How to really Invest in Stocks in Malaysia?
For your information, this is the most practical and highly actionable guide on the planet on stock market investing in Malaysia.
The best part?
I am going to show you tips and techniques that work in your favor so you never again lose lots of money in the share market due to own stupidity.
In short, if you want the to get consistent and predictable return from the Malaysia stock market , you will love this guide.
Let’s get started.
In addition to investing directly by buying shares in the stock market, there are also other ways to invest into stocks indirectly in any stock market.
You see, the misconception above is due to you taking stocks investing advice from all the stocks investment gurus or trainers out there, telling you the only way to make big + fast money…
…is to invest directly into stock markets.
Table of Contents
Truth be told…
Some of these trainers probably made more money from promoting their stocks investing courses, rather than actually hands-on investing or managing million of clients money in the stock market.
Worse, some of them are only bloggers who only know how to write fantastic articles, feeding you with theories and their own narrow one-man experience, rather than practical, diverse experience from a broad perspective.
My credibility in stock market investing comes from the fact that in addition to managing multi-millions equity investment portfolio for clients as an independent financial adviser, I'm also sought after by corporate financial organizations (like fund houses, financial associations and reputable banks)for my investment expertise, to conduct workshops & seminars for their internal staff, whom consists of:
- Investment Analysts
- Financial Advisers
One amateurish yet major blunder is when people classify unit trusts (mutual funds) and stocks as two different asset classes, comparing why stocks can give you higher investment returns than funds.
How misleading is that.
This lesson below will clear your misconception once and for all, before diving deep into the core contents below on how to invest in stocks in Malaysia.
|Direct||Unit Trust (Mutual Fund)||Exchange Traded Fund (ETF)||Derivatives|
|What it is||Self-explanatory||Collective investment schemes, where your money is pooled with money from other investors and invested according to the fund’s investment objective. This gives you wider access to stocks that you otherwise might not have known their potentials on your own.||Collective investment schemes, where your money is pooled with money from other investors and invested according to the fund’s investment objective. This gives you comprehensive access to a range of stocks that you otherwise might not be able to with your capital.||A contract between two or more parties whose value is based on an agreed-upon underlying stocks, which corresponds to the price of the stocks.|
|How it works||You need to open a stocks brokerage account, together with a Central Depository System account, in order for you to buy and sell in the stocks market. You need to transfer your funds from your bank accounts to your brokerage account.||Unit trusts (UTs) are actively managed by professional fund managers.|
They are experts in their fields, whose full-time jobs are to monitor the markets and make decisions using their knowledge of the markets, internal research, and analytical tools that you may not have access to.
|ETFs are passively managed and trade on a stock exchange, which means the cost is reduced. They usually track a specified index, since they invest in a basket of securities in the same proportion of the index that it is tracking.|
Therefore, you don’t necessarily need a financial adviser representative or a funds platform. To invest in an ETF, you simply need a stock brokerage account.
|You need to open a stocks brokerage account, together with a Central Depository System account, in order for you to buy and sell in the stocks market. You need to transfer your funds from your bank accounts to your brokerage account.|
|How are they managed?||You decide whether to go for short term or long term trading. The world is your oyster!||Unit trusts generally require active management as the fund manager selects the securities which he feels offers the highest possible return for the fund’s objective. They are usually looking to outperform the market.||ETFs typically require more passive management as you only need to replicate the performance of the index as closely as possible.|
Typically, this means that the proportion of stocks in the ETF will be the same as the proportion of stocks of the index that it follows.
|It's your call entirely, same like direct stocks investment!|
|What determines its price?||Priced by supply and demand of the market and are subject to fluctuations in market value. Since stocks trade on an exchange, this means you can usually buy and sell at any point in the day during market opening hours.||The unit price is determined by pricing each of the underlying securities of the portfolio at current market value.||ETFs trade similarly to stocks which means they are priced by supply and demand of the market and are subject to fluctuations in market value.||Derivatives trade similarly to stocks which means they are priced by supply and demand of the market and are subject to fluctuations in market value.|
|Advantages||Can profit handsomely in a relatively short time if your stocks pick is correct. Total control of your investing decision.||Each unit trust typically invests in a range of assets which means your risks are diversified. If one particular asset doesn’t perform as well, the gains from other assets could offset any losses. While there are no guarantees, there may not be an adverse impact on your investment as a whole.|
Since the aim of unit trusts are to outperform the market, the fund manager may decide to rebalance or exit a position if he thinks the fund will perform better.
