Investing as a Student
What got me started and how did I do it?
I think before we discuss the details on how we can kick start our journey, I would like to share a little on what got me started. I didn’t turn 18 and decide, “it is time and I need to put my money to better use”. In fact, it took me quite a while to realize the importance of being financially literate.
Background
I was not an academically motivated student during my schooling days. I was a typical student who played games after school, only motivated to study the bare minimum to refrain from performing badly. However, things took a turn when I came across a quote “Everyone has two lives, the second one begins when we realize we had one”. My perspective shifted as I stared back at my own reflection after shutting down my computer, questioning my life choices. Soon after, I picked up my first book “Who moved my Cheese” — by Spencer Johnson and it was one of the best decisions made. It definitely was not easy at first, having to stay focused after reading the first page. However, it got better and I ventured into other non-fiction genres.
“The more we read, the more we don’t know” — Kai Jun
Amongst the many books I have read, I found some similarities between the game I used to play (‘Runescape’) and business, finance and economics and the stock market. Within the game, there is a place called the Grand Exchange where we can buy and sell in-game items. Prices of the items fluctuate, depending on supply and demand. The game has its own economy which is closely similar and less complex compared to the real world.
Fast forward about a year in October 2015, I decided to invest a portion of my savings. Since the beginning of my journey, I have encountered 3 corrections. The Chinese stock market turbulence in 2015–2016, Cryptocurrencies sell-off in 2018 and lastly the Pandemic Covid-19 in 2020. However, I remained dedicated during my investment journey and firmly believed in the decisions I made. I strive for capital preservation and growth and have conducted my investments through a value-oriented approach (fundamental analysis). You might be interested in a short article (written by yours truly) regarding my investment approach here. In the past year, my growth portfolio has grown approximately 60%.
How did I, and how could you?
How I approach investment might not be entirely your modus operandi. To clear one of the major misconceptions, investments will not make you rich overnight. It is not a get-rich-quick tool like how some of the online marketers might have misleadingly portrayed. Doctors, nurses, engineers, pilots, writers are specialists in their own field for a reason. Similarly, our approach towards investment should require time and dedication to learn. Investment itself is a new subject altogether and failure to understand is no different from gambling. WIth some foreground knowledge, let’s begin on how we shall conduct our investments.
First off, you ought to understand your current financial situation and commitments as a student. Everyone has different levels of commitment so it is best not to compare. Commitment includes your daily expenses, school fees and bills. Additionally, we have to identify our primary source of income- is it coming from our day job or allowance? Are there any disruptions to your stream of income i.e. the end of internship or work contract? Will your savings last minimally for the next one year? These are the questions you want to ask yourselves first before making any decisions. The covid-19 pandemic is a prime example, showing us the importance of cash flow in our daily life, as jobs opportunities have declined due to restrictions.
Secondly, is to identify the kind of investment approach you prefer- technical or fundamental analysis. Technical analysis approaches tend to have a shorter investment horizon, and individuals tend to rely on tools, charts and patterns to formulate their investment strategy. Fundamental analysis approaches tend to have a long investment horizon. They rely on economics, industries and companies data to formulate their investment decision.
The third thing to consider is risk management. All we need to do is simply diversify our investments. Never put all eggs into one basket! Identify the level of risk you are able to tolerate and construct your portfolio towards that. For example, understanding that China’s economic environment is volatile amidst the crackdown, what we can do is limit our exposure within our portfolio to the desired level. I have written an article on Risk here.
Fourth, do not be afraid to cut losses and add more winners to your portfolio. Never be afraid to let companies that are underperforming go, hoping against hope that things will improve. If things have fundamentally (and evidently) deteriorated over a period of time, it should be a clear indicator to cut them loose. And, never be afraid to add companies that are at their all-time high. Winners win and that is what they do. Companies with strong fundamentals perform well due to a cohesive management team, a business model that supports innovation and great corporate culture. The traits of these kinds of companies are then reflected through their share price over time. (There are multiple factors that determine the quality of a company, please conduct your due diligence)
Lastly, understand that numbers are only part of the entire valuation process. Simply looking at the financial statement and using different multiples such as P/E, EV/EBITDA, P/B or models such as DCF, DDM is not enough. We have to understand the story behind those numbers. If we solely depend on numbers, we might miss out on the bigger picture, increase our risk exposure, which will lead to bad investment outcomes (Case study eg. Nobel Group & Luckin Coffee). Therefore, it is important to conduct research with due diligence. Owning stock is similar to owning part of the company, therefore it is also your job to understand what you are getting involved in.
About me
I am an Economics and Finance graduate and have been investing for approximately 6 years. There are many things that I have learned through this journey, both finance and non-finance related. I am writing to hopefully inspire others to kick start their journey. Feel free to indicate your questions in the comment section. Till then, invest safely, cheers!
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