5 things I wish someone had told me before I started investing in stocks

Are you itching to start investing but you have no idea how to start? Here are 5 essential things you need to know before you start your own investment!

1. Know what you want to get out of investing in stocks. I know, I know. This seems to be a dumb question. Of course everyone wants to earn $$ in stocks. But before you move away from this page, please at least give me a chance to explain myself. In stock investing, you can earn money through capital gains or dividends. Capital gains are gains you earn when your stock increases in trading price, while dividends are regular payments (usually once or twice a year in the local context) given by the company to its shareholders. Depending on your preference or investment strategy, you can opt for stocks which have proven track records of recording capital gains, or companies which give out regular dividends.
2. Build up a portfolio! Yes. We have all watched movies in which the main character dumps ALL his money into one stock and before you know it. the price shoots up like crazy, doubling/tripling/quadrupling his cash. Not bad huh? Well, in reality, that’s next to impossible. Firstly, (seriously), what are the chances of you spotting a stock which is about to sky rocket? Secondly, assuming that you have managed to spot such a stock, and the stock indeed is going off the charts, the board-lister (SGX in our case) will probably call for a trading halt to investigate on this unusual increase in stock price, which will probably break its upwards momentum, inject uncertainty into investors etc etc, resulting in the stocks tumbling back down. The more practical way is to build up a portfolio of stocks. As the saying goes, never put all your eggs into one basket. A later post will be dedicated to show you mathematically why building up a portfolio is the right way to go.
3. Spend some time comparing the different brokerage firms on the way they charge the trades. There’s no free lunch in this world and so is the world of trading. You have to pay commission for every trade you make. However, different brokerage firms offer different “packages”. One firm may work on a high commission rate but with no minimum charge, while another may charge a lower commission but has a minimum charge.
   Following the table below, if you were to buy 1 lot (1,000 shares) of a stock worth $1, your commission rate under Firm A would be $25 (as 1,000 x 0.10% = $1 is lesser than $25, the minimum charge applies) and the commission rate under Firm B would be a mere $2 (1,000 x 0.20%=$2). However, if you were to buy 1,000 lots (1,000,000 shares) of a stock worth $1, the commission under Firm A will be $1,000 while the commission under Firm B will be $2,000. Think about it.

	Firm A	Firm B
Commission rate	0.10%	0.20%
Minimum charge	$25	-
Investment of $1,000	$25	$2
Investment of $1,000,000	$1,000	$2,000

4. Understanding the different types of orders. An order is an instruction you give to your

brokerage firm to buy or sell stocks. There are three common types of orders which I will share with you here.

a. Market order- This is an order which is executes your trade immediately at the current market prices. This is useful when you want to wants to buy or sell your shares quickly.

b. Limit order- The limit order is slightly more complicated. It is an order to buy a stock at not more, or sell at not less, than a specific price. For example, when a buy limit order is placed at $1 the stock will only be bought when the price of the stock goes below or equal to a dollar. Likewise, when a sell limit order is placed at the same price, the stock will only be sold when the stock is above this price or higher. This kind of order is useful when you want to control the price you buy or sell your stocks.

c. Sell Stop loss order- A sell stop loss order is an order to sell the stock once it has fallen to a specific price. For example, you own a stock which is currently at $1.The stock climbed up to $1.20. In order to “protect” your profits of 20 cents, you could place a stop loss order at $1.10. In the event the stock suddenly decides to go for a dive, the brokerage firm will sell your shares at $1.10, and in turn protecting your profits.

5. Budget your finances and maintain your liquidity. Although you could buy and sell your stocks in an instant, the actual transaction takes up to three working days. Once you buy a particular share, the brokerage firm chases you for your money only three working days later. Sounds like a good deal?


Oh well, it definitely is if it works only one way. When you sell your shares, the firm also takes three working days to give you the cheque. Therefore, investing in stocks is not as liquid as it seems. It is always good to have spare cash on your hands just in case of emergency.