This means that your exposure to poorly performing underlying holdings may be better managed.
|Since an ETF will try to replicate the market/sector/asset class index it is supposed to track, investors are neither expected to under-perform nor outperform the market, which is a good thing. No constant active monitoring or management is needed.||Can profit super fast in a relatively short time if your stocks pick is correct and the market moves in favor of you. As a a proxy to actual stocks ownership, your cost to buy derivatives is normally only a fraction of corresponding stocks price.|
|Disadvantages||Less diversification compared to unit trusts or ETFs. If you have limited capital, you will have concentrated risks in one stocks counter should the price plunges.||Since unit trusts require the expertise of the fund managers, they typically offer higher costs than ETFs. High upfront fees and/or management fees may erode investors' returns.||When investing in ETFs you will have exposure to the volatility of the benchmark that the ETF is tracking. This means you will be exposed to sectors during both upturns and downturns in the entire market regardless of the sectors future outlook.||Highest risk, investors can lose their entire capital invested in a relatively short time if market moves against their positions.|
|Upfront fees||Brokerage fees is applicable because ETFs are traded like shares, ranges from 0.1% to 0.4%, subject to GST. |
The more frequently you trade, the higher broker fees you pay. That said, the large investment amount is subject to discounts.
|Sales charge range from up to 0% or 5.5% depending on the the distributor or platform used, subject to GST. This amount is usually deducted from your total investment. Negotiable.|
For example, if you invest $10,000 and the upfront fee is 2%, your total investment sum is $9,900.
|Brokerage fees is applicable because ETFs are traded like shares, ranges from 0.1% to 0.4%, subject to GST. No reason to trade ETFs frequently.||Brokerage fees is applicable because ETFs are traded like shares, ranges from 0.1% to 0.4%, subject to GST.
The more frequently you trade, the higher broker fees you pay. That said, the large investment amount is subject to discounts.
|Management fees||Nil||Ongoing management fee applicable because you’re paying for the active management of the fund and the fund manager’s expertise. Ranges from 1.5% to 1.8% per annum.||Ongoing management fee applicable because you’re paying for the passive management of the fund and the fund manager’s expertise. Ranges from 0.4% to 0.6% per annum.||Nil|
Imagine you run a nasi lemak stall. Business is doing well, but you desire to expand.
The only problem?
You lack sufficient money to expand. (thank you Captain Obvious!)
Raise money la by prospecting to qualified investors who are willing to give you money, in exchange for parts of your nasi lemak stall ownership.
Let’s say you retain enough stake so that you still have the final say on how to run your business, if no single investor or group of investors hold sufficient ownership in your nasi lemak stall to boss you around.
After all, your investors aren’t looking to run your business, they just want to share the proportionate profits you generate from your nasi lemak stall, in return for the capital invested.
Now, you reverse the role, imagine you ARE the investor of the nasi lemak stall.
That is the position you are in when you are a stocks investors.
The fact is…
For many people, buying shares is the #1 thing they think of when it comes to investing and making fast cum easy money in Malaysia.
But they lack the how-to’s, assuming it’s rocket science or treat it as gambling.
Not to mention, getting into stocks investing with the wrong mindset.
The other thing I perhaps can relate to what you are thinking is that when you first started…
I can bet you 100 ringgit that you feel stuck now is NOT due to….
…lack of information, but rather, you are overloaded by a barrage of messy web of information or misinformation…
…some of which are free, some paid,
…that you don’t know how to or where to start.
Here’s the truth:
What’s really lacking is good, concise and actionable information you can start in the next 24 hours.
Who has time to save up a few thousands ringgit to register for that 3 days stock investing seminar which is going to be conducted 3 weeks from now?
Don’t get me wrong, I am a huge proponent of learning the proper stocks investing how-to’s and methodology…
But I believe more in ongoing hands-on learning, by starting small today and get better along the way.
