont invest that
they are already investing without even knowing it.
When we put our money into a savings account, we are effectively
investing. Yes we are. We are making a conscious decision to
exchange the money in our pockets for something called a risk-free
asset. It is called a risk-free investment because our money can be
returned to us intact whenever we want.
Risk free
By putting our savings in a bank there is virtually no risk to our
money. Whats more, we could even earn a bit of extra money on
top otherwise known as interest.
For some people, salting away money in a savings account is about
as far as they are prepared to go. But there can be a problem with
taking the safe option.
Unless the interest rate paid on our savings account is higher than
the rate at which our money is being eroded by inflation, then our
money is slowly losing its buying power. It can be a bit like trying
to run up a down-escalator. From my experience, it is neither an
advisable nor enjoyable act.
Motley Fool Singapore
That is why many of us will try to get a better return for our money,
which is also why some of us turn to the stock market. Admittedly
there is more risk involved when we buy shares but we hope and
expect to be rewarded by a better return.
Speed bumps
Many young investors (and some older ones too) like to buy shares
in fast-growing companies. They believe that companies that could
grow faster than the overall market could have the potential to
deliver better returns. They are not wrong.
Growth companies are expected to increase their profits at a faster
rate, which is why their shares could also rise quickly. However,
growth companies could also hit unexpected speed-bumps along
the way. That is one reason why their shares can also be more
volatile.
Older investors (and some younger ones too) like to invest in more
established businesses. These are companies that have been around
the block a few times. These often familiar businesses have read the
book, seen the movie and even got the t-shirt to prove it.
These established companies generally dont need to retain as much
of the profits they generate to grow their business. That is why they
can afford to reward their shareholders with generous dividends.
Their shareholders are commonly known as income investors.
A lifeline
Elsewhere, some investors believe they are able to correctly identify
companies that might be in temporary distress. Think of it as
A Foolish Guide to Investing in Singapore
throwing a drowning man a lifeline. These businesses may - for one

reason or another have fallen from grace. But value investors are
hoping that they have correctly identified businesses that can turn
around their fortunes and subsequently return to favour.
Many new investors (and some seasoned ones) dont exactly know
whether they are best suited to growth, income or value investing.
Consequently, they might try their hand at some or all of the
different types of shares. There is nothing wrong with that.
Eventually, though, they could settle on one particular style of
investing that either fits their temperament or suits a particular
stage in their life. Interestingly, our investing styles and focus can
change appreciably over time.
While younger investors could be attracted to growth shares and
older investors to income investing, there are no hard-and-fast
rules about who should do what. In fact, it is not uncommon for
investors to have a blend of shares in their portfolios.
And that is why investing in shares can be so powerful. It allows
us to change the mix and focus of our portfolios depending on the
objectives we have set for ourselves at any point in our lives.
I hope you will enjoy reading this guide to investing and appreciate
why it is vital that we put our money to work as soon as we can.
The Growth Investor

Ser Jing Chong
If a business does well, the stock eventually follows.
-- Warren Buffett
Growth investors, as the name suggests, are people who like to buy
shares in fast-growing companies. So, the obvious question is this:
Exactly how fast is fast?
As a general rule of thumb, a growth company should have the
potential to grow its profits at a faster rate than the rest of the
market, for a long time. But why, you may ask, are growth investors
attracted to this particular style of investing?
Doctor, doctor
Perhaps the best way to illustrate this is to consider a company
such as Raffles Medical Group.
In 2003, the healthcare provider earned 1.9 cents per share. At
that time its shares were worth $0.36. Now fast forward 10 years to
2013; a decade later, Raffles Medical Group was earning 15 cents a
share, which translates into an earnings growth rate of around 23%
per year.
That is fast. That also helps to explain why the companys share
price grew to $3.11 by the end of 2013. Shares in the medical group
rose nine-fold, or 24% per year. It is because of the returns of that

