These days, owning Apple stock is as much a status symbol as owning an Apple watch. (Well, they’re both expensive…) Apart from making you more attractive, stocks and shares are also investment vehicles and can help grow your money. Sounds great, right? So why don’t more Singaporeans invest in shares?
One reason is that the stock market is a big and confusing place. It’s hard to know where to start. If that sounds like you, read this 101 guide to investing in shares in Singapore.
- What are stocks/shares?
- What kind of returns can you get from shares?
- How do you choose what shares to buy?
- Top 10 SGX stocks 2018
- How can you start investing on SGX?
- Can Singaporeans invest in foreign stock markets?
What are stocks/shares?
I’ve been using the words “stocks” and “shares” interchangeably, but technically there’s a slight difference between them. Stocks can be used as a general term (“I own a bunch of stocks”) whereas shares are always of a certain company (“I own Alibaba shares”).
All right, so where do stocks/shares come from?
Most companies start off as entirely private endeavours. For example, Facebook used to be owned entirely by Mark Zuckerberg and pals.
But in 2012, Facebook launched (technical term: initial public offering, or IPO) on the Nasdaq stock market in the US. From that fateful day onwards, anyone with money can buy Facebook shares and thus become part-owner of the Zuck’s social media empire.
Why do private companies go public though? No, it’s not because they love you and want to give you a share of their profits.
It’s usually because they want/need capital. When you buy Facebook stock, you’re giving them extra money to grow their business, hire developers, fight lawsuits, etc.
Shareholders usually do get a slice of the profits, if any, and these are usually paid out as dividends at intervals. (No promises though – it’s entirely up to the company’s discretion.)
Also, as part-owners, shareholders get the right to vote on certain business decisions at the company’s general meetings. On a day-to-day level, each publicly listed company has a board of directors to look out for shareholders’ interests in the company’s business decisions.
These perks apply to ordinary shares. There are also preferred or preferential shares, a special subclass of shares, which give you better voting rights and better or even guaranteed dividends.
What kind of returns can you get from shares?
Here’s where things get complicated.
When it comes to returns, it all depends on what type of investor you are. Not everyone buys shares for the same reason. I’ll highlight 3 main types of investors and you can figure out which one you are.
|Type of investor||Strategy||Type of stocks to buy|
|Growth investors / traders||Actively buy low and sell high. Mainly looking for less established companies with plenty of room to grow.||Low priced stocks that are rather volatile|
|Value investors||Buy “hidden gems” in the stock market at lower than expected prices. Sell when the price adjusts back to expected.||Undervalued stocks|
|Passive investors||Hold on to stocks for a long time and earn passive income from dividends.||Blue chip stocks with consistent performance|
Growth investors or traders mainly try to take advantage of that constant share price fluctuation. They can buy stocks at low prices and sell when the prices high – the profit is called capital gain. This can happen in a matter of days or even hours, so it requires a lot of time and effort. There’s also the risk of losing money if you’re looking at more volatile stocks.
Value investors primarily look for “undervalued” stocks, for example, in a little-known company that’s running a highly profitable business. Their goal is to buy shares in that company before other people realise it. But such investing requires a lot of analysis and hard work – boring stuff like reading prospectuses and crunching numbers.
Passive investors describe the bulk of Singaporeans who don’t have the time or financial literacy to do growth or value investing. The strategy here is to buy a blue chip stock (i.e. very mainstream, established, and unlikely to fail) and hold it for a long time, making money through its dividends.
How do you choose what shares to buy?
Even though Singapore only has one stock market (Singapore Exchange, more commonly known as SGX) there are some 700 companies to choose from.
So where do you even start!? Here are some factors you can look at:
|Industry||How well a company does is related to wider economic conditions. For example, if the healthcare sector is growing, it might be a good time to buy healthcare stocks.|
|Business model||How does the company make money? How about its expenditure? Is it an efficient company? Assess if the company’s business operations and revenue generation model are sustainable.|
|Management||Are the management actually competent and smart? Or are they bumbling fools? If you’re going to be part-owner of a company, make sure that the showrunners actually know their stuff.|
|Growth indicators (share price or dividend yield)||No one wants a stagnating stock on their hands. For growth investors, look at the share price history – is there a possible upward trend? For passive investors, look at the dividend yield – you want consistency as much as decent returns.|
|Stability (debt/equity ratio)||Another indication of a company’s stability is the debt/equity ratio (D/E) which is basically the amount the company has borrowed, divided by the value of its assets. If this is above 60, it might be borrowing more than it can handle… which can either excite you or sound alarm bells.|
|Valuation (price/earnings or price/book value)||For value investors, you want to look at either the price/earnings (P/E) or price/book value (P/BV) ratio which tells you how much people are willing to pay for a share. P/BV of 1 indicates perfect equilibrium. <1 means the stock might be undervalued, while >1 suggests that investors are very confident in the company’s ability to perform.|
Don’t be too intimidated by the terminology – you don’t necessarily need to hire an investment banker to help get all this information (unless you want to, of course).
All the data you need to start investing is available for free on SGX StockFacts, a database of information for anyone who wants to learn about SGX listed companies. However, it does take some investment knowledge to understand what all these numbers mean.
Top 10 stocks on SGX 2018
There’s no way to say exactly which stocks are best because the picks would be completely different for each investor profile, and they would change every day. (Also, I’m no stock market analyst so please don’t rush out and buy the stocks listed here.)
