How To Start Investing In Your First Equity

Getting started investing in Singapore stocks shouldn’t have you pulling your hair out. Start by understanding the all the steps involved, you can make your money go further through smart investing.

How to start investing in stocks in Singapore?

Once you’ve set up the CDP and trading accounts you need for equity investing with your stockbroker, you can think about which stocks you want to buy and how you want to proceed with building your equity investment portfolio.

Remember when investing in equities, you want to make sure that you are creating a balanced investment portfolio that meets your overall investment goals and needs. If you already hold some other risky assets in your portfolio you should stay away from adding high risk stocks to the mix.

If on the other hand, you do not have very much risk in your portfolio you are not likely to generate any significant return – rendering the whole exercise pointless. If this is the case, it would be very worthwhile to find a stock investment that adds some risk to your investments. Of course, the stock selection should be based on proper and thorough research.  By focusing in on a few key criteria, your decision making process can be made considerably simpler.

Sector Selection

You do not necessarily need to pick a sector to invest in that you already know a lot about. However, in general, there are better gains to be made if you already have even a small level of familiarity with the industry in which you are investing.

When you are new to the stock market, an effective starting point is to research stocks with a sector that you are familiar with. There are so many sectors to invest in – construction, financials, technology, pharmaceuticals. However, it can help you to identify a good market opportunity when you are already familiar with the context of the sector in which that business operates.

For example, you might work in IT. This might mean you would be interested in investing in the technology or telecoms sectors. You might already be familiar with the big names in the industry and how they have progressed over the years. You might also have some vision as to how the industry might develop over the years ahead.

The telecoms sector includes all companies involved in telephone and internet products, services and technologies. This industry is a central part of everyday life but from an investment perspective can lead to large winners as well as big losers. As technology develops and improves at such a fast pace there is a likelihood that some companies may be made redundant unexpectedly and you could potential lose your money altogether if you invest in the wrong stock and the wrong time.

Company Selection

All of us use telecommunications in some way or another in our everyday life – it is the way we keep connected and productive in modern society. In the case of investing in the telecoms sector you might be considering investing in Singapore Telecommunications Ltd (SingTel). It is one of the most famous stocks in Singapore, if not the most famous. This stock is a Singaporean telecommunications company that has a combined mobile subscriber base of over 500 million customers from its own operations and regional associates in 25 countries as of 2014. It is one of the largest mobile network operators in Singapore and top 20 to 30 largest globally.  The company is high profile in the media and has been growing aggressively over the past decade.

But how do finally you decide if you actually want to use your hard earned money to buy shares in SingTel? A good approach is to consider the following key factors as part of your research.

Key factors – Market cap, size, earnings

Firstly, consider market capitalisation. SingTel has a massive market cap of $S 68,872.60million. When considering market cap as a factor in your decision making, remember that larger cap stocks are associated with lower risks and a higher likelihood of stable returns to your money through a regular dividend payout. This is certainly the case with SingTel. Large market cap stocks are defined as those which have market cap values exceeding $S 2.7 billion and at S$ 68.7billion market cap SingTel is well above this threshold.

In addition, if we take a look at the historical performance of this stocks price, we can see it has been a stable and consistent deliverer of positive movement over the past decade. The stock maintains a dividend payout ratio of between 60% to 75% of the underlying net profit – which has been paid to shareholders periodically semi-annually and often in addition to further “special” dividends in some years.  Based on these factors, the stock looks like a good investment.

Another key factor to look at is the earning history for the company. This may help to forecast future performance of the business. This information can be obtained from the company’s financial statements.

For the example of SingTel, their financial statements can be found on their website and we can see that the last reporting period was in December 2014. At this time they announced that net profit grew strongly by 11% in Q3 2014 compared to Q3 2013 and delivered year on year gains in net profit of 19% when looking at the second quarter. By looking at past performance over a number of years, we can build a better picture of whether the business is consistently a strong performer or not.

Combining these kinds of factors helps all investors to make a final decision as to which stocks are the right choices for their investments. Get started and you will soon find that the choices narrow down much faster than you expected.