magnitude that growth investing attracts the attention of investors.
This doesnt mean that growth investing is without risk. In fact,
growth investing can be quite risky. You see, growth shares are
often rated quite highly by the market.
How much?
What that means is that while the market might pay, say, between
$10 and $15 for every dollar of profit that a run-of-the-mill
company might make, growth shares can be valued at $20, $30,
$40, or even more, for every dollar of profit that they deliver.
The rich valuation is where risk comes into play. When a share
carries a high rating, investors expect bigger profits in the years
ahead. Or put another way, it is because the market expects the
growth company to deliver bigger profits in the future that it is
prepared to pay up handsomely for its shares now.
For instance, a company might have grown its profit very quickly,
say, over the last two to three years. Investors who recognise the
growth might be willing to pay a high price for the shares because
they expect even higher profits in the future.
But what if the company cant or doesnt deliver? Well, the shares
could fall very quickly. And here is why.
Cant grow, wont grow

Let us consider Company A, which has seen its earnings per share
increase, for whatever reason, from $0.20 in January 2012 to $1
5
in January 2013. Investors who believed that Company A was a

genuine growth company might be willing to pay $40 for every
dollar of profit that the company made in 2014. They do this in
the hope that the company could make an even bigger profit the
following year.
But take a look at what could happen if the following years profit
failed to grow as quickly as expected.
Company A
January 2014
January 2015
% Change
Profit Per Share
$1
$1.10
10%
Share Price
$40
$22
(45)%
As the companys profit had only grown by just 10%, investors

might now be reluctant to stump up $40 for every dollar of profit.
Instead, they might now only be prepared to pay, say, $20 for the
earnings. This is known as a re-rating. Admittedly, the profit has
still grown. But the impact of the re-rating on the share price, as
you can see, is not pleasant.
Whats the secret?

But how can we tell the difference between a real growth company
and one that is just pretending? What separates the genuine article
from the wannabe?
There are different ways to tackle this problem. One approach
could involve looking at companies that have enough space to grow
into. In other words, they have a big market opportunity to tap.
We can, perhaps, illustrate this with Raffles Medical Group through

its flagship Raffles Hospital in Singapore, which services both
foreign and local patients. Foreign patients accounted for onethird of patient arrivals in 2013. That year, Raffles Medical Groups
Hospital Services segment pulled in $215m of revenue. So on
average, foreign patients could have contributed about $72m in
revenue.
Meanwhile, market researcher Frost & Sullivan reckons that
medical-tourism spending in Singapore could grow at a compound
rate of 13% per year between 2014 and 2020. Elsewhere, analysts
estimate that medical tourists in Singapore spent around S$1b
in 2013. So, by inference, medical-tourism spending could
theoretically rise to more than $2b by 2020.
With foreign patients spending just $72m at Raffles Hospital in
2013 and with the potential market expected to grow significantly
by 2020, Raffles Medical Group could have lots of opportunities to
tap into.
Wheres my crystal ball?

But heres the thing: Can we really be that confident about any
companys future prospects? After all, Danish physicist Niels Bohr
reportedly said: Prediction is very difficult, especially about the
future.
In fact, there have been many studies which suggest that richlyvalued shares often underperform shares with lower valuations.
And some investors have used that as a reason to steer clear of
investing in fast-growing companies.
Their reasoning goes something like this: Fast-growing companies

often carry rich valuations. Since richly-valued shares tend to
underperform as a group, it can be extremely hard to predict
which fast-growing companies can perform well in the future.
Consequently, we should avoid fast-growing companies.
Those investors who stay away from fast growing companies are
not wrong. It is true that richly-valued shares tend to perform
poorly as an undifferentiated group.
Tell me more
But there are other clues about a companys ability to grow besides
its addressable market opportunities. These include the strength
of its finances, its employee culture, the social relevance and
attractiveness of its products or services, and the integrity and
innovative capabilities of its management. When all of these things
are considered together, it can help us separate the wheat from the
chaff.
That said it is not easy. It is never easy and there are also no
guarantees.
But, if we can improve our chances of being correct from, say, 10%
to 40%, then the mathematics could work in our favour. Let me
explain.
Consider a portfolio made up of Raffles Medical Group and seven
other shares. The healthcare providers 764% gain from the end of
2003 to the end of 2014 could have helped the portfolio achieve an
average cumulative return of 8%, even if all the other shares made
100% losses.
Additionally, if we could find just one or two more winners, then

