I share my lessons and mistakes

In yesterday's blog post, I asked readers to let me know the questions you have around investing.

I got this question from one reader, Matthias:

"How did you become financially free by investing in stocks before 30 - a run-through would be interesting (did you use options/leverage, take on especially high risk...)? Thanks!"

Thanks for the question Matthias.

Some quick background before I go into the "how I did it?"

• I crossed my own version of financial freedom (portfolio crossed $1 Million) when I was 29 years old, purely through investing in great companies. For context, I’m 32 years old this year.

• I still work for income, so all my capital came from my salary.

• I do NOT trade crypto or use any leverage. I have little exeperience with these instruments, and didn't really understand them. So these results are mainly achieved with long term buy and hold stocks.

Now that I've got that out the way, let me share 4 things I did that allowed me to get there.

1. Find a job where your inputs are not tied to outputs

2. Set a savings goal

3. Invest in ETFs to get your feet wet and learn about the market

4. Learn to invest in individual companies, analyze companies, and read financial statements

Let’s get going!

1. I had a day job where my inputs were not tied to my outputs

Some background: I used to work as a life coach/ mentor for young kids from broken families in Singapore.

I loved what I did. It was meaningful to impact young lives. But it did not pay well.

So I started searching for answers and came across this concept from well known Angel Investor, Naval Ravikant. And this quote changed my life:

"You want to find a job where your inputs do not match your outputs. This means you can work really hard and make nothing at all. Or you can work really hard and make 10x the payoff you normally will make. What you don't want is a job where your effort and income is highly co-related"

On first glance, I didn't understand this.

In fact it felt scary to know that my income is unpredictable. Where I could work really hard, and end up making very little. It's our human nature to be wired to expect stability and want a stable monthly salary. We don't want to deal with uncertainty.

But upon thinking further, I realized that's the path that has the best chance of wealth creation.

Because if you have a job where it's purely stable and predictable, yes while you earn a good monthly salary without much fluctuations, you also have little upside.

You want to find a job that has asymmetric rewards, that is NOT just dependent on hard work and effort. But also some element of luck and randomness involved, so you can build a bigger base capital.

That's when I shifted to a full time job at age 25 that allowed me to do that:

I had a decent salary as a manager in a small business in Singapore. That part provided me stability and certainty and paid well. But I also had a huge aspect of my monthly income that came from sales commissions.

That allowed me to have unlimited upside.

While my monthly salary was nowhere near what any manager would earn in an MNC or government role, my additional commissions from sales more than made up for it.

So my recommendation to young people looking to build capital would be this:

Find a job with sales or creative aspects. Those are usually the ones that have asymmetric dynamics, so you have a shot at getting "lucky".

So for me, my day job helped me build my first 6 figure capital base, giving me the ammunition needed to move onto the next level of wealth.

2. Save as much as you can by setting a savings goal

When I started working in 2015, I set a goal to save 50% of my annual salary.

At the beginning, it failed to hit that target because my monthly salary was low in my early years.

But as I progressed in my career, and both my monthly salary and commissions grew (as I got better at my craft and performance), I was even able to save up to 70% of my yearly income.

I would never have gotten there if not for setting a savings goal. Having that gave me a clear intention and goal.

The reason I was able to increase my savings rate to 70% and higher was because of 2 things:

a) My expenses stayed flat even as my income increased

b) I was not married, so I didn't have to worry about many of the expenses related to starting a family.

Another tip that worked for me here is this:

I was mindful of the friends I hung out with, as I knew that my environment and social circle will influence my appetite and desire for what is considered acceptable. So I was careful of who I surround myself with.

Seeing stories from others who upgraded their lives in a short time because their social circle were filled with friends who enjoyed excessive levels of lavishness, that served as a warning for me. I realized it's hard for us as humans to fight our biology and need to fit in with our pack.

So if I cant control that, I decided to be mindful of who I let into my circle of influence.

This strong focus on savings, along with being in a job where my income was not pegged to my effort, allowed me to build my capital base of 6 figures in just a few short years.

3. Start investing in ETFs to get your feet wet

During the period when I was still saving up my first 6 figures, I started investing in ETFs. Specifically, I invested in the SPY (which is the S&P 500 ETF), and also the STI Index (which is a stock index that tracks the Singapore stock market).

I did that for 2 years.

You might be wondering "Why did you decide to invest in ETFs? Aren't the returns low?"

Here's my answer: I didn't know how to pick individual stocks back then, and was afraid of losing money in the markets. So the idea of ETF investing sounded sexy to me. I dollar cost averaged similar amounts of money into the S&P ETF and the STI ETF each month.

After 2 years, the STI ETF was pretty flat and didn't go anywhere. But I made some money from the S&P ETF.

Looking back, that experience was valuable for a few reasons:

It helped me gain experience with investing, and taught me about the market in a small way. I was fortunate that I started off that way, because it allowed me to ease my way into the stock market and slowly build my understanding.

Given I was young and rash back then, I'm certain I would have lost a fair bit of money if I had invested in individual stocks in those days because I lacked the knowledge. It would just have been gambling.

And also, those 2 years investing in ETFs helped me learn that I didn't enjoy the passive approach, and helped me understand myself better. It taught me that I craved more mental stimulation.

4. Learn to invest in individual stocks

After 2 years investing in ETFs, I decided to finally learn about individual stocks. I was tired of the slow and low returns, and felt that as a young person, I could achieve much more.

I think there is a time and place for ETFs, but it didn't suit me.

So I started attending courses and reading everything I can online about picking individual stocks.

That opened my eyes to the whole world of long term investing and picking growth companies.

I learnt to read financial statements like the balance sheet, income statement, cashflow statement and analyze a company deeply. It was fun!

For the first time in my life, I felt like I had found my calling. I truly enjoyed digging deep into a company's business model, and understanding its financial situation. Every moment felt stimulating, and I was enjoying myself so much.

That's when I slowly progressed to reading annual reports and earnings transcripts, and found confidence in investing in companies individually.

When you can truly understand a business' income streams, how it makes money, its competitive advantages, and valuations...

You will feel more confident to take heavy positions in individual stocks, and you can even sleep well at night doing so!

The only caveat I will make here is this: While I am personally a big fan of picking individual stocks, I feel that NOT everyone is cut out for it.

Because you need to have a strong passion for business and learning, otherwise it will be hard to excel. If you don't enjoy reading and learning, you will end up buying stocks because of price movements of hearsay.

This will then cause you more stress and worry.

So I would say that I got lucky to be born with a "curious" gene and the love for reading. Investing is the only thing I know so far that can give me an outlet to satisfy my hunger for learning, and yet still make money from it.

***

That's it!

If you want to learn how to get started investing the right way, I also run an investing class for the public…

I’ve coached over 300 students from 15 different countries on Stocks Investing!

What Others Say About Max…

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Interviews and Podcasts

1. Sharing my career path and how I made my first $1 million by age 29 through stocks investing

1. Sharing how I deal with stock market crashes and stay calm during a recession

1. Sharing my personal lifestyle and how I save money, spend money, and my daily life after crossing $1 million

1. Max interviews a fellow investor on the well known stock - Taiwan Semiconductor Manufacturing Company (TSMC)

You can also follow me on social media here:

Twitter: https://twitter.com/heymaxkoh

Instagram: https://www.instagram.com/heymaxkoh/

- Max

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