Quickstart Guide TO: Investing
Quickstart Guide TO: Investing
Quickstart Guide TO: Investing
TO INVESTING
COPYRIGHT
©2014 Fifth Person Pte. Ltd. All rights reserved.
No part of this report may be reproduced or distributed in any form or by any means without the prior
written permission of Fifth Person Pte. Ltd.
DISCLAIMER
This is not a recommendation to purchase or sell any of the above mentioned securities. The
information contained herein are the opinions and ideas of the authors and is strictly for educational
purposes only. This information should not be construed as and does not constitute financial,
investment or any form of advice. Any investment involves substantial risks, including complete loss
of capital. Every investor has different strategies, risk tolerances and time frames. You are advised
to perform your own independent research or to contact a licensed professional before making any
investment decisions.
At the same time, our goal is also to give back to our community
in which we belong by donations to charities and supporting
philanthropic causes. As such, we have pledged to give 10% of
all our profits to charitable causes.
I’ll let you find out more about us as we get to know each other
better, so let’s not waste any more time and let’s get into the
meat of this report.
ARE YOU READY TO BE AN INVESTOR?
Due to the nature of the report’s title, I would like to assume you are just starting out. So, let me just
congratulate you again on making that decision to learn more about investing. Use this report wisely
as it’s going to have a huge impact on your life.
Here’s a fact: If you were to look at the richest people in the world, their habits and what they do,
you’ll realize that they are all investors themselves. Yes, they may own or run a multi-billion dollar
company, but behind the curtains, they also almost always invest their money in assets like equity
and real estate.
It’s not surprising there because investing is very similar to running a successful business (and most
of the richest people in the world own successful businesses). I’ll get to that more in a while, but
case in point is this – if you want to get really wealthy, doesn’t it make sense that you follow what
these billionaires and multi-millionaires are doing? Heck, even if you are accomplish 10% of what
they have, you’ll still end up very wealthy.
Here are the net worth of some of the world’s top investors. Yes, by investors, I mean that they
accumulated most of their wealth through investing.
And the reason why is because the rich do things very differently from the rest of the people out
there. Instead of spending money beyond their means, they invest it in assets like stock and
property.
Few years down the road, their ten million-dollar investment could grow into twenty or thirty-million
dollars – all happening behind the scenes while they continue to run their business which also
continues to bring in more money for them. Duplicate this process over and over again and you’ll
find that it’s really hard not to be rich.
Well, even if you don’t own a business and you’re currently working as a salaried employee, you can
always start investing today and allow your money to grow behind the scenes. Similarly, if you are
already running a business, you can always do the same as well. In short, anyone or anybody can
let their money work harder for them in the background without affecting their day-to-day life.
Let’s say you grow your investments at 24% per annum, which means you double your money every
three years – how long would it take for you to reach a million dollars if you had just $2,000 to
start off with?
http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
What seems like a small amount, a mere $2,000, can bring in over $1 million if you were to
invest it properly over 29 years.
That might seem like a long time but if you’re in your twenties or thirties, that’s still more than enough
time to make your million by the time you retire.
Now what if in addition to your starting capital of $2,000, you also saved and invested an
additional $100 a month? How long would it take to reach your million then?
http://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
Now instead of nearly three decades, you only need approximately 22 years to make your million
dollars. Enough time if you’re in your forties to become a millionaire by the time you retire.
And if you carried on growing your money, in thirty years, you would have nearly $5 million. At
that stage, you can now call yourself a multi-millionaire. That is the power of compound interest and
the primary reason why investing can make you very wealthy.
I hope you don’t need any more convincing at this point about how important and powerful investing
is to building your wealth. So let’s go on and learn more about how to invest and pick the right stocks
to help you make your first million.
INVESTORS VS TRADERS
For starters, let’s contextualize the difference between the two. Trading and investing are different.
They have entirely different mindsets and approaches. So don’t confuse yourself and mix them
together.
For TRADERS , their aim is to profit purely from a stock’s price movements. Whether they buy
low and sell high on a stock going up, or they short-sell a stock on its way down, the aim is always
the same – they want to make a trade and profit from it.
Think of traders like real estate flippers: people who buy a home and then sell it for a profit a short
time later. Of course, knowing how to pick the right home you can flip for a quick profit requires a
good understanding of the needs and demands of the current market.