the portfolios returns could have been even better.
Lets go shopping
Most of us will be familiar with pan-Asian retailer Dairy Farm
International Holdings, which owns Cold Storage and Guardian
in Singapore. Its profits grew at an annual compound rate of 7.2%
between 2004 and 2014. If, say, Dairy Farm was included in the
portfolio, its gains of 456% would have given the portfolio of two
winners and six losers an average return of 59%.
Getting two stocks out of eight correct represents a batting-average
of just 25%.
So here is what we have looked at:
1. We have looked at why growth investing can be lucrative
with the example of Raffles Medical Group.
2. We have highlighted some of the risks involved with growth
investing, such as high valuations.
3. We have addressed the risks by looking at how to
differentiate real growth companies from the pretenders.
4. We have reiterated the risks of trying to predict an uncertain
future and how we can go some way to overcome it.
5. We also looked at how we can use simple arithmetic to
improve our chances of success.
But here is a question that only you can answer: Is growth investing
right for you?
We can look at the question through the eyes of Mr Lee.
Mr Lee is in his mid-30s. He has roughly another 30 years before
he would like to retire. He does not think that he needs any
additional income to supplement his current salary. So, as such,
any savings he has at the end of each month could go towards his
retirement investment, which could be some three decades away.
In Mr. Lees case, investing in growth shares could be suitable,
given the potential returns and the fact that he does not need to
generate income from his investments.
But it is also important to consider volatility, as the price of growth
shares can fluctuate significantly. So even though Mr. Lees financial
circumstance might be right for investing in growth shares, his
emotions might prevent him from doing so.
It is also important to think about what could happen if his
emotional make-up and financial circumstances changed over
time. As such, it is important to first understand yourself and why
you are investing.
10
Spotting Turnaround
Opportunities
By Stanley Lim
What goes up must come down
-- Isaac Newton
Just because an industry is booming doesnt mean that it can carry

on booming forever. That can be one of the dangers of buying
shares in popular industries or companies.
Imagine what could happen if the stock market was a fully-laden
lorry speeding along an expressway. With such huge forward
momentum, it will not be easy to safely stop the lorry immediately.
But if the vehicle should come to an abrupt and juddering halt, the
consequences could be quite disastrous.
During a boom cycle, investors could easily get carried away by
the forward momentum brought about by crowd behaviour. This
could happen even if the fundamentals might not justify it. But by
the time market participants realise the glaring gulf between reality
and expectation, it might already be too late.
But look on the bright side. After a crash, share prices tend to be
overly depressed. So, investors who have the presence of mind to
be greedy when others are fearful could be rewarded. Buying into
11
companies in the hope that a bad situation could improve is known

as investing in turnarounds.
Bubble trouble
Before we delve into how to go about investing in a turnaround
situation, it is perhaps instructive for us to look at financial
bubbles.
By appreciating how typical bubbles are formed, we can not only
improve our chances of avoiding them, but we could also be in
a better position to benefit from the recovery that could follow,
eventually.
The typical lifecycle of a financial bubble comprises of four
key stages. At the beginning, a company could undergo some
fundamental changes that might go unnoticed by many investors.
As the improvements in the company become more apparent,
investors could start to show an interest.
Next, the bubble could develop through stealth, with only a
handful of people aware of the situation. Then comes the awareness
phase, where other investors start to take a real interest in the
company too. This is when we could see the first share price rally.
In some cases, this could also be the stage where market
participants experience the first challenge to the companys share
price. If the company is able to withstand the sell-off, then it
might gain sufficient momentum to reach the next phase - the
mania phase. At this stage, the company could attract some media
attention. The added interest could even pour fuel to the fire.
12
Such undeserved attention could lead to delusion, though. As

