Chch Investor Starting Guide

A great turnout this week with our experimental session of running a quick intro to the meetup and Daniel running a case study evaluation of companies.

As we plan to experiment with different formats, here are the introduction notes for follow up reads.

Many folks have dropped into our meetup, some have made investments recently and many
are starting out. The common question posed to the group is on where to begin? We’ve put together a rough guide that would hopefully help folks who are looking for more detail on how to begin. As a group, we consist of accountants, students, investors, entrepreneurs and professionals — who have embarked on an investment path thinking starting at various points.

The vast amount of information available online these days can be too much of a deluge while starting out and the idea of this list is to enable you to start on your path much faster.

1. Learning to Save / Work — Kiwisaver / Paying down your debt

Ideally, you have some savings to work with and/or a regular income that you can set aside some time to learn about investing. The general idea when starting out though, is to ensure that you do not have major outstanding debt that is costing you high interest, such as credit card debt or borrowings from others. If you have a mortgage repayment that is less than 30% of your annual income, that should be workable too, though ideally, it’s best that you’re debt free, since there’s no guarantee of returns from investment activities. Paying off and paying down your debt will generate the best returns over time. At the very least, it releases you from psychological pressure of needing to push for higher gains and potentially suppress your ability to learn new things faster.

While most would assume that investment is something to start after you’ve accumulated a significant amount of at least six figures, there are many known investors who started off from smaller amounts.

If you’re starting without any experience in investing, a small sum of one or two thousand can be a good start as your learning experience would be compounding much faster. Numerically, it would take longer, but what you learn would be principles that can scale.

2. Advance savings — index funds, reading about returns

Now that you have some savings, assuming in fixed term deposits, the next path is to find alternatives that can improve upon that. While many people do not yet know how much time they would like to devote to learning about investing, one of the best returns on investment per time spent

3. Finding your favourite companies and learning deeper

What are your favourite companies? They can be rather large and have long histories. That will require a longer period of time. If you like Apple, that means you will have more content to research. Let’s walk through some of the new brands of companies that emerged in the past 10 years. One way is to look at services and products that you use.

For this example exercise — I’ll pick a company that I’ve tracked for a few years now. Tesla. It’s not a company that I can easily buy its product yet, but I’ve read through enough over the years. Now, what is the story of Tesla? With a new company, you could essentially trace it back to the founder who is still around today — compared with say, Ford Motor Company.

Let’s go through its annual reports, it’s IPO prospectus and in the case of Tesla, we can even read up on its early investors during its venture funding round by Draper Fisher Jurvetson. That’s a process, start with one company, your favourites.

Hopefully, your favourite companies are public companies too. For youths today, it can be companies of their favourite brands. Facebook, Google, Under Armour, Nike, Starbucks, Domino’s Pizza, Apple, Twitter and many more. There’s also an emerging listing opportunity for social enterprises called

For US companies, the annual reports and IPO prospectus are available via

Here’s an example link to Apple’s 2015 annual report

When you have read through a dozen companies’ annual reports, it’s time to take a dive into one of the best annual reports read out there, those belonging to Berkshire Hathaway.

You can get it in book form

Or you can access some of them directly via their website

4. Virtual portfolio — expanding your read with classics and selecting more stocks

As your list of companies that you have reviewed grow. Select the ones that meet your criteria and track their share price and company performance over time. Here are some good books on building up your criteria.

5. Your first trades — long term / mid term

After tracking your set of favourite companies, you’re ready to jump in. You’ve looked through the numbers, seen a price change that has created an opportunity which you The company is one you’re expecting to perform well over the long term. You know why you like the company, you’re aware of how it got to where it is today and you’re keen to be a part of owner with the other shareholders on the journey with the company’s management.

6. Financial planning — property and budgeting, adjusting your style

Now that you have first trades and have reviewed a number of companies, you probably might start looking at your life and your own finances as a potential company. It’s an interesting metaphor when you start applying the similar approach of assessing public companies into your own finances. How is your cash flow? What does your P&L look like? What does your balance sheet look like? Your investing asset portfolio is technically not much different from a holdings company or a closed end fund. The difference is perhaps you don’t have formal board members deciding on investments (except perhaps your spouse or if you invest on your family’s behalf, then your other family members).

As you apply such a view, the first assets that you have for deployment that you will realise, is that you have time as the first resource. Whether you are studying, working or have lots of time to investigate into learning and investing, we all start off with 168 hours a week. How much of that time, after your main activities and resting, is allocated to improving your financial knowledge? Do you have 2–3 hours a week to spare or can you find more than 20 hours a week?