If you agree, read on.
ii) Understand the category of stocks you can invest into
- By geographical region: Local (Malaysia), US, Singapore, Asia Pacific, Japan, Euro, Emerging Market
- By size (market capitalization of the stocks): Large Cap, Mid Cap, Small Cap
- By sector: Consumer, Industrial, Finance, Plantation, Property, Services, Technology
Here’s a review of the stocks sectors you can invest in Bursa Malaysia
Due to the liquid nature of stocks investing, you can
- Day trade (buy & sell within the same day)…
- Be a short term trader (buy & sell within a week, for example)
- Buy and hold for a couple of years with or without reaping the dividend profits throughout your holding period
Here’s a frank comment:
It is stupid to be a day trader or a short term ‘investor’ (aka speculate on the stocks price) because if your intention is to invest and make money fast,
…then stocks market investing is a terrible, terrible way to do so it.
…because currency trading (be if FOREX or crypto-currency) is faster, without the home work needed.
iii) How to open an account to invest in stocks
Online versus offline
Online via self service platform or app is the way to go here rather than going through the offline way (through phone call with remisiers or broker).
The main advantage of online trading Account over offline trading account is lower brokerage fee. For online trading account, you may call help-desk for trading but they may impose high brokerage fee.
Cash or Margin Account
Most brokers have an option for you to choose between Cash or Margin Account (aka Collateralized account).
For Cash account, total trading limit of the day is equal to the amount of cash you have in your trust account. The advantage of Cash account is lower brokerage fee.
How much lower?
It could be 2x to 4x lower, for example…
0.1% per trade transaction (excluding GST) for Cash account, versus 0.2% to 0.4% per trade transaction for Margin account.
For some stock brokers, the higher brokerage fees is only charged if margin is actually used in a Margin account, otherwise the fee defaults to lower cash account rate even though it is a Margin account.
For Margin Account, you are allowed to trade beyond the amount of cash that you have in trust account. Normally, broker allows at least 2 times the amount cash that you have.
On top of that, if you have shares in the attached CDS account, they also can be used as collateral to increase your trading limit.
I highly recommend you go for cash account for a start because as Warren Buffett said, you should not borrow money to invest.
Trust account is an account where your broker keep cash that you deposited. They may pay interest on the money keep in this account.
Direct versus Nominee Account
For Nominee trading account, you appoint your broker to hold shares on your behalf.
It means that, once you buy shares, your name will not show on the registration book of existing shareholders directly, instead it will show your stock broker name.
The advantage is, you do not need to do any paperwork such as fill up forms for bonus issue, right entitlements and others.
The most important is your broker have to remember the dateline for all the paperwork, not you. But you still need to instruct them on what to do.
However, the disadvantage of nominee account are you are not eligible to apply for IPO and you may not receive the annual report or some gift vouchers easily.
Recommendation: Direct Account to keep things simple and be hands-on as a beginner.
That being said, your brokerage will also assist you to open CDS account.
CDS account is an electronic account which maintain by Bursa Depository or formerly known as Malaysian Central Depository. It is used to keep track or your shares or stocks movement. Shares will be credited to your account when you buy and debited from your account when you sell on due date.
Please be expected to fill and sign in CDS Opening Account Form. At the same time you have to sign two copies of specimen cards and provide copies of your identity card (NRIC). The fee for CDS account opening is RM10.
If you have multiple trading account, you have to open separate CDS account for each trading account. Sharing CDS account is prohibited
Your stock broker will have a collection account for you to deposit your money into your stock broking account. Use online transfer of FPX payment via online banking. Easy peasy.
iv) How to start selecting the right stocks to invest into
You can shortlist by asking yourself:
What is my interest and/or circle of competence?
You might be tempted to be the Jack of all trades and try to tackle all sectors are there in the stock market…for the sake of finding the most profitable sectors or stocks…
But this stocks sector picking approach will kill your you faster than you give upwaking up 530 am every morning to run 10 km.
It’s a very long run, like a marathon, NOT a 100 meters sprint.
