Until recently, the Philippine Stock Exchange (PSE) has been mostly bullish. Its overall performance in the past few years has consistently reached high profitability levels, much to the delight of many foreign investors who have dubbed our country a “global investment darling.”
And yet, only 640,655 Filipinos are investing in the local stock market. Now, that number might seem huge, but when compared to the Philippines’ total population of 98.39 million, that’s a pitiful percentage.
So, why aren’t more Filipinos investing in stocks when the PSE has been doing so well? The answer is simple: most of them just don’t know where to begin. When you consider how nearly 80% of local investors lose their hard-earned money investing the wrong way, this hesitation is understandable.
Fortunately, the recent profitability of our stock exchange has also spurred all sorts of seminars and blogs that aim to educate the average Filipino on how to invest. For all you first-timers out there looking to beat inflation, here are some useful tips to help you understand the basics of successfully investing your money in the stock market.
1. Invest only if you have regular cash flow, and even then, invest only an amount that you can afford to forget about for x number of years.
Let’s make one thing clear: this article is about long-term investing, not trading. If you’re looking for the latter, you can stop reading right here.
Long-term investing in the stock market means that you won’t touch the money you’ve invested until you reach your investment goal or your retirement age, whichever comes first (the former, hopefully). So, while you’re investing, you still need to make money to support your basic needs. Hence a regular cash flow, from your salary as an employee and/or revenue from your business, is a prerequisite.
Let’s say you do have the said prerequisite. How much of your monthly earnings should you allocate? That answer really depends on you. How much can you afford to spare? Php1,000? Php2,000? Php5,000? Whatever figure you come with, make sure it’s something you can afford to “forget about,” and that you always go by the following step:
2. Be consistent.
Lots of people have this misconception that you need a whole lot of money to invest in the stock market. That just isn’t true.
You might need millions if you want immediate gains, but if you’re looking to build yourself a cushy nest egg, small yet consistent investments are imperative. The key word here is “consistent.” It doesn’t matter how small your monthly contributions are to your stock market account since you’re in this for the long-term. Think about it: Php2,500 a month may not seem like much, but multiply that amount by 35 years or 420 months, and you’ve already got Php1,050,000 by the time you’re 60 (assuming you start investing at age 25 and do so consistently).
That figure doesn’t even include the gains your money will get you on the stock market if you invest properly. If you play your cards right, that Php1M could very well balloon to Php10M or perhaps more by the time you retire.
And speaking of playing your cards right…
3. Do your homework.
They say investing in the stock market is like falling in love: you need to get to know the other person first. (There’s a bonus #hugot line for you.)
In the same way that you wouldn’t marry someone without getting to know them first, you shouldn’t invest in the stock market until you have a working knowledge of how it works. Basically, you become the part owner of a company when you buy its shares of stock. The more profitable a company becomes, the more its share prices increase over time. Sometimes, a company also releases dividends in the form of cash or stocks, and these are credited to your account when it happens.
As you’ve probably observed, choosing the right stocks to purchase is crucial to successful investing. If you bought shares of a company that hasn’t been doing well, there’s a chance that you could lose money if the company constantly depreciates or goes under.
Read up on the newspaper’s business section and see which industries (e.g., banking, retail, real estate, energy, etc.) are doing well. Find out which companies have been the consistent leaders in the said industries, and pull up their yearly financial reports to examine the numbers. Don’t fall for “hot stock tips” from people whose knowledge of the market is minimal at best, and steer clear of penny stocks unless you’re looking for a surefire way to burn money.
Another option would be to invest in companies with products or services that you personally use. If you’re a Chickenjoy fan, why not buy Jollibee shares? If you bathe everyday (and by gosh, for your officemates’ sake, I hope you do), Manila Water stocks are a pretty solid choice.
Lastly, don’t put all your eggs in one basket. Divide your money between various top-performing companies in different industries. This way, you can still sleep peacefully at night even if a specific industry or company is struggling.
4. Master your emotions.
There are two emotions you need to rein in when you invest: fear and greed. The guiding principle behind investing in the stock market is simple: buy low, sell high.
Yet, so many people get it wrong because they let their emotions influence their decisions and end up doing the exact opposite.
It’s certainly terrifying if the market is down and the ticker tape is red from all the trading losses of the day. The default response of many investors is to sell off their stock holdings to “cut their losses.” It’s instinctive, but it’s completely bonkers. Provided that you only buy from reputable and profitable companies (see the previous step), these fluctuations are but temporary. Rather than giving in to fear and shorting your stocks, see it as an opportunity to buy your favorite company’s shares at a much lower rate, sort of like those midnight madness sales at SM.
Conversely, it’s exhilarating when the market is soaring. The ticker tape is green and your portfolio value is utterly stellar. This is usually when most people get into the stock market, drawn in by the prospect of doubling or tripling their money, but it’s precisely why most people lose money on the stock exchange too. (Buy low, sell high, remember?) Savvy investors, rather than following everyone’s lead and buying up stocks on the upswing, use this time to sell off their stocks so they have money to buy more stocks the next time the market is down.
TLDR version: When the market is down, it’s time to buy. When the market is up, it’s time to sell.
5. Monitor your stocks periodically, and sell off the ones that are underperforming.
The beauty of long-term investing is that you don’t have to monitor your stocks everyday, once a week or perhaps even twice a month is usually enough. You should make an exception if the stock exchange’s performance makes it to the news, however.
If you’ve noticed that a particular stock has been stagnant for years, you may want to sell it off the next time the market is doing well. You can use the resulting funds to buy more stocks of high-performing companies the next time the market is down, and thus strengthen your portfolio’s profitability.
The stock market won’t make you a millionaire overnight, or even in a few years for that matter. Its yearly gains aren’t guaranteed either, and there’s always the risk of losing money if our country’s political stability is rendered unstable by rebellions, coup d’état’s, or whatever impeachment scheme our politicians are hatching against each other.
But if you have enough patience, self-discipline, and the ability to learn and apply a new and useful skill (i.e., investing in the stock market), then you can potentially lay the groundwork for a financially-secure future for you and your loved ones.