The Investor is More Important than the Investments.
So, if you are new to investing, the #1 focus that you should have is not really to find investments but to build your capabilities as an investor. Personally, I like to share my years of experience with you so that you could skip the less important stuff that 90% focuses on and join the 10% to become better investors.
1. How to Become Better Investors?
Personally, I came from a working class family. I wasn’t taught about “investing” at home. So, I just acknowledge that I lack such wisdom and capabilities. But, at the same time, I know that I can learn and improve. Hence, I have started off by reading and studying about “investing” from other successful investors namely:
- Warren Buffett
- Robert Kiyosaki
- and many other investing authors, both local and overseas.
- This is important as I need to replace “old ideas” about money with “new ones” that enable me to invest better. Of which, they will lead me to:
- 2. What’s the #1 Skill that Investors Should Learn?
Answer: “Accounting”.
Now, hold onto your horses. Many people try to invest without accounting skills and as a result, lose money. This is why people believe that investing is risky. It’s risky because many are not financially literate. Without this skill, many resort to buying or selling investments based on “gut feel or emotions”. It is very hard for one to “grow big sustainably” in investing without accounting skills.
Pardon me.
Like it or not, investors must learn “accounting” to be successful in investing.
So, what is accounting? Is it difficult? Does it involve a lot of “numbers”?
Basically, accounting is a mastery of 7 basic words:
- Income
- Expense
- Profits (Surplus / Deficit)
- Assets
- Liabilities
- Equity / Net Worth
- Cash Flow (Inflow / Outflow)
- That’s it.
The more we master these 7 words, the better the quality of our investments. Take stocks as an example. I use accounting skills to find stocks that could:
- Grow its income (revenues)
- Control its expenses.
- Grow its profits.
- Expand its assets.
- Be conservative with debt.
- Expand its equity.
- Grow its operating cash flows.
- Without accounting skills, I couldn’t find good quality stocks and to me, this will be risky.
It is the same with real estate. For my properties, I would like to:
- Income: Raise rent from tenants.
- Expenses: Control property-related expenses.
- Profits: Make sure it breakevens so that I can reduce tax payments.
- Assets: Find undervalued properties that will appreciate in value.
- Liabilities: Debt management / Keep a healthy Debt-Service Ratio.
- Net Worth: Boost my property equity.
- Cash Flow: Make sure rent is collected and all expenses paid on time.
Hence, with accounting skills, you can: Find better quality investments independently. Reduce investment risks.
Without accounting skills, investing is risky because: You need tips, advice, and recommendations. You are prone to buying poor-quality investments at the wrong prices.
3. There is a “Process” to become an Investor.
Today, many want investment successes that are “instantaneous”. Most want to enjoy “profits” but do not want to learn, plan, strategise, filter, decide, and take responsibility on investment matters.
Sure, people could skip the investment education process and buy investments: stocks, real estate, unit trusts, cryptos … etc. They think that this is a shortcut, a fast track to investment wealth. Such may be a “long route” to wealth for many if they attain them over the long term.
Investing is likened to badminton or any other sports.
As I write, I play badminton once a week. My “badminton education” allows me to enjoy good games with my friends for I know how to serve, stroke, net, drop, and smash. I developed all of these abilities in school. Without them, there is no way that I can enjoy a badminton game with my kakis.
Learning how to serve, stroke, net, drop, and smash is essential to badminton. It is as essential as learning accounting to become good at investing.
There is a process to learning and developing these skills and it takes time.
Some believe the only ingredient to start investing is “having capital”. For them, they ask: “I have $100,000 to invest. Where should I invest?”. To me, such is like one who believes that all one needs is to have “a racquet” to play badminton. It is obviously not true.
Of course, with that being said, my “badminton skills” are at best “so-so”. There is still a wide gap between myself with district, state, and national players. So, if I want to elevate my play, I need badminton coaching and training (education). I believe there is no shortcut to elevating my badminton skills. That’s just life.
Conclusion: How to Start Investing as a Beginner?
If you had accumulated some capital but no knowledge of investing, it could be most helpful to quickly acknowledge this shortcoming. The faster you reckon it and acknowledge it, the better it is for you.
Moving on, you may focus on the following: Learn about investing from other successful investors. Learn accounting. Be patient as there is a process to learn how to invest.
By Ian Tai Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in KCLau.com in Malaysia
