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5 Lines of Defense to Safeguard Your Stock Portfolio

Dear Members,

Here is one of the famous quotes on stock investing by stock market legend, Warren E. Buffett.

Rule No.1 - Never Lose Money

Rule No.2 - Never Forget Rule No.1

Sounds impressive, isn’t it?

For most, it is easier said than done. Losing money is still the biggest problem among investors in Malaysia today. This factor alone has shunned away potential investors from the stock market. Often, many would practise Rule No.1 and No. 2 by putting their money in fixed deposits. After all, we are guaranteed a 3% interest per annum from it.

Isn't Stock Investing Risky?

To some, stock investing appears risky. Perhaps, they have lost some money investing in stocks. Perhaps, they have heard of someone who lost some money from their stock investments. I’m not going to sugarcoat and tell you that stock investing can be done without taking a risk. There are risks involved when investing in the stock market. However, I learnt that the difference between successful investors from the yet-to-be-successful ones is how risk is being managed. After all, both may make investment mistakes. Warren E. Buffett himself has claimed to make mistakes, thus, proving that no one is a saint in the world of stock investing.

Hence, the key is to learn how to manage risk. In this newsletter, I would share the 5 Lines of Defence which you can immediately apply to avoid making investment mistakes that cost thousands. They are also crucial for anyone who intends to build mid-to-long wealth investing in the stock market conservatively. The 5 Lines of Defence include:

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Line #1:


Set Your Goals. Don’t Invest Aimlessly

This sounds corny but it will make you thousands. It’s time to make a plan if you don’t have one. Too often, many yielded inconsistent results from stock investing due to buying and selling shares on an ad-hoc basis. Hence, Line #1 is about having a blueprint for your stock portfolio before investing your money.

How do you wish to gain from investing in stocks?

In general, there are 2 types of gains. The first is growth. This refers to investors who prioritize stocks that have potential to grow in value over the mid-to-long term. The second is dividends. This refers to investors who find stocks that pay out high dividend yields.

Can I have both?

Sure, you can. However, the level of appreciation of share price and dividend yield achieved may differ based on your stock selection. This is because stocks that choose to pay less dividends may retain more money to invest for growth. This helps to boost share price appreciation. Meanwhile, stocks that choose to pay high dividends would have lesser money set aside for future growth. This may explain why prices of growth stocks tend to appreciate faster than dividend stocks.

To sum it up, Line #1 is about setting your priority.

Is it growth stocks? Or, is it dividend stocks?



Line #2:

Invest in Stocks that Grow Profits Consistently


This would save you from sleepless nights and heartaches.

I have downloaded, read, and compiled both actual financial and share price data of over 850 stocks listed mainly on Bursa Malaysia. This is my personal discovery. I learnt that share prices move in line with a company’s financial results over the mid-to-long term.

For instance, stocks that grow profits consistently would tend to experience an uptrend in share prices over the long-term. Meanwhile, stocks that reported decline in profits, inconsistency in profits or are incurring on-going losses would experience a downtrend in share prices over the long-term.

Thus, Line #2 is about ‘Fundamental Analysis’. To sum it up, I would elaborate more on 3 words underlined above:

Grow Profits Consistently

Let’s start with ‘Grow’. The stock market is a forward-looking market. Investors want to know whether a company has the track record of growing ‘Profits’ in the past and whether it has the ability to continue doing so in the future. Now, we focus on the word ‘Consistently’. This refers to stocks that deliver strong financial results in both good and bad market condition. This is because there is always investment demand for stocks are consistent performers. Although share prices of these stocks may fall in a market crash, however, they are often the ‘quickest’ to rebound. Hence, they are more forgiving.

Line #3 to Line #5 is available in the report below. 

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Ian Tai

Creator of Bursaking.com.my

The No.1 Stock Data Fanatic in Malaysia



The strategies outlined in this article / report / written material is intended for education & illustration purposes. It is strictly not intended to be an investment advice & must not be relied upon as personal financial advice. If you need specific investment advices, please consult the relevant professional investment advisors.

No warranty is made with respect to the accuracy, adequacy, reliability, suitability, applicability, or completeness of the information contained.

The author disclaims any reward or responsibility for any gains or losses arising from direct and indirect use & application of any contents of the article / report / written material.