Similarly, the vast majority of stocks traders rely on technical analysis to make their trading
decisions – looking for signals and patterns that look to “predict” the movement of a stock’s price.
The movement of a stock’s price is determined by the sentiment of the stock market. When the
market is optimistic, there are more buyers and the stock price goes up. When the market is fearful,
there are more sellers and the stock price goes down. In a nutshell, traders aim to make money
based on the “emotions of the market”.
INVESTORS on the other hand aim to build their wealth by investing in good stocks for the
long term.
Think of investors like real estate landowners who invest in homes, rent them out for income and
watch the value of their property rise in time. Of course, knowing how to pick a good home that will
fetch a good rent in a location that’s growing in value requires proper research and analysis.
Similarly, the vast majority of investors rely on fundamental analysis to make their investment
decisions – knowledge and numbers to know that the company they’re investing in is going to grow
larger and more valuable years down the road.
An investor looks for a company that has huge growth potential and buys a stake in it. As the
company grows, it will earn more profit. The profitable the company, the more valuable it is. As a
shareholder of the company, you get rewarded as a result of that growth. And oh boy… a good and
fundamentally strong company can really grow and expand – you’ll see proof in the next few
chapters. Unlike trading that’s emotionally driven, investing is very much business-driven.
Well, investors will tell you that investing is the smartest way to build lifetime wealth while traders will
tell you that trading will allow you to grow your money much faster.
The truth is both have their merits and both work. It all depends on your financial goals, your
personality, and the style best suited for you.
For the purposes of this report, we’re going to focus exclusively on investing and why we think it’s an
awesome way to build long-term and sustainable wealth (we’ll show you why throughout the rest of
the report), but one question that comes up a lot whenever we talk about investing is:
“How do you realize your profits if you invest and hold onto your
stock for the long term?”
So the question is… is long-term investing all about buy and hold? If so, how does an investor
actually make “real” money? After all, it’s all paper gains.
Well, it is not true to say that investors always buy and hold a stock till the end of time. Investors
usually sell a stock when:
1. A better investment opportunity appears and the investor shifts his capital away
2. A stock becomes grossly overvalued and a bubble starts to form
3. The growth and fundamentals of the business deteriorate to a point where the stock holds no
more promise
The first two are pretty self-explanatory. Let’s describe the third scenario a bit more:
Take for example a company that’s in the business of selling CDs and DVDs. With the rise of the
Internet and broadband networks, music, videos, and movies can now be purchased and consumed
entirely online through channels like iTunes, YouTube and Netflix. Even if you made a ton of money
investing in a successful CD and DVD business like Blockbuster during the “golden age” of CDs,
would you still want to stay invested in such a company right now? Obviously not. (For your
information, Blockbuster was forced to delist from the NYSE in 2010.)
But on the other hand, if a company has tremendous future growth prospects and continues to rake
in the profits, you don’t have to sell. I mean if a company is still growing its revenues by 20% per
annum and its stock price continues to head upward, would you want to sell? Even if it’s just paper
gains, it’s still money and you can realize the returns anytime you wish.
Another great thing about investing is that company pay you dividends as well. Because you’re a
shareholder of the company, you’re entitled to a share of profits as well. As far as I know, all
investors love dividends because its extra money in your pocket without you having to do any
additional work at all!
Want an example of much dividends can bring you? In 2012, Li Ka-shing, Asia’s richest man,
received a US$800 million in dividends from his personal investments alone – talk about pure
passive income!
I hope this is starting to show you the scale of how big investing can get when you do it right. The
more you invest, the more passive income and wealth you will make. This is one of the primary
reasons why we LOVE investing.
So investing isn’t simply about “buy-and-hold” and hope for the best in the long run, it’s about
intelligently putting money in a place where it will grow the fastest – safely.
So now the question is: How to quickly grow your investments in a safe, intelligent way?
It is extremely important that you understand this when it comes to investing – it all boils down to the
BUSINESS . It’s not about the latest stock tip whispered to you by your friend or broker, or the
“next big thing” that’s going to revolutionize the industry. Most times, these tips and rumors remain
nothing more than that.
Instead before you invest in any company, think how sustainable and scalable their business is. You
want a business that can scale and grow in size just like your investment and you want a business
that’s going to be around to grow for a long, long time (remember Blockbuster?).
Of course! The more successful your company becomes, the more money your investment makes!
