The Cheeky Investor’s top tips for first-time investors
“When you're going into it, you don't know what you don't know.”
Phil Usher is Founder and CEO of The Cheeky Investor, as well as a successful business advisor, mentor and professional speaker. He has a vision to improve half the world’s wealth and generate 100,000 millionaires through business and finance education. A successful entrepreneur and business owner himself, he promises to share the secrets and strategies of the most successful people from across the globe with clients so they too can build wealth.
We know that a lot of our readers are new to investing, and are looking for advice on how to play a game they know little about. We recently sat down with Usher to chat about investing in shares, and to learn about alternative ways young Australians can start to build wealth by increasing their income streams, as property prices become increasingly out of reach.
Investing in shares – tips for newbies
Thinking about dabbling in the Australian Stock Exchange (ASX)? Investing in companies is a great way to build wealth, and ideal for first-time investors. Unlike property investment where you often need to be a millionaire (quite literally in Sydney), shares can be a relatively cheap and easy way to get started with little budget.
Usher reveals his top tips and tricks for newbies keen to start investing in shares with me, so that I can now share these with you. You’re welcome!
1. Don’t get emotionally involved
Whether we like to admit it or not, we all make emotional decisions from time to time – it’s in our nature. With investing, however, you need to go against the grain, and try to instead focus solely on the facts.
“Everyone's going to panic when you first invest because it's money. It's money that you worked for. It’s just that emotional part of seeing your money kind of dwindle and say, ‘Oh, this is just a market reaction’. Try and remove that emotion from it, that's what you've got to practice,” he suggests.
“Start small in whatever way you can and just get used to that emotion of going up and down. I think investment apps like Acorns are really good for that. Whether you've got $200 that's now worth $100, then you're going to sort of process it the same way as an experienced investor who's lost $10 million in that same period of time. It's just part of getting over that sort of emotion.”
2. Go shopping in the name of “research”... (yes, seriously)
“I just walk around shopping centres and see how busy they are or see what brands are getting put in your face, or what your friends are buying,” said Usher.
He gives a special shout us to us ladies, saying, “I find women are the best sources of information for trading shares. You guys are fantastic.”
One example he mentioned was the natural skincare brand Sukin. He started to see their products popping up everywhere, including in his wife’s bathroom cabinet, so looked into the brand to discover it has an impressive business model and is owned by BWX Limited which is listed on the ASX.
Another example is JB Hi-Fi; “I’ve never seen a JB Hi-Fi that’s empty, it’s always packed with people!”
3. Do your own research into brands before ruling them in or out
When investing in shares it can be easy to get caught up in public opinion, and other investors’ fears about a brand can often rub off on you. Despite negative rumblings around surfwear brand Billabong, Usher bought shares for 16c and sold a year later for 64c – a return on investment (ROI) of 300%!
“I’d just come back from Hawaii and Billabong was huge over there. They had a lot of speciality surf shops for Billabong, despite a lot of investors who say the company has debt and it’s not a hugely good investment,” he says.
“I found out that the management team actually invested their own cash. So that's a really good indication that, you know, they've got their own neck on the chopping board, their own actual money. That's a good indication that they're serious about building it and getting it out of trouble.”
Usher warns impatient investors that this strategy will not guarantee them money overnight. “Now the thing with this is there's always a lag when that happens. They're not going to invest money then next week it turns around. It's going to be a period of time. I think the (Billabong) share price went down to below 12c at one stage before going back up.”
4. Don’t let the “D-word” scare you
“Debt” can be a scary word, especially for new investors. Many brands will experience debt, however Usher says this isn’t necessarily a reason to jump ship, as long as you understand how the company plans to tackle it.
“In 2012, Qantas announced that they’d lost around $200 million for the year. Everyone was like ‘Oh my God that’s terrible’, and the share price fell from around $1.43 to $1.12. That’s when I got in,” he said.
“The management team came out and said, ‘All right, we’ve lost this much money, what we’re going to do it outsource overseas where we can to save on wages, we’ve got to let staff go if it’s not profitable, and we’re going to cut the routes that aren’t making us money from clients’, and that was their solution”.
