How To: Buy & Invest Shares In Singapore Market For Beginner
Beginner's Series For Stock Investing
1. How To: Buy & Invest Shares In Singapore Market For Beginner (This post)
Last updated: Friday, 29 July 2016
Why do you want to invest your money?
It may be:
To make your money work harder instead of sitting in bank.
To support your parents financially and provide them a decent life or retirement.
To get your money life in order as you used to squander whatever you have.
To outgrow and outsmart your peers, colleague and friends in wealth and finances.
Or even to have the option to quit your job ( I used the word option because some love their job, but having the option to quit is highly desirable).
Whatever the reason is, you must have a reason why you want more money and probably that is what bought you here. But don't scoff off the question, I once asked a deep question to a friend of mind on why he wants more money? What does having more mean to him... oh well turned out he doesn't really know why rather than I guess "it's the right thing to do".
For anyone who does not know what is their end goal is or life purpose some may call it, chances are the right discipline and attitude would not be cultivated, obsession on work would not be found on them, a vital receipt for attaining mastery. People in this camp usually don't achieve much in life, there is no difference between what they are today vs 3 to 5 years from now.
I'm not here to give you a reason, for me having more money is just part of a good life equation. No I'm not getting into the big passion debate. I believe to live a satisfactory life one does not need to find what their passion is then work on to it (worst end up after spending a great deal of time and eventually realised it is not monetizable).
I remembered a quote, to paraphrase it: you don't learn to live your life. You live your life and you learn. In this case, you figure out as you move. But make sure you moving in the right direction, so when you fail, you fail forward.
Same thing in finding your passion or thing that you love. You don't go and find it, it's hard and probably you will fail. But there is a trick to that, remember this: people are generally passion about the things that:
1. Make them a lot of money
2. They are good at (possess high level of expertise)
3. Gain the respect and recognition from people (even people they dislike)
4. Benefiting the life of others or society at large
Instead of seeking for the exact work that motivates you, why not try just go for work that can get you the above.
Especially on point 1 & 2, it is quite hard not to love doing things that make you a lot of money and be insanely good at it. So instead of finding what I'm passionate about, I seek what are the thing can lead to high financial reward and I have a good chance of being the top 10% of the field at least.
I probably have digressed too much, let's get back to today's topic.
How Much Can I Make In Stock Market?
When looking at the stock market returns, it is unlike bank interest rate or CPF interest rate as there it is a capital guaranteed investment. In stock we look at total returns which it accounts for both capital gain and dividend received.
Stock returns = capital + dividend
Capital gain refers to the positive movement of share price. Since it is a price movement it can be positive and negative. Whereas for dividend it will always be positive as there is no downside on dividend. Stocks may cut dividend but it can never demand the dividend that it pays out.
STI ETF is used as a benchmark for Singapore stock market performance, it consists of Singapore 30 largest market capitalization stocks. Its 10 years historical average is 5%.
But you can expect to make 5-8% annualised returns over 10 years period. In term of risk, refer to my post over here.
As for stocks there is no limit on how much you can make. But there is a limit on how much you would lose, that is your investment capital. Stock prices can drop to zero and your capital value can become zero, and you will not lose more than your capital.
Investing strategy like value investing can achieve an annualised returns of around 10-15%. Any higher is considered extraordinary, when it comes to returns you need to look at least 5 years period and on a portfolio total returns basis, not individual stock.
Market returns on a snapshot:
5-8% market returns
10-15% market-beating returns
15-20%+ guru level
How Much Do I Need To Invest In Stock Market?
After early 2015, SGX has reduced the minimum lot size of 1,000 to 100 shares. For stock like SingTel ($4.13 per share), 1 lot would only require $413 and most SGX counters are below $4. But since there is an average of $25 minimum commission policy. Your cost of investment will be high if your trading about is low (more on that below).
Another concern about small sum is that you are unable to buy enough stocks to build a portfolio for diversification, in this case you can consider investing in STI ETF. As of today share price is around $2.80, a single lot would require only $280 and you immediately own 30 blue chip stocks, for more information click here.
Should I start young? But my capital is small and I wonder is it worth the hassle to invest since I don't have much to compound with.
Now you know that you can invest with as little as $300-$500 but you wonder is it worth the effort to invest since smaller sum means little money to be compounded. Or you may even consider to accumulate more capital first then invest when the sum become sizable.
You only think about the upside, how much can you make. But not how much you would lose, and also not considering whether you can stomach the price volatility of the market. Small sum reduces your fear of losing money and minimizes the cost of your investment mistake.
When you do not have much market experience the last thing you want to do is to invest one lump sum in a stock or few stocks that you like because you think that it is some huge corporations and can never lose money, even if the stocks pay good dividend. Prices can fall below what your dividends can compensate. We are in a period where huge corporations around the globe are axing jobs and dying like flies.