greed sets in, the investing public could potentially be caught in
a game of the biggest loser. This could be the point where a selfreinforcing cycle comes into play the ever ascending price could
lead to the justification that the idea behind the purchase was
wise and on it goes.
Next comes the I was right because the price went up and the price
went up because I was right phase. But there could be a big divide
between the price and inherent value of the business. More often
than not, value prevails. The intrinsic value of the business will
normally dictate the market price and not the other way around.
Sooner or later, value and reality triumphs and the bubble could
burst. This could lead to a bull trap, where market participants
hope that the downturn might only be temporary and things would
carry on as before. However, those who stay around for too long
could also be the ones who get hurt the most.
Bubbles may not form in exactly the way I have described.
But hopefully it will give you some idea about why prices and
valuations can sometimes get out of kilter with reality.
For example, if we look at the Straits Times Index from the 1980s
to the Asian Financial Crisis of 1997, we can see that it went
through a similar boom and bust cycle.
Financial cycles, unfortunately, happen all the time. They could
happen in any sector and with different levels of magnitude. But
if we can spot a company or an industry where a bubble has just
burst, we might just be able to buy depressed shares at realistic
prices and wait patiently for the company or industry to recover.
13
This is because just as the valuation of a company might become

too rich at the peak of the cycle it might also be too cheap at the
bottom of the cycle.
Where do I begin?
Once we understand the basics of the financial cycle, we can start
to figure out how to put the various pieces of the jigsaw together.
In this section, we will examine some of the ways that investors
could identify turnaround situations. We will be looking at the
strategy through the eyes of Mr. Tan Mr. Turnaround Tan.
Mr. Tan is a 45 year-old investor. He has been investing for
about 10 years and likes to invest in cyclical companies and
turnarounds. He is financially comfortable and could easily live off
his investment. But he chooses to continue working, as he enjoys
his job. Typically, Mr. Tan would look for companies that are
wallowing around their 52-week lows. He does this about once a
month.
Mr. Tan has come up with a set of criteria to help him decide which
companies he would like to take a closer look at. For example, he
prefers to focus on larger companies. So, he has set a minimum
market value of S$1b.
Here are some of the other criteria that Mr. Tan has chosen to help
him narrow down his search.
14
Transparency
If the company is newly-floated and lacks a long track record, the
information could be a little too opaque for Mr Tans liking. So he
would give these shares a wide berth.
High leverage
In Mr Tans opinion, a company that has borrowed too much
money could be vulnerable in an economic downturn. So, Mr Tan
would leave these alone too.
No operating profits or cash flow

Companies without a record of sustained operating profits or
operating cash flow could indicate some fundamental issues.
Consequently, Mr. Tan has also decided to rule out these
companies.
Large non-recurring income and expenses

Companies with regular high non-recurring incomes and expenses
are also a no-no. As far as Mr Tan is concerned, they might be
involved in a bit of creative accounting. Whilst there is nothing
wrong with creative accounting, Mr. Tan sees this as a possible red
flag.
And finally
Mr. Tan repeats this process every month and only studies those
companies that fulfil his criteria.
15
On the buses
Lets say that in March 2014, Mr. Tan found a company that fit the
bill. The company was SMRT Corporation Ltd.
SMRTs earnings and operating margins had decreased
significantly since 2010. Its earnings dropped from S$163m in the
financial year ended 31 March 2010 (FY2010) to around S$83m in
FY2013. Its net profit margins were also on the slide down from
about 18% in 2010 to just 7.4% three years later. The share price
followed suit. It more than halved from a high of S$2.31 in 2010 to
S$1.01 per share. That is a 56% drop.
The company continues to operate efficiently, though, and the
demands for its services were still growing, as seen from its revenue
growth from S$895 million to S$1.2 billion over the same period as
above. This situation appeared to warrant a deeper study.
Mr Tan spent his weekends researching SMRT and the public
transport industry in Singapore. He discovered that SMRT
Corporation operates in many different segments of public
transport. These include the MRT, LRT, buses and also taxis. Apart
from its taxi operation, the other businesses are regulated.
He also found that SMRT together with SBS Transit Ltd are the
only bus operators in Singapore. Both have seen the margins for
their bus and MRT operations decline.
Mr Tan concluded that the shrinking margins were not a company
specific issue but rather an industry-wide problem. Mr Tan decided
to dig even deeper by looking through the news and commentaries
in various trade journals. He concluded that the situation, as it
stood, was unsustainable. He also discovered that the authorities
16
were already working with the operators to find a workable

