Investor Mano Sabnani, 63 is chairman and chief executive of Rafflesia Holdings, which assists small and medium-sized enterprises with growth strategies and corporate governance.
A seasoned journalist, he also has years of experience of the corporate markets.
He often speaks up for minority investors of listed companies. Here, Mr Sabnani shares his tips for young investors starting out.
Q: What's the first thing any young investor should note?
Young investors need to look at their overall financial situation before venturing into investment activity.
A basic financial plan should be in place. That means priorities should be right. For any young working adult, some cash savings should be put aside for unexpected situations, as when one loses his/her job or there is a need for medical or other emergencies.
As a rule, six months of expenses should be set aside in a savings account or fixed deposit. It is also important to have basic insurance coverage for oneself and dependants, if there are any. The insurance should cover the loss of life as well as catastrophic illnesses.
Young adults should also provide for repayment of housing loans and other debt before venturing into the financial markets, be they stock, bond, commodity or forex markets.
When basic needs such as family expenses, housing and health/welfare are well looked after, one will have a clear mind to venture into investing.
Q: What was one mistake you made when you first started investing?
One common mistake is to over-invest and not have enough holding power or cash to sit through market downturns or cover personal emergencies. I write this from personal experience. I started investing when I was in national service in the mid-twenties.
I developed an interest in the stock market and was reading corporate news. But my knowledge of companies was superficial and I was investing on the basis of simple numbers like net asset value and price-to-earnings ratios. I invested money I thought I could spare. But my cash holdings proved insufficient when the market took a downturn and I needed cash for unforeseen expenses.
So I had to sell some stocks at low prices and absorb the losses arising. That was painful, especially when subsequently the market recovered and so did the stocks I had been forced to sell!
Q: How much money do I need to start?
If you have set aside cash for personal needs, insurance premiums and repayment of debt, then no amount is too small to invest. This has to be money you will not need in the near future.
You should set up a separate bank account for your investments and limit your commitments to the cash in that account. You could put your surplus cash from a job or business into this account each month.
This way, it will also be easier to see how you are doing after a year, as all your gains and losses will relate to that account. Any dividends, or interest earned, should also flow into this account.
Keep reading and improving your knowledge of the stock, bond and commodity markets and companies. Do not be too happy if you do well or be upset if you lose some money in the first year.
Making gains or incurring losses is in the nature of investing.
Do not be too attached to your investments and too emotional about selling when the time comes. It is important to be rational when investing; objective and dispassionate.
Remember, it is OK to be a loser in the short term. What is important is to be a winner in the long term. The investment game is a marathon! I have been at it for 30 years, and investing has been very good for me and my family. The nest egg has grown considerably, thanks to a disciplined approach to investing.
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