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Sunday, June 15, 2014

How to buy stocks in Singapore through POEMS and how to do simple DCA

This post is dedicated to CT, who asked me about commodities and how to buy stocks in her Philips account (POEMS), as well as about blue chip investment on a regular basis (some form of Dollar Cost Averaging). 

Hi C :)

Here's a simple post to help you get started with buying stocks through POEMS and how to conduct dollar cost averaging - although I'm not an expert in POEMS or Philips, I guess my experiences with Lim & Tan should be roughly similar, and hopefully that will provide a guide for you. I use the trading platform by Lim & Tan. 

Hopefully for some other people starting up their investment journey with POEMS, this might be useful for them as well. 

However, of course, as with any post here on this site: in no way does this constitute professional or commercial advice, and you should think through what materials you read here. In addition, while these materials relate to CT's experience and context (imperfectly, of course), these materials are general advice and ideas, and should not be taken to be professional advice. In fact, one simple and nice rule you should live by is that financial advice often has to be thought through carefully and applied to your own context. I'm not a financial adviser, and am merely sharing my opinions, thoughts, and experiences. 

OK, having said that, there are two parts to this article - one is on simple admin that will hopefully get you started, and one is on the theory and practice of Dollar Cost Averaging. You can do simple DCA yourself from the comfort of your home, and knowing how disciplined you are, it will be a simple and easy method of investment for you. 

How to get started:

First, read the materials on this page to get access to your account and to start trading on POEMS:

http://www.poems.com.sg/p2/trainings/

If that is not how you access your account, and you instead access it from a mobile phone (POEMS mobile), read the materials on this page instead:

http://www.poems.com.sg/index.php?option=com_content&view=article&id=190&Itemid=260#

At the bottom of the page is a nice "demo" which will show you how to get started. 

Second, if there's anything you're unsure of, there should be a broker (or agent?) attached to you, and whose number you should know. 

Call that person and ask for help with logging in and buying or selling. 

For instance, my broker is a gentleman by the name of W, so I just call him up every time I need help in terms of admin (and occasionally because I do silly things haha). Take note that generally these people do not give you financial advice, but they are there to help you execute trades. (Occasionally these people do give you advice but this is of course... let's not go there. Never ask a barber if you need a haircut, as my wise daddy always says.)

Dollar Cost Averaging for Blue Chips

This second part is for another question that you asked me :)

You can do DCA on your own for blue chips, and there's absolutely no need to invest with a bank or any organisation. 

In fact, you can do DCA for penny stocks too, which I personally feel is better because blue chips are really expensive. 

You can do it all on your own, which would be simpler for you. 

First, what is DCA? 

I ripped this definition off the internet (from Investopedia - yes, one must always cite one's sources and be intellectually honest):

"The technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high.

...  Dollar-cost averaging lessens the risk of investing a large amount in a single investment at the wrong time."

There are many pros and cons of this, which can take me a long dinner or supper even to explain, but let's just say for the purposes of this article that we are focused on the how and not the why. 

How do we apply DCA in real life, and not let the bank handle this for us?

Step 1: Identify some blue chip stocks of your own, or identify the blue chips that the bank intends to buy. 

CT, you were interested in commodities, so you could perhaps choose one commodity blue chip. 

Maybe choose also a bank or a construction firm also, or something like that. Personally, I hardly ever invest in blue chips, so I would invest in penny stocks instead, but it's up to you. Just identify a few companies you would want to invest in for the long haul. 

In my view, the central premise or core idea for DCA is that, in the long run, stock prices generally rise despite the fluctuations up and down, and this method helps you invest continuously without worrying about market timing. 

Also, there's another simple rule here you may want to follow - try to get stocks that are negatively correlated, or at the very least, stocks that are not correlated. This means that as the price of one stock falls, the price of the other stock does not fall. Oil companies and airlines are the best example. If the stock price of an oil company starts to fall because of, say, declining oil prices and revenues, then the stock price of airlines should rise as their costs of production will start to fall (presumably due to cheaper oil prices), ceteris paribus

Why would you want to do that? If you buy a stock that is positively correlated with another one, if one falls in value, the other will fall also and you'll be caught off-guard. For instance, if you buy two palm oil companies, and there's bad news for palm oil, instead of facing one stock going down in price, you will have two stocks going down in price also. 

Step 2: Decide on a fixed amount of money you're willing to invest, and the regular interval at which this will happen. 

For instance, $1,000 per month is the fixed amount and I will invest at an interval of every three months. 

(Personally, it's my view that the larger the investment sum, the better for you, because the transaction costs you pay will be much lower as a proportion, mathematically speaking.)

This makes a $3,000 investment once every three months, at a specific day. 

Step 3: (And this will work for you, CT, as you are dedicated and very disciplined) Invest the money on the specified interval. 

Log into POEMS and buy say Stock A and B (your identified basket of stocks). 

$1,500 goes into A, and $1,500 goes into B. Round up the lot number, so for instance if it's 1,990 shares, just buy 2 lots (2,000 shares). This is a matter of convenience for you, and also so that you don't have to worry about odd lots (lots that do not end in ",000") in future. 

Hope that answers your question, and hopefully you think through carefully about what you are doing, and then commit to your own DCA. 

People say that DCA works over the long term and is best for novice or inexperienced investors, so I guess it would be a good start for you. 

[ Oh, by the way, according to the way that we have set up your POEMS account, the dividends from the stocks should be regularly credited to your bank account once, or twice, or even more than that, every year. Dividend from stocks are tax free from your point of view, so I am sure you'll be happy to know that :) ]

I certainly don't do DCA - I do lump sum investing where I go long on stocks that I really have researched a lot on, and I do some form of asset allocation. 

Nonetheless, hope this article gives you insight into what you want to do and hopefully it helps you!

Thanks for reading and cheers :)

Anything that interests me!