solution.
Mr Tan came to the conclusion that SMRT is operating in an
industry with only one competitor. The problems it faced were
industry specific and cyclical in nature.
SMRT provides a vital service for Singapore commuters and the
demand for its service is actually increasing, despite the poor
performance of the business. The companys balance sheet looked
healthy and its operating cash flow was strong. It had cash - more
than S$500m of it in FY2013.
More importantly, it seemed that both the company and the
authorities were already aware of the challenges and they were
working together to find an answer. He felt that SMRT Corp has
been unfairly punished by the market for a cyclical problem. He
also concluded that once the challenges were resolved, SMRT Corp
could even regain its earnings capabilities.
But Mr Tan, being a cautious man, doesnt like to leave anything
to chance. So he went one step further. He looked at the possible
downside risk because there is always a downside.
He learnt that there was no clear indication as to when the various
issues might be resolved. So, the problems could drag on for a very
long time. He also discovered that the regulator has to approve any
hike in ticket prices. Given the inflationary pressures facing the
company, SMRT could experience serious cash flow problems or
it could even go bust if fares were not raised. However, he felt that
this was unlikely.
17
After Mr Tan has weighed up the risks and the rewards of investing
in SMRT (and if he is still comfortable with them) he could have
concluded that at a 52-week low of S$1.01, the shares could turn
around.
Mr Tan is a typical turnaround investor. But his method and the
criteria he has set might not be suitable for everyone. That said,
there is nothing to stop us from adjusting and adapting his style to
arrive at a process that we may be more comfortable with because
we are all different.
18
The Income Investor

Ser Jing Chong
The only thing that gives me pleasure is to see my
dividends coming in.
-- J.D. Rockefeller
It is not unusual to encounter jargon in the world of investing. Tune into

one of the many financial news channels and your eyes could quite easily
glaze over with perplexity.
But the term income investor is pretty self-explanatory. Income

investors are simply people who invest in shares that can deliver a
stream of income in the form of dividends.
When do I get paid?

Dividends are the main way that a company distributes a share of
its profits to shareholders. Some companies might pay dividends
quarterly. Others could pay them half-yearly or even annually.
They can also be paid on an ad-hoc basis.
Income investors like to invest in shares that can pay a dividend for
good reason Stock market researcher Ned Davis Research looked
at the returns of American shares going back to 1972. It found
that over a 38-year timeframe, companies that either increase or
start paying a dividend tended to outperform other types of shares
significantly.
19
The power of dividends in generating long-term returns for

investors should not be underestimated either.
For instance, in March 2011, the inflation-adjusted value of the
S&P 500 Index (a US stock market index) would only be 74 points,
if it was based solely on prices going back to 1 January, 1871. But if
dividends had been reinvested, the inflation-adjusted value of the
S&P 500 index in March 2011 would have been more than 38,000
points.
Silver lining
Here is another example of the power of dividends. Between
the end of 2007 and September 2013, the Straits Times Index
in Singapore declined by 1.6% a year. But if dividends were
reinvested, the index would have generated an average annualised
total return of 2.0%. That is quite a pleasant silver lining on an
otherwise gloomy dark cloud.
For investors worried about their future income, dividends could
play an important role too.
Consider, for instance, Jardine Matheson. At the start of 2004, an
investor could have bought shares in the conglomerate for US$9.10
per share. That same year, Jardine Matheson dished out US$0.40
per share in dividends, which represented a dividend yield of 4.4%.
Fast forward to 2014 and we find that Jardine Matheson is paying
out US$1.45 per share in dividends, after growing its dividend
every calendar year. That equates to a 15.9% yield on the original
cost of the share. So, growing yields can make dividend investing
an attractive proposition.
20
But there is a downside to consider. After all, investing - even

