With interest rates at record low levels, increasingly more people are drawn to the stock market, universally hailed as having the potential to offer the highest returns. However, misconceptions abound, misleading prospective investors. Alex Ng, master trainer and speaker at VI College, debunks some of these misconceptions.
1. Investing in the stock market is like gambling!
Whether it’s investing or gambling depends on how you look at your investment, says Alex.
If you see stocks as ticker codes and are only interested in the green and red arrows (signifying the price is going up and down, respectively), then you’re basically gambling, he says.
Alex stresses the importance of understanding that behind every stock, there’s a business, a productive asset.
“A business sells products and services which generate cash flow. When we invest in a stock, we are investing in a business. When the business makes money, makes cash flow, we as investors make money from the business. That’s how investing actually works,” he explains.
2. Investing in the stock market is risky!
This is true but then again, everything in life carries some degree of risk.
Alex takes driving a car as an example: “There’s risks in driving but most of us will say that we’re able to drive safely. When we’re trained to drive the car safely from point A to point B, have the proper licence, and obey traffic rules, that reduce the risks of driving.”
The same goes with investment. If you invest in the stock market without proper skills and knowledge, the risk is very high indeed. “You might risk losing a lot of money!” he warns.
Alex speaks for experience, having lost a lot of money during the first two years of his investment experience because he didn’t know what he was doing and hence was basically “gambling” on the stock market.
“I really hope that investors out there make sure to get themselves educated first before they invest,” he says.
However, being educated on the proper way to invest in the stock market doesn’t make it risk-free, just like knowing how to drive doesn’t make driving risk-free, cautions Alex.
“There’ll still be risks, but with the know-how, we will be able to reduce our investment risk. Any risks we take will be calculated ones,” he says.
Click here to join Alex Ng’s Behind the Stock Masterclass for free, and learn how to reduce the risks with his secret stock investing formula.
3. Top Gloves and other glove counters were hot. Now they are not. Steer clear of them.
“When everyone is greedy, we should be careful. When everyone is careful, we should be greedy,” Alex says, quoting Warren Buffett.
“When everyone is talking about gloves and glove stocks are hot, that is when we need to be extremely careful. Right now, glove stocks are not as hot as in 2020. In fact, the market is overreacting because of the introduction of Covid-19 vaccines. This presents a wonderful opportunity for us to look into glove stocks to invest in,” says Alex.
Alex believes the demand for gloves will remain robust, at least for the next 5-7 years.
“I believe demand for gloves will still be there because the process of vaccination needs gloves. According to experts, for the Covid-19 issue to be solved, herd immunity needs to be achieved – at least 95% of the world [adult] population needs to be vaccinated, and this will take 5-7 years,” he reasons.
Meanwhile, the demand for gloves in general healthcare continues to increase.
“Currently, 20% of the world population from developed countries [USA, EU28, Japan] consumed 70% of the global glove supply, while the balance 80% from developing countries consumed only 30%,” says Alex. He was referring to Top Glove’s investor presentation in February 2021 which quoted 2017 figures.
“Covid-19 has raised the awareness of healthcare. I believe the less developed countries would want to have a better healthcare system and invest towards that. So, the demand for gloves from the less developed nations will increase as well,” he opines.
Whether it’s a good time to buy that glove stock hinges on two things – its business prospects, and valuation.
“With share prices trending down, if the price of the company you’re interested in hits under your fair value, then it’s a very good time to buy. You want to buy a good company at an undervalued price. But if it’s still overvalued for you, then even if its business prospects and fundamentals are good, you may still not want to invest,” Alex explains.
4. The stock market is no place for the lazy
If you’re a beginner overwhelmed by it all or just don’t feel inclined to educate yourself in investing, there’s good news – there are cheat codes! Unit trusts, exchange traded funds (ETFs) and real estate investment trusts (REITs) offer the easy way to partake in the stock market action with zero knowledge.
5. You need to look at stock movements every day
This is totally unnecessary, no matter what stocks you pick, says Alex.
“When you buy a property, you don’t look at the property’s price every day to see if it goes up or down. So when you buy a stock, why look at its share price every single day? The easy access to share prices is not to let us know our investment value every single day. It is for convenience so we can buy and sell any time,” he says.
Pick the stock properly and you’ll need to monitor it only every three months, to see from the company’s quarterly results whether its business continues to perform at least consistently if not growing. More tips from Alex for beginner investors can be found here.
“If the business is still performing and not deteriorating, we can continue to hold our stock and let the business do whatever it needs to do to sell its products and services, to make more money, and from the profit it makes, give us dividends. Just ignore the share price movement,” says Alex.
Do you wish to discover the secret stock investing formula that consistently generates good returns yearly? Get your free pass to Behind the Stock Masterclass with Alex Ng now!
