Tan Kin Lian's Blog: It is easy to be cheated (12)

Thursday, June 11, 2009

It is easy to be cheated (12) - Buying shares

There is also a risk of buying shares. Are you able to monitor the shares and make sure that the dividents are paid to you each year? If there is an administrative mistake, will you overlook to receive the dividend? Do you have the time to keep track of your personal share investments?

There is a bigger risk of making a loss, when there is a right issue. Usually, the rights issue results in dilution of the shares and a drop in the share price. If you take up the rights issue, you can get the additional shares at a lower price, so it will compensate for the drop in price.

However, some investors overlook to take up the rights issue. They may be travelling, too busy to check their mail, or the mail may have got lost. This oversight can cost a lot of money. Some investors do not have the additional capital to ake up the rights issue. They can sell their rights in the market (only if they remember to). The amount that they get for the rights should compensate for the drop in price due to the rights issue. However, if they forget to sell the rights, they will suffer a loss.

If you are too busy to monitor the shares, it is better to invest in a unit trust or exchange traded fund. The fund manager will take care of the monitoring on behalf of the investors.

Tan Kin Lian

9 comments:

Anonymous said...: I am one of the many unfortunate victims of poor money management . Been stung by dual currency and lost big. Now have some gold certs bought at US$970. Been told gold will go down, may be wise to sell it even at a loss!!! Please advise.; June 11, 2009 3:47 PM
Anonymous said...: Dear Mr Tan,

How I wish you have highlighted this much earlier. It is a really good reminder for those who are busy travelling and trying to keep some investment. I am one of those who missed the rights issue by Capitaland recently. I did not receive the notification about the rights issue and lost at least 6K for not even selling them. Of course subscribing them would even bring my share investment better at current market level.; June 11, 2009 7:04 PM
Anonymous said...: Mr Tan, while you highlighted some caveats of buying stocks, are these caveats really called "cheating"?

- A Singaporean; June 11, 2009 7:38 PM
Goh Meng Jen said...: I have been following your blog daily, and I learned a lot from you. BUT, this is one article that I feel you got it all wrong. I personally feel that stocks investment is actually the safest and reap the most if one practice value investing.

Not trying to start an argument here. Just my personal opinion.; June 11, 2009 8:39 PM
Anonymous said...: How come the stock market rising so fast even when there is a bad recession? Is it a bubble or they called a bear market rally? Will it later collapse as fast as it rises?

Is it safe to go in now?

I think stock market is a form of gambling, which I define as betting on something which you cannot predict the outcome.; June 11, 2009 10:01 PM
Anonymous said...: Nothing can be worse Minubond / Pinnackle.It is 100% or near 100% loss.
Never trust "Introducer". Never trsut IFAs. Buy from them at yr own risks.; June 12, 2009 7:23 AM
Kim said...: you mean we can sell our right issues to the market, if we did not intend to subscribe to it ?; June 12, 2009 8:35 AM
Ghim Moh Resident said...: Hi Mr Tan,

Personally I feel when a company raises a rights issue, it forces the investor to put in more money out of his/her own pocket to buy more shares. As we see recently many companies are raising rights issues from investors during this economic crisis, at a time where buying more shares may not be the priority of investors. Securing your job and roof over our head may be the priority in these bad times. We have not even thought about where the money being raised from the rights issue being channeled into. Using investors money to pay off debt or even make risky investments as what some SGX-listed companies are doing is not protecting shareholder interest at all.

I recommend investors to avoid such stocks. This lead to another question. How would we know the company is not going to raise rights issue. The company must be conservative, huge cash position, generous dividends payout yearly, its history in corporate action and it does not take aggressive risky investments. I would say lots of hard work research is needed and there is no free lunch. For me, currently I only hold a Singapore-listed company and I only bought it after researching stocks in Singapore A-Z.

For people who do not have time to do their own research or the knowledge to do it, I have 3 advices. The first advice is to invest with a view again that there is no free lunch. Investment is hard work and being lazy will not bring you into a better financial position in the long run. Money will not come from thin air.

My 2nd advice is to reinvest your dividends. Make use of the simple law of compounding which many and lots of people ignore. Albert Einstein mentioned before that the law of compounding is one of the wonders of the world. Furthermore, its easy to understand.

My 3rd advice is for investors who have no time to do their research. If you want exposure in the stock market, invest in Exchange-Trade Fund. There are many around currently. Choose the one which will give out dividends or one that has a history in giving out yearly dividends. Exchange-Trade Fund has a short history in Singapore so I advise buyers beware.

I strongly advice investors to avoid Unit Trust. The reason is simple. No one is a better guardian of your wealth than yourself. Reasons for not investing in Unit Trust includes many Unit Trusts do not even beat the stock index so why bother to buy Unit Trust. Remember fund managers receive management and performance fees from the fund so we expect them to beat the stock index. If not, they themselves should also just invest in Exchange Traded Funds. Many equity Unit Trust do not give out dividends at all so there is only one the make money and that’s through price appreciation. We have to ask ourselves is the fund manager the true protector of our wealth, how will we be able to know? In the end, I feel no one in this world has greater motivation to make money for us than ourselves.; June 13, 2009 2:05 PM
Anonymous said...: There are some Singapore companies where the revenue for them is almost guaranteed by our government.

Once you step up of your house, without cars and taxis, yo will inevitably has to contribute to their revenue.

Maybe only the profit margin may not be so.

You can buy and hold them to earn perpetual dividend income.

Don't have to spend your life watching stock tickers.

SBS Transit and SMRT.; June 14, 2009 3:48 PM