Due to the above, you will start to feel stocks investing is a chore (it shouldn’t), and making matters worse, you will get frustrated when things didn’t work (especially the profit or returns went below your expectation)
You don’t have to believe me, so I welcome you to try to be ‘Jack of all Trades’
(then revisit this article after you give up in 1-2 years time)
The reality is – most of us already have limited time for the thing that we know (or we think you know) in our lives (like our career, etc)
So personally, I don’t see why we should burden ourselves with more things that is beyond our circle of competency for now, when you are just starting.
With that being said, if you still have zero clues, then you don’t need to have a crystal ball to make predictions. Pick your poison from these 2 sectors:
Consumer Goods and Industrial Goods/Services
…in any stock market, regardless of market cap.
Then niche down to micro sector, just like when I pick Padini Holdings using Equities Tracker.
Why Consumer Goods and Industrial Goods/Services sectors?
Because they are tied to 2 major components in Maslow’s hierarchy of needs, and that is food, clothing and shelter.
Regardless of economic conditions, company that produces boring goods for our day to day usage or consumption like eggs, coffee and other form of beverages (even alcohol or tobacco, although they are not Shariah compliant).
Same goes for industrial goods or services utilized in commercial settings for constructing our homes, like steel, pipes, rubber gloves, parts of electrical appliances, etc.
v) Why fundamental analysis is important to invest into profitable stocks
Fundamental analysis is the core of long term value investing.
Without it, you are driven by 2 things, just like most people are, the moment you step into the share market:
Greed and Fear
When the economy improves, people become bullish about the market.
Greed will cause 3 things in most people:
- Boost their confidence to the point of arrogance
- Stimulate risk-seeking behavior,
- Motivate them to chase the winners
If you are one of the people affected by these, it will blind your judgement and subsequently result in poor decision making.
As most people are fixated to short term gains when prices are rising, they are more than willing to purchase stocks overpriced.
…which results in the prices of the stocks being bid up to an overvalued level.
You mustn’t fall into this trap.
How NOT to fall into such pscyhological trap?
Well, one major factor why people are vulnerable to losing money in the share market is that they use emotion in their decision making process.
Compared to systematic and logical approach, this method requires no work.
Instead of performing due diligence, such as analyzing the underlying business performance, profit growth prospects and value of the business, emotional decision-making uses some mental short-cuts based on similarity & familiarity to judge what the market will do next.
For example, when you receive some negative news of a stock, it will link the news to price falling and will trigger the fear of loss. In such case, the most natural reaction is to sell the stock without investigating further.
The massive disposal of a stock will then lead to its price plunging. Likewise, the fear of loss also causes people to ignore bargain.
See the downfall of NOT doing any fundamental analysis?
Your mind have not information it needs to think clearly, and as a result, you tend to sell stocks in panic when prices crash.
Here’s a fact
When stocks price nosedive, the innate fear of losing in human will be triggered.
The self-defense mechanism then kicks in immediately.
People will suddenly become risk averse.
In addition, the exaggerated bad news cast over the media will result in extreme stress, further triggering the fight or flight response in that primitive reptile part of your brain .
When the emotions are combined with the herding mental shortcut (belief of following other people selling is safer than doing it differently), it leads to panic selling, as the depressed investors unwittingly allow their emotion to overcome rational thinking in the decision-making process.
This explains why the speed of stock price falling is much faster than that of its price rising.
This matter is compounded when most of the investors do not like to read financial reports; many of them do not even bother to understand the companies’ businesses
…and hence do not know the actual worth of the businesses when they bought the stocks.
They buy the stocks solely based on hype and hope that the stocks price will double in 12 months.
During economic crisis, when everyone rushes to sell the stocks and analysts also give strong sell recommendations; whatever you fear will be validated and therefore you will rush to liquidate their positions hastily to prevent further loss.
In a book titled The Little Book of Value Investing, Christopher Browne stated that
“Most people seek immediate gratification in almost everything they do including investing. When most investors buy a stock, they expect it to go up immediately. If it doesn’t, they sell it and buy something else.”
This statement is further supported by Robert Cialdini that
“Quite frequently the crowd is mistaken because they are not acting on the basis of any superior information, but are reacting, themselves, to the principle of social proof.”
The myopia always leads to ignorance of the underlying business and overemphasis of short-term gain.