Having faith in Qantas’ plan to overcome their debt certainly paid off. He sold his shares for around $3.50 making a ROI of over 212%.
5. Keep your cool with market fluctuations
Share prices will naturally go up and down as the market moves, but don’t lose sleep over this. If a company’s shares drop a few per cent, people will overreact, even though nothing has actually happened to the company itself.
“Coca-Cola will go down by 2% or 3% when the market goes down. But there's nothing wrong with that brand. They've still got massive distribution in every McDonald's and every 7-Eleven around the world.”
“The thing with investing in shares is you're not trying to outperform the market. You just want to take advantage of mispriced opportunities, where the share is being mispriced for whatever reason.”
6. Remember that big brands don’t always give big returns
Bigger doesn’t necessarily mean better. Don’t fall into the trap of investing in one of the big-name brands under the pretense that it’s a safe bet.
“They're pitched as being safe, but I bought ANZ shares at $27 and it went down to $22 within six months. That's one of the biggest banks in the country.”
That’s not to say you shouldn’t invest in them, either.
“The thing with the big brands is they don't fluctuate too much, but they generally pay good dividends. So it's got to sort of fit in with your strategy. They have their place but they're definitely longer-term type of plans. You're not going to get a lot of upside quickly.”
Other than shares, how else can you build wealth on a budget?
We understand that shares might not be up your alley, so we asked Usher for other ways new investors can start to build wealth. The answer? Create new income streams, of course.
How can I create new income streams?
If you’re already working full time and are looking to increase your income, the answer isn’t necessarily holding your boss hostage until they give you a pay rise.
“If you're looking to build something substantial or if you want to retire when you're 40 or 50, that's when you might drive for Uber on weekends for three hours, rent out your car with a company like Car Next Door or pet sit. How easy is pet sitting to earn extra money? You're just looking after someone else's dog and they pay you to do it.”
However if, like me, you’re exhausted from your 9-5 and aren’t sold on the idea of working extra hours when you leave the office, you need to create passive forms of income.
“You get a lot of those old guys lecturing about sacrificing your lattes or taking more modest holidays, and you'll save 1,500 bucks a year. But you can actually keep your coffees and holidays and still get an income stream of 1,500 bucks a year.”
He told me about a friend of his who loves his Weber BBQ, and started to share his recipes and pictures of chargrilled meals online. Now, he earns a great deal of money from advertising and sponsorships from something that started as a simple hobby.
“I think everyone's got a business or a revenue stream in them that's quite easy to make into a profit. But you've got to enjoy it, otherwise it just becomes another chore,” he says.
Lastly, don’t buy a house out of FOMO
Don’t let the fear-of-missing-out convince you to buy a house you can’t afford. Similarly, don’t let older generations bully you into it. Usher helped me put this into perspective to get my own FOMO under control.
“They're used to a world where you get to 60 and you're starting to retire. But life expectancy at the moment is pushing 90. Now if you retire at 75 you've got 15 years of retirement. So if you don't start doing all this until you're 40, you've still got 35 years to build wealth before you retire.”
If you’re still determined to buy, he says millennials need to ask themselves if they want to own property, or if they want to control property.
“Is it that you want somewhere you can build and start to make into a home? Are you sick of being kicked out by landlords and having to move house? It’s fine if you do, you've just got to understand that that's why you want to buy.”
If you just want to own property, he suggests companies like Brickx which allow you to buy a portion of a property for investment purposes. You can’t paint the walls or renovate the kitchen the way you’d like, but it’s a great way to own property and earn rental income and capital returns.
- Today’s ASX top stocks: Imricor Medical Systems, (IMR ↑12.5%), Betmakers Technology Group (BET ↑11.1%)
- How to buy Platinum International Fund Quoted Managed Hedge Fund units | A$5.35
- How to buy Switzer Dividend Growth Fund Managed Fund units | A$2.68
- How to buy BetaShares Australian Small Companies Select Fundmanaged fund units | A$4.23
- How to buy Platinum Asia Fund Quoted Managed Hedge Fund units | A$5.84