Once you can identify where your time chunk goes, the next part is to look at your income and expenses. Where are they going to and how are investments generating? If you are living on your own, the common option is to either rent or to buy your own property. How much do you have available after your expenses to allocate for investing purposes after that? You might have a recurring source (from work or past investments) or you might have accumulated savings from the past or another arrangement. Think about setting up your financial approach towards a comfortable point which allows you time to learn about investing further and potentially experiment with taking risks.

7. Alternative market entries — IPO

With a few companies that you have invested in and hopefully after reading annual reports of a few dozen companies now, you’re keen to look for opportunities that are new to everyone. IPO opportunities are typically of companies that are faster growing than the current ones (on average) and can perform well. That said, many of them wouldn’t have that strong of a track record yet.

If you’re up for it, then go ahead and start investigating into new opportunities. It’s a great avenue to learn about new industries of products and services that are emerging. Pricing of new companies can take a while to reach what is fair value and thus in the process, can provide potential capital gains that are phenomenal, largely due to the fact that the company going public now have more access to public capital than before the process. With new found capital, ambitious management can structure out larger acquisitions and execute on plans that were previously restricted by capital. Well run tech companies generally experience such a realisation and can improve their future revenues with the right acquisitions. We’ve seen this in recent years, examples include Google which acquired Youtube and DoubleClick after it went public (it has made many acquisitions since), Facebook acquiring Instagram and WhatsApp. If we were to go back further, Microsoft’s first acquisition after it went public was a company called ForeThought, who’s main product was what later became known as PowerPoint.

New companies might also falter post going public. Some teams take a while to operate in the public, with new reporting overheads being something extra and with some key staff potentially leaving as their stock options are now liquid in the market.

8. Getting into higher risk instruments — options / futures / hedging / leveraged forex

As you scour the internet for ways to trade, there would inevitably be other methods and approaches that are touted as a fantastic way to generate potential returns. While these are valid financial instruments, as always, the amount of time and effort spent to understanding how they work is going to determine your success. Learn from others who have succeeded with such instruments. Here are some of the best resources around such approaches.

9. Going into high tech — Startups investing

With even governments creating programmes to support the creation of startups, such validation has helped elevate the expectations around investing via new tech companies. Proliferation of equity crowd funding options around the world has democratised access to very young companies. The multiples of the winners are enticing, where the potential of an early $250k investment into a startup can within five years turn into a paper value of more than a billion dollars ( ). Such 4,000 fold returns are pretty much why there are now thousands of startup accelerators and are encouraging a whole new generation of investors into such companies. What does it take for you to successfully get them through though?

Successful startup investing requires much more active work compared with other forms of investing. Here’s a short checklist of helpful things that angel investors can bring to startups.

1) Have a strong network of technologists in that area that you can potentially introduce to the startup to hire/recruit/merge. If you want to accelerate the value of the company that you’re investing in, the next best thing after writing a cheque is to bring in three dozen of the best people in the industry who would be great candidates in the company. It’s up to the startup to select who they want to hire, but if you can bring them strong talent from the get go, their odds would improve. Following up after that, is by bringing in folks that are great at business development, sales, marketing, PR and funding.

2) Next is having a strong list of relationships that you can introduce to the company to eventually becoming paid clients. If the startup is in the B2B space, then introduce them to potential customers — it can be a quick email introduction to set them up for coffee or you hosting a dinner. The earlier you can do so with the company confident of delivering the solution, the better. As expected, the greater number of clients you can connect with the company, the better the chances are that the startup can do.

3) After providing money, recruitment contacts, potential client lists — hopefully the startup that you have invested in is now performing well enough to grow towards the next stage. At this point, the type of relationship that is very valuable is with the later round venture investors who are looking to invest in growth companies that are at the multi-million dollar round. That said, if the startup is doing well, they would probably be attracting interest from the folks at Sequoia, KPCB, Benchmark, Andressen Horowitz, Union Square Partners and others. Your relationship with those folks would definitely help.

That’s the quick list. If you’re keen to learn more details about startup investing, here are some recommended resources.

10. Going into emerging tech, bitcoin

Frequently at our meetups, the concept of bitcoin/cryptocurrency gets brought up. We’re dedicating a special paragraph here to address bitcoin. The technology that brought towards its creation, is here to stay and there will be continuous work in bringing the technology public. With its novel use case and applications, like any tools, its users are finding value. If you have the time to investigate into it further, by all means, do so. If you have a legitimate use for it, you should then spend more time on it, since it can legitimately help you solve a problem.

In an emerging technology space, there are bound to be opportunities and the dangers that lurks around are many. If you can allocate time to learn more about bitcoin (one would think that a continuous weekly allocation of 5 or more hours), chances are, you could potentially discover opportunities of how the future can be better with it.

That’s all we have for now. Be sure to check out the books.