In summary, when the hot stocks lose their momentum and heading south, uninformed investors will be spooked by the selloff and tend to sell immediately at a loss.
Therefore, it is hardly surprising that most people have never even won a cent in their investments.
vi) How to invest into the best dividend paying stocks
A newbie misconception that you probably have to go through is –
The more research or homework you do in your share market investing, the better you are to get the results (return) that you desire.
Knowing all the strategies of stocks investing can only get you so far.
In other words,
You need to realize that despite all hard work put in, you may still suffer short term paper losses.
And it’s not because you are dumb, lazy or not trying hard enough,
It’s because there are factors beyond your control, like geopolitical risks and black swan events.
But if you are patient, deliberate, methodical with a long term time horizon…
Then the stock market will reward you many folds.
By the way, here’s an example of a negative Black swan events affecting your stocks investing returns.
Black swan events in stocks investing : Case study #1
Imagination Technologies Group, a UK-based designer of mobile graphics processors suffered massive stocks price drop in April 2017 and subsequently put itself up for sale in June 2017, soon after Apple, its largest customer and one of its biggest shareholders, said it would phase out use of its technology in products including the iPhone.
Another example of a black swan event, but a positive one, coupled a hint of geopolitical element (note: political risks had always been the major driver of stock price in short term)
Black swan events in stocks investing : Case study #2
Thai’s apology to Najib lifts Supermax
Former Supermax Corporation Bhd managing director Datuk Seri Stanley Thai has apologised to Prime Minister Datuk Seri Najib Razak for his involvement in Malaysian politics.
Truth be told,
The pain of waiting your paper-loss investment to go back up without the ability to do anything productive is excruciating.
Except doing something, anything stupid like panic or depression-induced selling.
Which is why most people does exactly that, because there’s nothing else to do!
Cushion your stocks investment portfolio with consistent and guaranteed dividends (cash flow), even in the worst of times.
Treat it like a consolation price, if you may.
But Why Dividend Paying Stocks?
There are a few reasons WHY:
1: Investing in Dividends Paying Stocks provides High Certainty & Predictability
Dividend income is more predictable than projecting capital gains. After all, dividends are realized cash whereas capital gains are merely on unrealized paper gains and they are subjected to changes on a daily basis.
In other words, your investment returns would not fluctuate depending on the mood or sentiment of Mr Market.
Instead, you’ll reap the certainty of hard cold cash flowing into your bank account regularly if you choose to invest for dividends.
2: Investing in Dividends Paying Stocks Pay Your Monthly Bills
This is true and logical.
Regular dividends stream pay your fixed bills. This includes your rent, mortgage, car loan, utility bills, Astro, insurance and grocery.
After you had the above covered, it is nice to have the dividends cover your discretionary expenses like dining at fancy restaurant, going to movies, dating, or an overseas vacation.
Again, this is only applicable for investors who are receiving dividend income regularly, not one who is for capital gains where their gains are mostly on ‘paper’, if any.
#3: Investing in Dividends Paying Stocks Boasts Your Confidence
It is customary to receive your first dividend income into your bank accounts within 3 – 6 months after purchasing a dividend paying stocks.
Subsequently, based on the amount of stocks unit purchased, you would continue to receive dividends either on a quarterly or semi-annually basis.
If you are a beginner investor and had started to receive cash returns every 3 months once from your portfolio, you would probably get a fine dose of ego boast about it regardless even if the price of your stock is down.
Psychologically speaking, the stock you bought is ‘good for something’ and it incentivizes you to keep it over the long-term.
#4: Investing in Dividend Paying Stocks comes with much Lower Risk
A quick definition of a good stock investment is when the stock has great fundamentals coupled with an undervalued price.
Often, stocks which are consistent in their dividend payouts possess great fundamentals.
- Resilient business model,
- Competent management team,
- Healthy balance sheet
- Strong cash flow
- Proven track record of growing profits consistently.
As a result, you minimize your risk or chances of making poor investment decisions if you just stick to stocks that have the qualities above.
#5: Investing in Dividends Stocks Builds Up Your Portfolio
Now if you are currently making tons of money and do not need to rely on dividends to fund your current lifestyle, then it could accelerate your wealth accumulation.
