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Young Investors

Mythbusting the Misperceptions of Investing in Shares

Monday, 4 February 2013

Ask someone what they know about investing in shares and 9 out of 10 times they get at least 1 answer wrong.

These misperceptions are the brick walls that stop a lot of people from investing.

Today I'll take on the role of a Mythbuster and relieve you of 3 common misperceptions.

Mythbusting 1: Share Investments Require Specialist Skills

True but not true. If you're trading for quick money, then you'll need special techniques to help you find trends. But if you're investing, then all you really need is an understanding of the fundamentals of how businesses work, and keep yourself updated with news that could impact the companies you invest in.

Like Warren Buffett says, "You don't need to be a rocket scientist. Investing is not a game where the guy with 160 IQ beats the guy with 130 IQ."

These knowledge and information are easily accessible, from educators, books, annual reports, and here in Young Investors. Check out Investing 101 to get yourself started.

Mythbusting 2: Share Investments Require Large Capital

Watch more TV and you'll think that investing requires tens of thousands of dollars at least. (*Note: If you're thinking millions, we need to talk.)

N.O.P.E.

The minimum is 1 Board Lot, which is 100 shares (or units).

Now look at the share price of a listed company. That's the price for 1 share. Assuming the share price is RM1, your minimum investment would be:

RM1 X 100 shares = RM100

Include fees like:

  • Brokerage Fees – Minimum of RM12 to a maximum 0.7% of the value of total shares traded.
  • Stamp Duty – RM1 for every RM1000 traded.
  • Clearing Fees – 0.03% contract value, up to a maximum of RM1000.

And you're part owner of a listed company! Don't be too proud, your part's REALLY small. Really.

Common misperception is that the minimum investment is 1 Lot, or 1000 shares. That's incorrect. The trading minimum in Malaysia is now 1 Board Lot, an initiative by Bursa Malaysia to encourage investing.

Remember, the minimum is 1 Board Lot (100 shares), NOT 1 Lot (1000 shares)!

Mythbusting 3: Share Investments Can Put You In Debt

Again, TV always shows investors going bankrupt from share investments. This is only partly true, and is wholly dependent on how you invest. Here's an analogy.

"You purchase a chair at RM100. Later, the chair's market price becomes RM0. You don't get anything back and lose the RM100 that you spent. Nothing more.

Same goes for shares. If you buy a share at RM1 (X100 units) and invest RM100, if and when the share goes down to RM0 (uncommon), you lose the RM100 that you invested. Nothing more."

You do NOT inherit the liabilities or debts from the listed company (share) you invest in.

So how do investors go bankrupt, you ask?

Simple.

Loans.

Two common facilities in shares trading are Contra and Margin, where the investor takes a loan (often up to huge multiples of what they have) from the securities house to invest, with the promise that the loan be cleared within 72 hours. While these are convenient facilities, losing an investment made through loans is what causes investors to go into huge debts. More on Contra and Margin facilities in later articles.

So no loans, no debts.

Mythbusted

Understand this before you start. Investing does not require large capital. Investing does not get you in debt. Investing does not require specialist skills.

All it requires is a little effort, and the passion to make your investments work for you.

Understanding how to be a good investor makes you a better business manager and vice versa.
~ Charlie Munger

It ain't that tough and the returns could be great. So what are you waiting for? Start investing.

By the Young Investors Team