Value Investing in Singapore – What Is It and Is It For You?
There are multiples ways of investing your money. One of these ways is value investing. Unlike the others, value investing doesn’t require an extensive background although some basics could be fundamental. You will not need to sign up for any expensive subscriptions or have to master how to analyze squiggly charts and graphs, and everyday sit in front of your computer hours on end nervously watching the changes in markets.
Value investing is considered to be a smarter way of approaching investments. It also offers higher returns compared to other forms of investments. You only need a few dollars, the willingness to invest, patience, and the will to do some little accounting and reading.
What exactly is value investing in Singapore?
Value investing is a form of stock investing methodology that uses the simple investment principle-Buy low, sell high. Wealthy and famous investors like Warren Buffet and Seth Klarman have been linked to practicing value investing. In Singapore, Value Investing College, founded by Sean Seah, is one of the few financial education centres focused on educating investors in value investing strategies.
As a value investor, you’re typically purchasing a stock that is worth S$1 for about 50 cents. How?
There are numerous reasons why this may happen such as lack of understanding what one is investing in. This hence forces the investors to sell potential stocks at affordable prices when the market gets sour, that is why patience is a requirement in the industry. The wise investors will in turn take advantage of the situation by purchasing the cheap stocks and waiting for the right moment to sell them.
It is imperative to note that value investing is primarily different from stock trading. While stock trading pays attention to price movements and other technical indicators, value investing analyzes the stocks and looks for the cheap ones to buy. In most cases, value investing will take a lengthier span than other types of investments as it mostly entails purchasing and waiting for the right value in order to sell.
However, this may vary based on how the market behaves. If the value goes up sooner, the stock will sell sooner and vice versa. If you’re not patient enough, you may end up selling your stock cheaper than its principal value.
Is value investing for you?
The truth is that value investing is versatile and could either be long term or short term. That is to say that you need to apply for value investing only if you’re ready to put your money on hold till the right value comes along. Value investing operates with the belief that corporates have intrinsic value—how much they’re worth with regards to the value they’re making. However, this value may not always be reflected in the stock costs. When the stocks are priced below the company’s intrinsic worth, then that means that it is being undervalued.
Value investing is more of dollar cost averaging. It can take years for stock prices to go up for it to reflect the company’s intrinsic worth. If you do not have an idea of how stock analysis is done or bother to monitor the markets daily, you may have to hold on to your investments for a long time.
Another noteworthy point to pen down is that, like any investment, there is a considerable amount of risk. Investments are all about risks, so if you’re not ready to part with your money for some time, a long time or forever, then value investing is not for you. Apart from dealing with risk tolerance, you will also have to check the markets frequently if you are not a long-term investor. For instance, if you bought your investments early this year and intended to liquidate the investments by early next year or two, you may need to check the markets from now henceforth to find out how the markets are doing.
If you intend to take up on value investing, it is essential that you prepare yourself to either lose part of the investment or get some profits from it. It is always an individual’s expectations to have good returns after selling their stake, but that’s not what happens. Eventually, you will need to sell the stock either for gains or losses. It is not that bad, as you will still have something for you in the end.
What methods do value investors use when deciding what to buy?
While the initial concept of value investing looks basic and straightforward, there is a hidden complicated part unknown to many. Typically, figuring out which stocks are overvalued and undervalued is not easy, and investors have to come up with witty ideas on how to go about it.
Value investors use a range of methods to analyze their stocks. Some use complicated techniques that other individual money managers use to determine which stocks may go up and which ones may go down, some use spreadsheets with complicated formulas while others rely on their Feng Shui master’s advice. While some of these methods may not work for some investors, one can use any technique they find fit so long as it does an excellent job on the same. All these approaches are classified into two main groups:
These techniques mainly focus on the business’s current strength. Evaluating this involves tracking the business value and analyzing its historical stock prices. A background check provides the investor with all the information they need to decide whether to purchase the stock or not. For most people, qualitative methods are the most practical.
These techniques are more concerned about the long-term business potential long with how well the management is, how long the financial experts have been in the company, whether they intend to resign, if they have funds in that investment, how the management is using the company’s finances and other related information. Such answers require some expert knowledge and a lot of experience in the field as some companies may not provide genuine information and some companies prefer this information to remain confidential or shared with some form of secrecy.