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Invest Like The Rich, Returns May Be Better - Ben Fok
Ditching short-term investing for the long-term is the key when buying stocks.

To the average investor, investing in stocks may seem more profitable and exciting than investing in unit trusts. Most people view the stock market as an effective way to meet their long-term investment goals. They place a major part of their savings in it and hope for a decent return over time. Sadly, not every investor understands what it really takes to be successful at stock trading.

Being a financial adviser with years of experience in dealing with the wealthy, I am always fascinated by how the wealthy invest their money, especially in stocks and how they achieve successful money management.

With time, I have begun to understand that, unlike the average investor, the wealthy do not sink their wealth into stocks alone in their efforts to accumulate further wealth. More often than not, they have other investments such as real estate, or they run a successful business.

However, when they invest, they usually do far more research than the average investor. They are interested in the type of business they are investing in, the company's fundamentals, its business model and how unique that model is.

Furthermore, they look into the long-term potential growth and, most importantly, they have a good understanding of how business is being managed. Note that billionaire investor Warren Buffett said Berkshire makes its money not from stock investing, but from actually acquiring and running companies over the long term.

When I conduct investment seminars, I always ask attendees to raise their hands if they have read an annual report or attended an annual general meeting (AGM) of the companies they have invested in. I am no longer surprised when just a couple of hands go up. Few people bother to open up the reports or attend the AGMs.

Annual reports can seem intimidating and boring. However, if investors want to know how the business is being run, they should take an active interest in it. They should read the latest annual report, and try to understand the balance sheet, profit and loss statement and other crucial financial statements.

If investors do not even bother to do this much, they deserve to lose money because there is no such thing as a free lunch. The more you read the annual reports, the more enlightened you become about their inner workings of your investments, which in turn makes you a more savvy investor.

The one rule followed by the wealthy is to invest based on fundamentals stock valuation so as to buy at a low price. Actually, it is more than just low price - they want to buy it at a discount to the real value of the stock.

This style of investing requires careful research and discipline. This investing technique can produce high returns relative to risk, because when you do buy, you are buying at 80 cents on the dollar, or even 50 cents.

Investors are often reminded by the stock market that the value of their shares can go up (the bull) as well as down (the bear) without warning. That is why people who try to time the market often do not beat it. As a result, they end up losing money again and again.While the average investor thinks of short-term gains, the wealthy invest in the long-term prospects of the company.

History has shown that over time, the stock market will recover and share prices will rise again. That is why Mr Buffett's favourite holding period for a stock is forever. To benefit from making good long-term investments, you must select your company stock carefully.

When I was a stock dealer in 1998 and during bear market corrections. I noticed that only wealthy investors were buying. The average investor would try to determine how low the stocks would go and how long the corrections would last. Investors who added to their portfolios during downturns invariably benefited from higher market values during the next advance.

Wealthy investors understand that corrections are as much a part of the normal market cycle as rallies, and they can be brought about by bad news or good news. The average investor always over-analyses when prices become weak, and loses his common sense, but when prices are high, he buys. He ends up being the "buy high, sell low" investor.

When the majority of stocks are falling, wealthy investors see it as an opportunity, but the average investor sees it as a problem. To be a successful investor, you need to research companies for their value. You need to focus on why you are including the stocks in your portfolio and accept the normal behaviour of your stocks in the face of different environmental conditions.

You need to overcome your predilection for short-term investing, and embrace a long-term approach that focuses on your portfolio objective. For now, i advise you to relax. The current correction could well turn into an opportunity.

Ben Fok, the writer is the chief executive of financial advisory firm Grandtag Financial Consultancy. The investment strategies referred to in this article may not be suitable for all readers. Readers are urged to base their investment decisions upon their own appropriate investigations that they deem necessary. If in doubt, consult a financial adviser.ben.fok@grandtag.com