Let me give you a simple example. Take a look at just some of the stocks owned by Warren Buffett.
I am sure you’ve heard of all these famous names before. But have you ever wondered why Warren
Buffett, the greatest investor who’s walked the face of this planet, bought these companies?
These companies have business models that are relatively simple to understand, scalable,
and their products/services are consumed by hundreds of millions of people everywhere.
So let’s take a look at the performance of these four companies in the stock market for the last 5½
years from 2nd January 2009 to 2nd June 2014.
Pretty average growth from Exxon Mobil and Wal-Mart, but Coca-Cola and Johnson & Johnson did
pretty well. Note that all these gains are excluding dividends; add that in as well and you’ll make
even more!
Despite the humongous size of these global companies, they continue to grow even bigger and their
stock becomes more valuable year after year.
Now these companies are what Peter Lynch, in his book One Up on Wall Street, might call a slow
grower – large companies that are extremely stable and grow around 2-5% a year.
For example, companies that are taking advantage of the continual growth of e-commerce
worldwide. Besides tech companies like Apple, Amazon and Google which have obviously benefited
from the Internet age, think of one group of companies that have been quietly raking in the profits
because of the boom in e-commerce…
Here’s another company that deals with Internet security and infrastructure:
But if you’re thinking that only these tech and credit card companies are the ones going up and up
and up, there are countless others as well in various other industries that have been on a tear as
well.
In case you haven’t heard of Yum! Brands, it’s the company that owns KFC, Taco Bell and Pizza
Hut.
As you can see, it doesn’t really matter which stock exchange or which particular industry (unless it’s
in a sunset industry) these companies are from. If the company’s business model is extremely
successful and profitable, its stock price will head up.
Another thing you’ll also realize about most of these companies is that they deal in products/services
you use almost every single day – food, payment, home products, etc. Nothing fancy here; no “next
big thing”, no big “under the radar” discovery waiting to come out.
These are companies you’ve probably heard about or seen almost every day… and they as you’ve
seen from the figures above, they can give you incredible returns if you know how and when to spot
an opportunity and invest in them.
Spotting a great investment doesn’t mean you need to search high and low for a company that’s
looking to cure cancer or create an invention that’s going to revolutionize the world. Yes, new
discoveries like these may extremely exciting to hear about and tempting, but no one know if their
discoveries will ever hit the big time. It’s all still pretty much up in the air.
So knowing this, next time you’re out shopping for groceries or you’re headed downtown for a night
out, take a look at all the successful businesses around you. Notice the products you buy and the
services you use and the companies behind them, and ask yourself:
If you answered YES to all these questions when you’re observing any business, you might have an
investment worth taking a closer look at. So list down your ideas, keep a look out, and I am sure
you’ll be able to find a lot of investment ideas worth looking at!
You see, sometimes a company might look really good on the outside but is actually bleeding cash
on the inside. That’s the reason why you want to have a look at a company’s financials – because its
numbers will tell you just how well a company has actually been performing over the last many
years.
All public-listed companies are required by law to disclose and make available their financial
statements to the general public, so to check on a public company’s financials you can always
simply go online, download their annual reports and take a look at their numbers.
Or you can always head to financial/investment websites that list all these data for you quick and
easy. Here are some:
So what are the items you need to look out for in the financials to know if a company is truly in great
financial shape?
For example, Acme Corporation sells 10,000 widgets at a hundred dollars each in one year, the
company’s revenue for that year is:
What you want to look for is a company that has a history of consistent revenue growth for the last 3-
5 years or more. Quite simply, you want to invest in a company that’s able to grow and make more
money year after year.
VICOM (SGX: V01), a Singapore-based company that deals Watch a quick video on
with vehicle & building inspection has had a consistent ROE of understanding Return on
around 23% for the past seven years. In that period (2nd January Equity
2007 to 2nd June 2014), its stock price has gone from $1.22 to
$5.90 – a gain of 383.61%.
BIG mistake.
In fact, a company’s stock price is the last thing you should be worried about. Always, always look at
a company first as a whole: its business model, its scalability and sustainability, the company’s core
fundamentals and its financials before you even consider its stock price.
And once you’ve found a wonderful company that passes all your criteria, does it automatically make
it a great investment?
NO!