income investing - is not free of risk. For instance, a company
might reduce its dividend or omit a payment altogether. Therefore
the onus is on us, the investor, to identify the right companies to
own.
Tell me more
What should investors look out for, though?
There are many things to consider. Here are a few important ones
that could help us identify good income shares. But bear in mind
that not every good dividend-paying company will necessarily
exhibit all of the following characteristics.
1. A history of growing dividends
2. A track record of growing free cash flow
3. A history of generating free cash flow in excess of the
dividends paid
4. A strong balance sheet and
5. Room to grow the business
These five criteria are all important. Some might even say that they
all are equally important.
A companys track record of growing its dividend could give
investors some useful clues as to how seriously a company
considers rewarding its shareholders. After all, a company is not
obliged to pay shareholders anything. But even if a company might
21
want to pay a dividend, it may not be able to do so unless it is

making enough money.
This is where the second, third, and fourth points come into
play. Dividends, contrary to popular belief, arent paid out from a
companys earnings they are paid out from a companys cash flow.
Free cash flow is the money that is left over after a company has
deployed any cash it needs to keep it as a going concern. It can then
allocate the rest of the cash to grow the business, buy back shares,
pay down debt or pay out dividends.
This highlights the importance of keeping an eye on the growth
of a companys free cash flow. The more free cash flow there
is the more dividends the company can, theoretically, pay to
shareholders.
What else do I need to know?

A strong balance sheet gives a company the ability to withstand
temporary shocks to its business. It can also give a company some
breathing space, should it have taken a wrong step.
The final point is the growth potential of the business. It is
important for a company to grow because it could give investors
some confidence that a company could become bigger in the
future. A bigger company could in turn mean bigger payouts.
Consider the payout history for a company such as Vicom.
22
Year
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Dividends per
share (cents)
Free cash flow per

share (cents)
Net cash (total cash
5.75
8.50
11.9
15.5
9.25
11.8
16.1
17.6
18.2
22.5
27.0
12.9
12.9
13.0
20.4
24.0
25.2
19.1
20.8
29.5
32.3
36.8
$5.7
$9.6
$13.8
$14.3
$28.3
$42.5
$49.2
$55.2
$66.0
$78.5
$91.2
minus total debt)
million
million
million
million
million
million
million
million
million
million
million
Source: S&P Capital IQ
Vicom is an example of a company that exhibits the financial

characteristics of a good income company. It has a strong balance
sheet; its free cash flow has been increasing steadily and it has also
grown its dividends over time.
But Room for growth is not something that you can easily
determine from a set of company accounts or from historic
data. Instead, it is important to understand something about the
operations of the business.
Vicom has two main lines of business. The first is vehicle
inspection and testing. The second part is involved in testing,
calibration, inspection, certification, consultancy, and providing
training services to a wide range of industries. These include oil
& gas companies, aerospace, marine, food, electronics, and the
construction sectors.
23
Wheres the growth?

The companys vehicle inspection and testing business runs seven
out of the nine vehicle inspection centres in Singapore. What is
interesting is that the company has not felt it necessary to raise
prices for the mandatory testing of cars in Singapore since 2006.
This could suggest that raising prices at some time in the future
could be a possibility.
When it comes to Vicoms other business, which is grouped under
the SETSCO subsidiary, it has managed to grow in the face of keen
competition.
SETSCO was acquired by Vicom in 2003 for S$15.7m. In that year,
the division reported annual revenues of S$22.8m. At that time,
SETSCO was regarded as a small player in an otherwise large
industry. Its competitors included SGS SA and Bureau Veritas. The
two companies reported global annual revenues of around S$3.37b
and S$2.75b, respectively, that year.
But Vicom has managed to more than double SETSCOs top-line
to S$55.0 million by 2011. SETSCOs profitability grew even faster,
as operating profit shot up from S$1.5 million in 2003 to S$10.6
million in 2011.
Vicom stopped reporting segmental results after 2011. However,
given the companys overall growth since then, it would seem fair
to assume that SETSCO has not stopped growing. Such strength
and consistency could suggest that SETSCO might have the
potential to continue growing in the future.
24
What else do I need to know?

