“I Actually Have Money, How Do I Make it Grow?” You might have heard about the expression “don’t get too busy working for money, instead you should make it work for you” enough times that it bores you out. If that’s true, it means you’ve already understood the concept to generate passive income, but something stops you. One of the problems could be: which asset classes do you get started with?
Well, that can’t be too hard to answer. If you’re a complete beginner in investing, you might want to get your hands on stock investing. Apart from cryptocurrency, like bitcoin or even dogecoin, stocks have been gaining a lot of popularity among retail investors lately. What happened? Are people too bored being stuck at home during COVID19 that they ended up being traders & investors instead? I don’t have the answer to this one, haha.
What? Make money from Stock? I mean, isn’t the stock market like a casino?
You might have this perception because of all the news you hear, including Gamestop and Wallstreetbets hype few months back. Some people made money, and some crashed and burned during the short squeeze period. If you want to know what I’m talking about, check out this article.
But hey, that’s a totally different thing. The stock market is actually a proper avenue to help you build your wealth. It’s all in the strategy. Yes, the risk is there, but at the end of the day – all kinds of investments come with underlying risks. So again, it’s all about managing those risks.
How to Protect Yourself from the Downsides of Stock Market?
The answer is knowledge. The more you know, the less risky your investment will be. This is especially true when it comes to dealing with such great uncertainty. The stock market can be volatile, and to people without the right skill set, they’ll get nightmares out of it. So, what kind of knowledge should you equip yourself with? What strategy can you apply? This is one of them: value investing. (P.s. Check out this website to learn more about investing in Malaysia: https://bijaklabur.com/) It’s a method applied by Warren Buffett, legendary investor and CEO of Berkshire Hathaway. Here’s essentially how Buffett invests:
Make it a Point to Understand the Business You’re Investing In
As outlined by Warren Buffett’s investing principle, smart investor should always do their best to find out as much as they can about the company they’re betting on (or investing in). You can do this by getting to know the business’ products and services better – either read about it or if you can, try and use the products or services yourself! The golden rule is simple: if you don’t understand the business, or you don’t like it – stay away from it.
Get Yourself Familiar with the People Behind the Business
The Executives running the company can both make or break it, depending on how good they are. Remember, every business is a testament to management’s capability to acquire a good customer base and maximise their resources – financial, manpower, brand, etc – and turn the company into a money-making machine. Give the role to the wrong people, you’ll soon find the company crashing and burning. So again, make it a point to check the management team as well.
Lastly, Check your buying price
This is a very important step to follow. But, you have to remember, you should only look at the company’s share price against the right valuation method AFTER you’re satisfied that they fulfil the criterias set. Otherwise, you’d just end up buying a crappy (pardon the language) company for cheap.
And also one more thing, the share price does not really represent whether the company is good or not. Instead, you should know the value of the company – called intrinsic value, and only then compare it against the current share price. If it’s undervalued, you might want to consider but if it’s overvalued, there’s no need to rush! The last thing you want is to buy a company at a premium.
Need Help to Get Started in Value Investing?
If you would like to learn more about investment, there are tons of great sources to learn from. In Malaysia, especially if you are interested in shariah-compliant investing, you can check out Bijak Labur website. There’s a bunch of useful information there, and you can also enrol on their free 2-hour workshop which is great for beginners. You might want to give it a shot. 🙂
Happy investing, good luck!