Let me suggest, you start off with little sum when you are young even if you have the capital. Do dollar cost averaging on STI ETF for a period until you have experienced 20% prices fluctuation, if your emotion is able to take it. By then it is not late to invest more as your confidence increased. Stock market is not a sprint, but a marathon.
You peers may run faster than you, but when the market corrected they will also be the first one who panic and sell at the worst possible time. You get the last laugh.
Why Shares? What Are Other Investment Alternatives
There are 4 huge asset classes that is very developed in the financial market. Share, bond, currency and commodity. Each of them is highly traded in their respective exchange, among those stock is one that shown to beat inflation and has one of the highest returns over the long term. It is also widely discussed by academia, economist and government think-tank.
Because what is behind a stock is company and its business contribute to country in term of tax income and jobs.
In Singapore it seems most people would prefer investing in properties as our parents have experienced its increased prices over the years, and collecting monthly rental income has always been a dream of the retiree.
However, studies have shown properties returns do not outperform stock market returns. If I didn't recall wrongly, properties annualized returns over the past 20 years is somewhere about 4-6%. More importantly, for investors it is the accessibility and liquidity that make stock investing attractive.
Property investment requires hefty initial capital which is not accessible to many and low liquidity means you cannot sell off your property investment in short notice. A couple thousand dollar of monthly rental income may seem attractive in dollar term but that is because of the large capital investment rather than its attractive annualized returns (in relative term). And not forget that property is financed under mortgage, hence there is a risk that the bank may pull out its loan when times are bad. Interest expense and property maintenance cost can also eat up a large chuck of your rental income as well.
What Do I Need Or Do To Start Buying Stocks?
You need to be 18 year old or above (some broker may requiring an age limit of 21) and must not be an undischarged bankrupt.
You must set up 2 accounts:
CDP account - to record & deposit your shares, read this.
Brokerage account - to buy and sell shares, read this.
Setting up cost for both CDP and brokerage account is free, and most brokerage does not require any deposit. Some brokerages may require you to open a saving account with them, in this case there might be a fall below fee if you fails to meet the minimum monthly deposit I.e standard chartered Esaver
How To Buy stocks?
After you have opened the two accounts you can either buy stock via an online trading platform or through calling broker to execute trade on you behalf. Most investors prefer to execute trades themselves via online trading platform for cost saving. The cost for broker assisted trade is about 2x the amount of online platform.
For instance, on OCBC securities. Its minimum commission for broker assisted vs Online is $40 and $25 respectively, and the commission fee is 0.5% and 0.275% respectively:
Even though it is cheaper but for the less tech-savvy usually our parents’ generation they may still prefer broker assisted trade, as some brokers give stock tips. If not all most people I know they execute their trades themselves via online platform.
For step-by-step guide on using online trading platform to buy shares click here.
How Much Do I Need To Pay For Brokerage Fee Per Trade?
This depends on the brokerage firms, but a couple things to note on brokerage fee:
1. The commission % per trade value; or
2. The minimum commission, on average is about $18 - $25/trade.
3. SGX fees (Clearing Fees + Access Fee) of 0.04%
(The fees are subjected to to prevailing Singapore GST)
Let's use the above fee table as an example:
If you bought 4,000 shares of SingTel stock:
$4.14 share price * 4,000 shares = $16,560 [trade value]
1. Commission: $16,560 * 0.00275 = $45.54
2. Minimum commission: It does not apply as your commission is higher than $25
3. SGX fees: $16,560 * 0.0004 = $6.62
Total cost: $45.54 + $6.62 = $61.16 (pre-GST)
What is Minimum Commission, And Is No Minimum Commission = No Commission?
Minimum commission is a practice set by the local cartel, its aim to protect the rice bowl of the remisier. Singapore has maybe about 10 over brokerage houses and most have a minimum commission of 18-$25. Even if they have promotion the min fee rarely goes below $15. Each scratching the backs of others in protecting their own interest at the expense of retail investors.
From what I gathered every trade you made the remisier gets a 40% cut even if the trade is done by the investor via online platform with zero help or value offered by them. And since there is a minimum commission of an average of $25, there is a minimum income of $12 made on every trade transacted on your account.
How it works?
Use OCBC securities as an example, their brokerage fee is 0.275% and minimum commission is $25.
Say you buy $1,000 value of stock, your brokerage fee is $2.75. But since there is a minimum commission, you pay $25.
How about $3000? Your brokerage fee is $8.25. But since it is lower than the minimum commission, you pay $25.
How about $5000? Your brokerage fee is $13.75. But since there is a minimum commission, you must pay $25.
How about $7000? Your brokerage fee is $19.25. But since there is a minimum commission, you must pay $25.