A company such as Vicom, with all the above characteristics,
namely strong financials and room for growth, could be a potential
dividend candidate for income investors.
Income investing can therefore be summed up as follows:
1. From a historical perspective, dividend shares have been
good investments over the last four decades.
2. Dividends can be a vital part of delivering long-term stock
market returns.
3. Growing dividends can be a source of greater income for
investors over the years.
But heres the rub. Is income investing right for you?
We can look at the question through the eyes of Mr Lee.
Mr Lee is retired and he is in his early 60s. He could, quite
easily, have another 25 or more years to invest. He would like his
investments to provide some income, so that he can enjoy his
golden years in relative comfort.
In Mr Lees case, income investing could be something worth
considering. The dividends he receives could provide him with a
reliable source of income. But any dividends that are not required
for his regular expenses could be put back into the portfolio,
resulting in more shares and more dividends in the future.
25
Income shares, if they can deliver reliable dividends could also be

less volatile when compared to, say, growth shares. That might suit
an investor, such as Mr Lee, if he is not comfortable with shares
that could move violently.
But it is also important to consider how income investing might
not be the best option for Mr Lee. After all, he still has nearly three
decades of investing to look forward to.
If Mr Lee only needs, say, a small amount of income from his
portfolio, then buying only income shares could slow down the rate
at which his portfolio could grow. With a longer investing horizon,
a few growth shares could, potentially, deliver a bigger return.
26
Conclusion
David Kuo
The key to making money in stocks is not to get scared out of them
Peter Lynch
I hope you have enjoyed our brief guide to investing. As you have
probably gathered, investing is not a one-size-fits-all discipline.
There can be a lot more to investing than that which meets the eye.
In this booklet, we have only highlighted three of the more popular
strands of investing. There are many others, as you will find out
when you embark on your own exciting investing journey.
When we invest, we should try to remember that it is a way of
putting our money to work in a considered way.
The operative word is considered. We should consider carefully,
our investing time horizon. In other words, we should think
carefully about how long can we afford to leave our money invested
in shares for? In the main, we should not consider any kind of
stock market investment unless we are prepared to leave the money
invested for at least five years or more.
We should also consider carefully why we want to invest. Simply
saying that my friend has made a mint from playing on the stock
market just doesnt count. You need to understand your ultimate
investing goal.
27
Some people might invest so they could have a better life when
they retire. Some people might be investing for their childrens
education, which could easily be a decade or so away. Others might
put money into the stock market to help pay for their childrens
wedding at some time in the future.
These are all laudable reasons to invest because they relate to
investing with a long time horizon in mind. But having a punt on
shares today in the hope that you might have more money to spend
when you go on holiday next week is not a good idea.
It is also important to consider the type of investor we are. Trying
to fit a round peg into a square hole can be a pointless and painful
exercise. In a similar way, trying to be a growth investor when you
are really an income investor can be frustrating.
That said, many of us dont always know, at the outset, whether we
are round pegs or square pegs. That is why it is important to try
different investing styles first.
It can sometimes take years before you discover your true investing
passion. But once you do, it can be an enlightening experience.
Once you discover the kind of investor you are, everything that you
have learnt should fall neatly into place.
Until that moment arrives, gradually build a portfolio of stocks
that you have thought about carefully. Write down the reason for
buying each share.
You might be attracted by a companys dividend yield or you might
find that the company has unparalleled growth prospects. You
might even find that the company could be a potential turnaround.
28
Whatever you think are the reasons for buying the share, just write
it down in your investing diary.
Keep your investing diary by your side and review your progress
over a period of months and years. Take a look at your stocks that
have done well. Take a look at the ones that have done badly. Take
an honest look at how you have performed relative to the market.
Are you beating the market or are you losing badly to a chosen
benchmark such as the Straits Times Index?
Consider carefully the stocks that have performed especially well.
Is there a discernible pattern as to why they have done well?
If you find that most of your market-beating picks can be classified
as income stocks, then perhaps that is your forte. But if you cant
even hit a barn door from three feet with a recovery stock, then
perhaps you are not cut out to be a value hunter. There is no shame
in that.
Once you have discovered your investing style, develop a
disciplined approach to investing. Buy when prices are favourable,
regardless of what others might be doing or saying in the market
at the time. A disciplined approach will help you to suppress even
your own distress signals.
You should even start to feel good when the market falls a hundred
points because you immediately know that bargains are abound.
The moment you start to feel good about a market fall is the
moment that you have become a true Foolish investor.
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Notes
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A Foolish Guide

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