Saturday, February 5, 2011

10 tips to be a better than average stock investor

Based on my calculations, assuming a 3% initial yield reinvested and 2% inflation rate, the Singapore stock market returned a compound 6.9% to 11.7% over the past four twenty-year periods starting 1988. Although it might not seem a lot, due to the compounding effect, an initial $10,000 investment 20 years ago could grow to as much as $91,211!

However, based on anecdotes as well as studies done on the American market, the average retail investors probably achieved returns less than that. I am guessing that the average stock market investor in Singapore over the same period probably did not make any money. The most common reasons for the under performance were retail investors only buying when the markets are hot or that there were high expenses occurred on their mutual funds.

Here are the 10 tips I feel that retail investors should follow to be a better than average stock investor, based on what I have read on books, blogs and in the papers.
  1. Have a reasonable expectation of return for the long-term
  2. Develop a system for selecting shares and selling them
  3. Place your bets accordingly
  4. Avoid investing in IPOs
  5. Trade as little as possible
  6. Monitor your stocks as little as possible
  7. Be prepared to cut loss
  8. Avoid leveraged or derivative financial products
  9. Keep a spreadsheet of your transactions
  10. Average up

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