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Adam Khoo: 4 Common Mistakes Investors Make
Aspire, Thought Leaders | 21 January 2015
By: Simeon Ang
Articles (125) Profile

A prolific speaker and a best-selling author, Adam Khoo made waves for himself when he became one of the youngest millionaires in Singapore some 16 years ago. In the prelude to his keynote address at the Financial Growth Summit 2015, I had a chance to interview him, who is by the way, an avid trader in stocks and foreign exchange.

In the preview to his keynote address, Adam shared that financial decisions are made on a daily basis. These decisions have the potential to create “real fortunes” especially during economic uncertainty and financial crises.

With his vast experience interacting with audiences both here and abroad, I asked him what are the common mistakes that people make when it comes to investing.

Adam Khoo: The common mistakes investors make that destroys wealth instead of creating it can be quite a few. However, the top four of that list, in my opinion are:

  1. Buying a stock when it is on a downtrend. No matter how good the company is or how cheap the price may look, cheap will get cheaper when the trend is down.
  2. Mistake of buying a stock when major shareholders and directors are dumping the stock.
  3. Buying a stock when it is overpriced beyond its intrinsic value. An expansion of this mistake is how investors do not know or are unable to perceive the intrinsic value of a specific stock.
  4. Not knowing how to apply the right investment strategy for the different kinds of stock categories. For example, for defensive companies with predictable cash flows, it is possible to use a buy and hold strategy. However, investors sometimes use a buy and hold strategy for cyclical, growth stocks which can easily fall 30 percent – 50 percent in value when the market corrects. For cyclical growth stocks, a trend-following strategy with a stop loss is essential.

While many investors are now chasing after dividend plays, the price of such counters might have already far exceeded their intrinsic values. Hence, personally, I do not invest in yield plays as I go for short-term trading profits. I target 5 to 10 percent returns a month. Together with capital gains on growth stocks, I usually am able to net a gain of about 25 percent a year.

For yield plays, I believe the best bet now for investors who are keen would be defensive REITs that are in the Healthcare and Retail sectors. Investors still need to note that prior to investing in such REITs, yields should be at least 5 percent per annum and at the same time, the counter should not be selling more than 10 percent above its book value. Anything more, and the counter is likely overpriced.

Editor’s note: Readers should take note that individual due diligence is still required before investing or trading in any asset class. Adam Khoo will be giving his keynote address at the Financial Growth Summit 2015. For more details, head over here!

Simeon, an LSE graduate, is currently the editor of Aspire. He specialises on topics surrounding trading psychology, politics and macroeconomics.

Please click here for more information about this author.

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