What I’ve done instead is compile a list of the 10 most popular stocks on SGX so you practise doing a very simple analysis of key data points. The numbers are from SGX StockFacts and are valid as of 4 Jun 2018.
Most of these are blue chip stocks and most likely attract mainly passive investors. Therefore, they’re arranged by dividend yield (from best to worst), but that is by no means the only factor to look at.
|Company||Share price||Div. yield||D/E||P/BV|
(information correct as of 4 June 2018)
Whether you personally love them or hate them, Starhub is one of the highest yielding large local companies on SGX right now. The absurdly high P/BV suggests that investors are extremely confident in Starhub right now. However, note the very high debt/equity ratio – Starhub is borrowing a LOT of money, which could signal either high growth or financial troubles ahead.
Starhub share price: $1.93
With Singapore being more connected than ever, it’s no surprise that the other 2 big telcos in Singapore are also extremely popular on SGX. M1’s financials suggest that it’s in a similar position as Starhub at the moment, albeit at a smaller scale.
M1 share price: $1.75
Trailing a little behind its competitors is the third telco giant in Singapore, but its data points paint a very different picture. The low debt/equity ratio suggests a more financially conservative company. Nonetheless, investor confidence remains high.
Singtel share price: $3.28
Despite the ubiquity of Grab, taxis aren’t dead yet – at least not according to investors. Major transport player ComfortDelGro is still delivering high dividend yields. What’s notable is their extremely low debt/equity ratio, which could suggest either deep pockets or a very conservative business strategy.
ComfortDelGro share price: $2.46
Singapore’s commercial real estate giant is one of the big names on SGX too. (But don’t confuse this stock with their CapitaLand Mall and Ascott REITs – that’s a slightly different kind of investment.) Interestingly, the <1 price/book value ratio could mean that it’s undervalued right now.
CapitaLand share price: $3.46
As practically the national bank of Singapore, it’s not surprising that DBS is on this list (and has the highest current share price too). As with the other banks, you can’t see their debt/equity ratio. However, Singaporeans generally regard local banks as “safe”.
DBS share price: $28.35
Likewise, OCBC doesn’t reveal a whole lot of financials, but investors are confident anyway. OCBC has an investment holdings arm, meaning it reinvests some of the capital from selling shares, which is a way to make every shareholder dollar work harder.
OCBC share price: $12.47
Though the industrial sector might be more challenging for the beginner investor to understand than, say, telcos or banking, Keppel is an exception simply because it’s massive. The industrial giant’s financials look nice and average as well, with no cause for alarm.
Keppel Corp share price: $7.66
The third and final local bank on this list. UOB’s stock market profile is very similar to that of DBS and OCBC. All three financial institutions have diverse operations in many countries, which offer potential room for growth.
UOB share price: $28.08
A key arm of Malaysia’s Genting Group, Genting Singapore is best known as the owner of Resorts World Sentosa. Its operations are mainly casinos, leisure and hospitality. If that sounds like a risky venture to you, you may be right. But investors are confident in Genting, and its low debt/equity ratio is reassuring to those worried about the risk.
Genting Singapore share price: $1.26
How can you start investing on SGX?
There are two things you need to do to start investing. First, open a CDP account. Then, set up a trading account with the brokerage firm of your choice. (Some brokers let you do both at the same time.)
Many Singaporeans save up thousands of dollars as an investment fund before they start investing. But you don’t really need to set aside a huge amount.
SGX shares come in lots of 100. (It used to be 1,000, but was lowered to make investing more accessible.) That means your minimum investment is only 100 x share price of your desired company.
Suppose you plan to buy shares in StarHub, and the price of a single share is currently $1.93. Your minimum investment is $193, excluding any transaction fees. Of course, you might want to increase the amount to make your brokerage commission fees worth it.
Alternatively, instead of investing a large lump sum, you can also start investing from as little as $100 a month using a Regular Savings Plan – read our comparison of RSPs in Singapore here.
The amount sounds measly, but this “monthly subscription” method is a legit investment tactic called dollar cost averaging. When you invest a big lump sum, there’s always the chance that you’re buying stocks at the wrong time (e.g. prices are about to fall). Buying a little bit each month helps spread out that risk, hence “averaging” your potential costs.
Most beginners start off as passive investors. That requires you to choose your stocks well so that you can get returns in the long run. But if you’ve chosen well, you needn’t worry too much about the stock market’s daily fluctuations. Don’t go crazy and hit the panic button every time the share price wobbles!
If you have a higher appetite for risk and want to try growth or even value investing, start with a smaller amount to get your feet wet. The great thing about shares is that they’re highly liquid. If you decide that you prefer passive investing after all, you can always sell your shares and buy new ones. So, don’t feel like you need to get it perfectly right from the get go.
Can Singaporeans invest in foreign stock markets?
I’ve been talking about SGX shares this whole time, but what if you want to invest in Alibaba or Tencent in China? Or Apple or Google in the US?
You absolutely can, but it’s harder and riskier.
Some brokerage firms let you invest in foreign stock markets for additional fees. But know that there are more risks to investing overseas due to foreign exchange fluctuations and differences in regulations. For more info, you can read this MoneySense article about buying shares locally and in foreign markets.
Your other alternative is to go through a professionally managed unit trust, although you’d have no say over which particular companies you want shares in.
Do you invest in shares in Singapore? Why or why not? Tell us in the comments.
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