Rule No. 1: Never lose money. Rule No. 2: Don’t forget rule No. 1”.

This quote by Warren Buffet is a simplified version Benjamin Graham definition for investing which is:

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.

The only way to never lose money in the market is to

1. Identify the right investment instrument/product that is suitable for your strategy

2. Have a proper financial and investment plan to facilitate your implementation

By doing so, you should be able to ride through the ups and downs of the market and profit from the underlying growth of your investments. (e.g. growth of earnings)

Screw up either part and chances are you will suffer losses from your investment operation.

Examples of a poor investment operation include:

1. Selling off your investments at the worst possible time because you need money

2. investing in something that has no inherent value and holding it for a long time

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.”

The price of investments is always driven by market demand and supply.

Humans are emotional creatures but we are certainly not dumb.

In the short run, even shit can be sold at the price of gold but in the long run, people will gradually come to understand the fundamental value of an investment and price it accordingly.

As an investor, we should always focus on the fundamentals of the investment and understand the actual worth/potential in the long run instead of being influenced by blind price fluctuation in the short run.

Remember, price is what you pay, value is what you get.

"If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes."

I cannot stress enough the importance of long term investing.

Long term investing is beneficial to your investment operation as:

1. it enables you to reap the effects of compounding

2. it eliminates the effects of short-term price fluctuations

More often than not, short-term investing will subject you to the irrational price fluctuation that does not reflect the fundamentals of your investment.

We should always assume the worst in the short-run and invest with the mentality to capture the underlying growth of our investment in the long run.

That requires us to have a long-term investment plan and mentality even though in reality, we may achieve the results we need in the short-run (if market demand goes in our favour).

"Know what you own, and know why you own it."

Understanding what you own is important, but understanding why you own it is even more important.

Investment products/instruments are at the end of the day a means to an end.

You have to understand why you are investing in the first place as it will help you narrow down:

1. how much and how long you need to invest to achieve your goals

2. how much risk and return do you need to have to achieve your goals

3. what are the investment instruments/products that are suitable given your situation?

This is important because it helps you align your expectations and prevent you from exposing yourself and your investments to unnecessary risks.

Long story short

An investment operation is one which, upon thorough analysis, promises safety of principal and an adequate return.

This requires you to:

1. understand yourself - what you need and why (financial planning)

2. understand the market – types of suitable instrument/product (investment planning)

3. have a long-term investment mentality

4. implement and manage your portfolio in accordance with your investment goals rather than the “buy-and-forget” mentality

If you need a professional to help plan for your retirement and manage your investments in accordance to your retirement planning, you can find out more about how you can benefit from my services here or reach me at 9234 7537

For the market analysis on recent developments, you can find:

• Investments: What happened? What's next and why?

• Technical Analysis: MSCI World Index and AC Asia Ex Jap

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Daniel is a Licensed Financial Consultant with MAS, who specializes in retirement and investments planning. Find out more here.

Disclaimer:

This article is meant to be the opinion of the author and is for information purposes only.

This article should not be seen as a financial advice

This advertisement has not been reviewed by the Monetary Authority of Singapore