Because you could reinvest your dividend income into another dividend stock, and this enables you to further expand your portfolio (aka the ‘stacking’ effect).
In other words, over time, you may not need to save money to invest, but instead, using more dividends to fund your future investment. It works like a flywheel effect where you use profits to generate more profits.
#6: Investing in Dividend Stocks removes the need for Capital Gains?
Does it mean that investing for capital gains is no longer relevant once you receive good dividends from your stocks investing?
Of course no.
Investing for stocks capital gains is great if you are more sophisticated as an investor.
This means, if you are a skilled stocks investor (like Koon Yew Yin), then, your chances of achieving capital gains will be greater than one who has no skill at all.
In most cases, people who are into quick capital gains but without any sort of fundamental and/or technical analysis skills are often gamblers and speculators in the stock market.
They are often thrill-seekers who treat any stock market a big legal casino.
They are absolutely not long term profit-driven, which is completely a different mindset with stock investors as they are very short term profit-driven.
Learn more: Why Stocks Trading & Treating the Stock Market like a Casino Does NOT Work
#7: Investing in Stocks is Investing with Clarity
How differentiate between an investor and a speculator?
It is shockingly but incredibly easy.
If you interrogate a person who claimed he is investing for capital gains, then probe further:
‘How much capital gains are you expecting?’
If his reply is: ‘As high as possible la, abuden!’
..which is quite a norm reply, coming from a stocks ‘investor’ with a speculative mindset.
On the contrary, true investors had already calculated and possess reasonable goal for their expected returns before buying into a stock or any investment.
For instance, if you ask a dividend guy what he is investing for, you are likely to hear him say:
‘I’m expecting to make at least 5-8% annually from this stock investment over a period of 5 years or more’
Definitely, he is investing with clarity and with purpose, not so much into luck, rumours, random tips, or hear says.
#8: Investing in Dividend Stocks does NOT require you to be a Rocket Scientist
Dividend investing helps beginner investors to make stock investment decisions easier, faster and better.
These decisions made are mostly based on facts and figures, logic, and common sense.
Thus, if you can do some simple mathematical calculation, you can become successful in dividend investing – easy peasy.
Here’s a quick way to determine whether a stock is undervalued or overpriced.
Obviously, the reason why people invest in stocks market is to earn more than how much banks are promising in Fixed Deposits, which is around 3%.
Put simply, any stock with dividend yields below 3% is overpriced. On the flip side, if the dividend yield of a stock is 5% and above, stocks investors may look into it as it is considered to be undervalued at its current price.
In a nutshell, dividend investing is a simple strategy which promotes investor, even the new ones, to ‘Buy Low, Hold for Dividends, and Sell High.’
#9: Dividend Investing is Investing for Capital Gains
What? This seems like contradicting statement.
No, there’s no typo here.
Stocks with consistent dividend payouts are in demand by a larger pool of investors.
Institutional investors like KWSP, pension funds, Tabung Haji, insurers and mutual funds literally need dividend paying stocks in their portfolio for long term stability.
It’s simple economics – anything that is in demand by many, including stocks, will appreciate both in price & value.
These institutions have billions and are still receiving billions of dividends from the amount invested.
In times when the markets are uncertain and volatile, institutional investors need to adopt a defensive stance to their portfolio but they are expected to still deliver returns to their stakeholders.
It may explain why dividend stocks tend to achieve sustainable capital appreciation over the long-term.
That being said, the best way to cushion your stocks investment portfolio is via exposure to the REIT sector in the stock market.
Compared to conventional dividends from any other stocks, REIT stocks dividends (distributions) possess these traits unavailable in any other stocks sectors
- Guaranteed consistency
- Guaranteed high payout ratio
- Inflation hedged
- High Pricing power
Now It’s Your Turn
Phew! I put A TON of work into this guide. So I hope you enjoyed it.
Now I’d like to hear what you have to say.
What’s the stocks sector you prefer to invest in and why?
Is it Consumer Goods stocks? Industrial goods stocks? or REIT stocks?
Let me know by leaving a comment below.
Related resources (but not comprehensive enough):