• Daniel Lee

Learning investing from scratch: 3 stages to pick up portfolio management

Instruction Manual: Learning how to learn

Learning how to invest from scratch can be daunting, in this article, I’ll guide you through stage by stage how you can pick up the skill from scratch by covering:

  1. the different stages of the learning journey

  2. the concepts and information you need to equip yourself within each stage

  3. where you can find the information’s – either through hyperlinks or book recommendation.

Looking back at my own investment journey, I would say that there are THREE different learning stages that helped equip me with the necessary framework and techniques needed to manage and implement a successful investment operation for myself and my clients today.


If I were to provide you with an analogy, the steps taken to learn how to invest is comparable to the steps taken to learn how to cook. To learn how to cook, you will have to first:

Stage 1: Understand the different types of ingredients and culinary tools

Stage 2: Understand how to differentiate the different quality of a given type of ingredient

Stage 3: Learn about the different recipe as well as cooking techniques such as flame control, etc

So, yea, to learn how to invest, every one of us will have to go through the following 3 stages of learning:

Stage 1: Understand the different categories/instruments available

Stage 2: Understand how to differentiate the quality of the different products within a single category or instrument

Stage 3: Understand how to formulate, implement and manage an investment strategy and portfolio

There you have it, depending on which stage you are in your learning journey, you can just refer to the different section in this article.


Stage 1: Understanding the different categories/instruments

Different types of asset

To make things simple, there are 4 major type of assets (excluding property) and they are:

  1. Cash and cash equivalent

  2. Stocks [a.k.a ownership]: find out more here

  3. Bonds [a.k.a Loans]: find out more here

  4. Derivatives: find out more here

Investment fund

An investment fund or collective investment scheme is an instrument where people pool together their money to buy into different stocks/bonds/derivatives. You can read more about it here.


An important point to take note is that an investment fund is just a term to represent a collection of asset classes. Within the fund investment universe, the funds can be separated and differentiated based on two conditions:


How the investment fund is invested:

  • Indexed funds: find out more here

  • Passively managed funds: follows the allocation and investments in an index fund closely with occasional minor deviation depending on market condition

  • Actively managed funds: Invests with the objective to try and beat the returns of an index fund

How the investment fund is distributed or sold:

  • Unit Trust [UT]: through a financial intermediary [e.g. banks or iFast]

  • Exchange-traded funds [ETF]: through an exchange [e.g. SGX / HKX / NASDAQ]

Let me take this opportunity to clear up this common misconception and that is: “Investing in ETF is the same as investing in an index”. THAT’S NOT HOW IT WORKS!


How a fund is distributed and how a fund is being managed are two separate and independent things.

Just because a fund is distributed through an exchange does not make it an indexed fund and just because a fund is distributed through a financial intermediary does not make it an actively managed fund. - That's basically stereotyping in the context of investments.


Stage 2: differentiating the quality of the different products

For those who wish to go in-depth with their analysis and valuation, I would recommend you pick up the following book: Security Analysis by Benjamin Graham.

For the others, here are a few metrics that you should be aware of and familiar with when assessing any investments:


On valuation:

Price to Earnings ratio: find out more here

Price to book ratio: find out more here

On Profitability:

Return on equity: find out more here

Return on assets: find out more here

Gross profit margin: find out more here

Net profit margin: find out more here

Operating margin: find out more here

Earnings Per Share: find out more here

On Financial Health:

Current ratio: find out more here

Total Debt to Total Equity: find out more here

A good rule of thumb is to acquire 5-10 years of historical data so that you are able to draw valuable insights and trends of a company’s valuation, profitability and financial health.


Stage 3: formulate, implement and manage an investment strategy

Unfortunately for stage 3, googling alone will be enough to help you learn.


As far a strategy goes, to get an annual return of 8-12% per annum, there are many ways we can go about to achieve the return goals.


Just as there are many variations of chicken rice depending on who the chef is, there are many variations of investment strategy depending on who the practitioner is.


Instead of going through every different form of strategy available in the market today, allow me to share with you 2 strategies and investment methodology that had served me well in the past as well as the books to read more about it.


For stock investing, I adopt the value investing methodology. You can pick up the skill via the books: The Intelligent Investor and Security Analysis by Benjamin Graham


For fund investing, I adopt the common sense investing methodology or commonly known as the Bogle 4 fund approach. You can pick up the skill via the book Common Sense on Mutual Fund by John C bogle.


Other than that, all I can say is to read, read and read. The best way to learn finance is to read.


Reading is by far the best way to expose yourself to the different principles and strategies of other practitioners. Reading enables the reader to understand and adopt the parts of the strategies that are suitable and may work for the reader.


Also, instead of reading the news, I would rather you focus your attention on what Investment analyst and practitioners are saying about the market developments. A good website for that would be SeekingAlpha and Bloomberg intelligence.


To kick start your learning journey for stage 3, you can find out more about how I invest in funds via the 40-page e-book that I’ve written: Fund investment playbook here.


Do remember to follow my telegram channel so you can keep yourself updated with weekly market analysis and updates here.


Alternatively, if you have no time for all of these, you can engage me to help manage your own investment operation so you can focus your time elsewhere such as spending time with your family or building your career.


If you have any questions along your own learning journey, do feel free to contact me directly here. I will be happy to answer any question.

Daniel is a Licensed Financial Consultant with MAS and a certified Associate Wealth Planner, 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

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