How about $8000? Your brokerage fee is $22. But since there is a minimum commission, you must pay $25.
You get the point.
That is what minimum commission is, it is either equal or above but never below.
And no min. com. is NOT no commission!~
2 Types Of Trading Accounts: Contra (Margin) & Cash Upfront
The standard trading account in Singapore is contra account aka margin account (SCB is cash upfront). Unless it is stated as cash upfront of not most standard account is contra, brokers often refer it as cash trading account.
In contra the payment is made 3 days after the stocks are bought. Within the 3 days period you may sell shares and settle the diffidence on the due date. But that is more for trading which is not advisable.
Payment for contra account is on Time period of 3 (t3)
Say you buy stocks on Monday:
Monday - t0
Tuesday - t1
Wed - t2
Thursday - t3 ----> payment due date (EPS)
The same applies when you are selling stocks, money will be credited to your designated account on t3. There is 1 day difference on payment/received date between payment mode via GIRO and EPS (below).
How To Make Payment On Contra Account (Cash Trading A/C)?
When you set up a brokerage account you can either choose to make payment via interbank GIRO or electronic payment of shares (EPS).
Interbank GIRO should not be new to you, select a designated bank account and payment is made automatically 1 day after the due date. When you sell shares, payment will automatically credited to the same account.
As for EPS, you also need to select a designated bank account. But instead of automatic deduction like GIRO, you need to initiate payment via online banking or ATM.
For Cash upfront, you need to have the cash in your bank account first before you are able to buy shares. Payment is made at the time the stocks are bought.
If I'm not wrong, in cash upfront you must deposit your money in a cash upfront account (with the broker). If there is no fund in the account you can't submit a buy order. Once the order is filled the fund will be deducted.
In case you are wondering, SCB is a cash upfront account by definition as you need to fund your security account first before you are allowed to submit a buy order.
On my previous article on how to open stock trading account, the 4 accounts are all Contra, maybe someday I will write about cash upfront account. Its application is much complex, investors need to open a sub-CDP account with the broker and there may be custodian fees involve (will explore some day).
The pro of cash upfront is its lower brokerage fee and min. Com. I.e $18 instead of $25. The cost saving can compound over time which is huge.
What Happens After Shares Are Bought?
Depend on the broker some may send you SMS or Email telling you that your buy or sell orders have been successful.
CDP will send you a statement of account showing the number of shares held under your name. Whenever there is a conflict between the two on the number of shares, always refer to your CDP statement. Broker does not do a good job reflecting shares' statement as it is not sync with CDP.
Alright by now you have an overview on how to buy stocks.
Next let me walk you through some sites that provide basic market information, fundamental data and news that you need as you start your investing journey.
Where Can I Get FREE Stocks Information?
The below are some of the few good sites where you can get stocks chart, prices, fundamental data and corporate announcement.
SGXcafe.com. It has chart, fundamental data, valuation ratio, related news, historical dividend payout record and portfolio tracker.
SGX StockFacts provides some really good fundamental data like EV/EBITDA, Debt to equity, P/E and P/B and substantial shareholders. They even have 5 years financial statement in tabulated format:
5 years financial statement:
SGX site is the original source. All other sites are pulling data from SGX, if you are expecting important announcement always refer to SGX as others may have delay.
It includes important announcement like dividend, right issue, bonus issue and etc.
2. Click the following:
3. Select stock and date:
Vezted by Fifthperson.com, started this early this year. It has a simplistic interface. It allows investors to create watchlist and aggregate important stock-specific news and announcement.
FREE SGX StockFacts Screener
Finding list of industry-specific stock with the screener:
How To Increase Your Investment knowledge
Opening brokerage account and making the first trade is easy. What is hard is to make money consistently, and in order to do that you must possess adequate investing knowledge.
Couple ways to increase your investment knowledge:
1. Read books
2. Online forums, Facebook group and discussion
3. Attend investing courses
4. Learn by doing
SGX Academy, below are some good videos to start with. They offer investment workshop which some are free, low cost ($25) or even up to thousand dollar. Most free and $25 workshops are rubbish. They either spend too much time telling people not to sign up for the 4 digit investment courses and listen to guru than actually spending the time to teach or worst the $25 is a preview for their up sell. I do not have good experience with them.
Value Investing Course by BigFatPurse.com. It is an one whole day value investing course, if don't understand complex investment concept and have no ideas what stock to buy; what to look for or an educator that is not obsessed with his upsell. Then this course might be right for you, it gets you from "no idea" to "many ideas"; from "don't know what to look for" to "know exactly what to look for" even if you have no financial background. It has lecture note, case study & example, step-by-step technique and investment game to understand investing psychology.
tradingwithrayner.com. Follow this blog if you want to learn to trade, Rayner uses trend following strategy. He has a ton of free material on his site.
And TON of educational videos!