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Wednesday, January 06, 2010

An Engineer's Mind For Investing

A lot of people asked me why I am investing in the stock market. After all, I am an Engineer by training and my day job had nothing whatsoever to do with finance and investing, let alone the stock market. Furthermore, I do not have any academic qualifications related to business, economics, finance, accounting or investment. They said that without any background in finance, economics or accounting, I will not be successful in my investment. They claimed that it is better for me to outsource my investment to finance industry experts out there.

Well, I do not agree with most people out there. There are many things in Engineering that can be applied in investment and finance. In fact, many theories in finance actually came out from Science and Engineering. There is not much difference in analyzing companies, Electric Circuits and Computer programs, just that you need some basic Accounting knowledge as a base. After that, most of the stuff is really based on how you can understand and make your own personal judgement. All these logical analysis skills are actually taught in schools. It is a matter of whether you can apply it in practical case studies or not and one's field of study is actually training for your working life. But there is no rule to say that you cannot apply it in other areas as well.

There is no one golden rule to follow in investments. Similarly, there is no one rule to analyze a circuit or debug a computer program. Yes, you need to know the available options, but you do not need to understand each and every one in detail. You just need to know when and how to apply those rules in each circumstances given one's limitations like time, experience etc. Unless one is writing a thesis on the subject, there is no need to go into great details in these rules.

I have embarked on this investment journey. And I am glad to say that it is my Engineer's mind that actually contribute much to my investment portfolio, rather than my limited finance, economics and accounting knowledge.

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8 Comments:

Blogger Everlearning said...

Hi ghchua,
I think I have more to fear than you to be unsuccessful on my journey in the stock market because I do not have any credentials other than a simple and sound mind.

In the past, many of my investments failed because I trusted the insurance companies and the banks' recommendations.

Not now, I would rather take the DIY route. It would be better for me to understand what went wrong in my investments than "what unforseen circumstances... the unpredictable markets ... things just turned out to be unfavourable for me."

You are one of the retail investors I emulate without any doubt. Your sincerity, simplicity and humility towards investment would reap positively, maybe not in billions but in a satisfatory amount you deem sufficient!

7:15 PM  
Blogger ghchua said...

Hi Everlearning,

Having a simple and sound mind is a good first step towards sucessful investment. What you need now is actually experience, and nothing beats being in the market to get that experience.

Don't be afraid to make mistakes. Everyone makes mistakes and the same applies to investment. But not everyone learn from mistakes and that is where you can be a better investor. By learning from your mistakes, you can be a better investor.

If you are being affected by market noises, then obviously you are being reactive rather than planning ahead based on your investment plan and objective. Try not to be reactive to the markets. You will end up having sleepless nights trying to digest market news everyday. That is not my strategy for managing my portfolio. Rather, I plan ahead, protect my portfolio if I anticipate risks ahead and think long term.

Yes, the market might be unpredictable in the short term, but in the long term, it will reward patient investors.

9:21 PM  
Blogger Cheng said...

Hi ghchua,

Happy New Year! Glad you are doing well. :)

We have some questions about diversification and hope that you can provide us with some answers. Thanks in advance!

http://investideas.net/forum/viewtopic.php?f=16&t=2673

Cheers!
Cheng :D

7:02 AM  
Blogger ghchua said...

Hi Cheng,

Okie. Will reply to that topic.

7:16 PM  
Blogger Dinh said...

Dear Mr GHCHUA,

I totally agree with your thoughts in "An Engineer's Mind For Investing". I enjoyed reading your blogs.

Would you mind to send me email at hhdinh@gmail.com?

Have a nice day!

7:03 PM  
Blogger hyom hyom said...

Hi ghchua,

I have been following you for a few years since the days when you were active on sgfunds. It is a compliment to me to discover that you have just added my blog to your bloglist. I have reciprocated your compliment by adding your blog to my bloglist.

I commented on this post because of our common background. We are both electronic engineers who studied in NTU with no formal training in finance/investment but benefited from our training as engineers. I could not find your email on the blog. Could you just drop an email to me at help.your.own.money@gmail.com? I will reply you from there. Thank you.

5:11 AM  
Blogger ghchua said...

Hi hyom hyom,

I have replied you. Please check your email. Thanks.

12:51 AM  
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A self-directed investor, looking to invest for retirement needs and bypass all those expensive financial planners/insurance agents. Investing is fun, profitable or most important of all, knowledge gained is useful for the rest of your life!

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