No point investing in a wonderful company if its stock is overpriced. If you overpay on any
investment, it might take you years to breakeven, or worse, you could lose a lot of money and never
make it back. Just think of any stock market bubble, when stocks are trading at irrationally high
prices, before it crashes and you’ll get my point.
To ensure you’re making a great investment, you always want to cut a good deal and buy only when
your stocks are undervalued and trading at a significant discount.
Well, there are many methods to value a stock and these are two of the more popular ones
investors use:
PRICE/EARNINGS (P/E)
Price/earnings (P/E) is probably the most common yardstick of
valuation out there. P/E measures a stock’s price relative to its
profits. The higher the P/E, the more “expensive” the stock. As
an overall benchmark, the average stock market P/E is 15-20.
Company A’s stock price is $10 and its earnings per share
Video Lesson:
(EPS) is $1. Company B’s stock price is $25 and its EPS is also
at $1. Which stock is more expensive? Price/Earnings
If you used P/E as valuation, Company A has a relatively low Watch a quick video on
P/E of 10, while Company B has a relatively high P/E of 25, understanding
making Company B much more “expensive”. All things being Price/earnings ratio
equal, Company A is the “cheaper” stock and a “better”
investment.
Once again, let us stress to you that stock valuations should be the last step in your research
and analysis. Always make sure that the company first and foremost has a sound business model,
solid fundamentals and strong financials before you even consider making an investment!
THE BEST TIME TO INVEST
Now if you are just starting out in the world of investing and you’re not confident of putting your
money into any stock yet, it’s really ok. There’s no rush and you don’t want to invest just for the sake
of getting your feet wet only to lose your money.
Truth is, you are not competing with anybody. You don’t need to be the best investor in the world to
get wealthy. You don’t need to be the guy who beats Warren Buffett’s or Peter Lynch’s track record.
No, you don’t.
You are investing for yourself. And your goal is to grow your money more effectively year after
year so that you and your family can live a better life in the near future – a life where money is
no longer a worry or concern.
So even if you can’t get 20%-25% returns a year, it’s really ok. I mean, even if you “only” make 15%
returns year after year, that’s actually considered a pretty mean feat!
So if you find a stock that’s a potentially great investment, but you’re not sure or comfortable
investing your money in it yet, then what you might want to do is to simply… wait.
Because the best opportunities usually come during an economic recession or stock market
crash when stock prices are down and depressed everywhere. The funny thing is that most
people do it the other way round – they buy stocks when the stock market is going higher and higher
and they avoid the market when stock prices crash. Like shopping, shouldn’t you being buying
stocks when they’re selling at a discount and not when they’re overpriced?
Go figure.
So what should you be doing while you wait for a recession or crash to come around?
Save up as money as possible and build your war chest. Because when a crash finally hits (and it
always does – we all know the economy runs in cycles), the money you have to invest in all those
great companies at bargain basement prices. It is a HUGE opportunity you don’t want to miss.
The opportunities that a stock market crash brings doesn’t come every day. So make sure you have
war chest filled and ready to be deployed when the time finally arrives. The more money you have to
invest, the more gains you make when the market and your stock investments turn around and go
upward again.
(Caveat: While markets and indices always go up after a recession, not all stock investments will go
up after a crash! That’s why picking a good, fundamentally strong company is extremely important.)
FINAL WORDS
Investing, like many things in life, is a marathon and not a sprint. It is a lifelong journey that,
when done right, can be extremely lucrative and rewarding. This report is just the start. If you want to
learn more about investing in detail, we suggest picking up books about the great investors out there
like Warren Buffett, Benjamin Graham, Peter Lynch, etc. The wisdom you can glean from their
pages could be worth millions of dollars to you down the road.
For us, investing is the surest road to create lifetime, sustainable wealth and I don’t see any reason
why you shouldn’t do it. Let your money work harder and harder for you, so that one day you
won’t have to work for money after all. As seen in the first few pages, even a small sum of capital
can turn into more than a million dollars when you invest right.
If you’d like to discover more insights and knowledge and become a better investor, you can always
check out our online investment magazine The Fifth Person.
There is a ton of information and many investment strategies there for you to pick up and use
immediately. And the best part is… it’s all free.
In conclusion, I just want to leave you with this amazing quote by Paulo Coelho:
There is a reason why this report was brought to you today. So whatever you decide to do starting
now, do it! There’s simply no better time than now…
Best,
The Fifth Person