Stock investing

In life, success is just as much about avoiding mistakes as it is about making intelligent decisions. So it is with stock investing. If you are a scientist that works at Pfizer, you are going to have a very strong competitive advantage in determining the relative attractiveness of pharmaceutical stocks compared to someone who works in the oil sector. Likewise, the oil baron is going to have better be able to analyze individual drilling and refining companies because of his or her expertise in the economics and logistics of the business.

As investors, we believe it is possible to estimate a range of intrinsic value for a company based upon its financial statements and filings. This cannot be done, however, if you do not understand how a company makes money. If, for example, you know nothing about telecommunication, you shouldn’t invest in Singapore Telecom shares. Why? Unless you understand the company’s products, market, competitive strengths and weaknesses, you won’t be able to project the future cash flows and its growth propspect as well as knowing its fair valuation before investing your money into it.

The guaranteed way to success in stock investment has historically been to select a great company with good fundamental and growth prospects, pay as little as possible for the stake, begin a dollar cost averaging program during market corrections phase, reinvest the dividends earned over the years and leave the position alone for several years to come…..

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