At one point or another, we’ve all wondered “What is the minimum investment needed in the stock market?” or “How much should I save before investing in stocks?”
Ever since online stock brokers became popular, it seems like the minimum required investment keeps getting lower and lower. That’s good, right? Well, not always.
If you’ve tried stock trading or know someone who has, then you also know that it’s hard to make money in stocks.
There are over 200 listed stocks in the PSE, and literally thousands of factors that could affect their prices. It’s hard enough just keeping track of everything, let alone understanding each stock well enough to make money!
We don’t need to make life harder for ourselves—but that’s exactly what happens when you invest less than 8,000 pesos in the stock market.
A TYPICAL SCENARIO
Nowadays, some brokers won’t require a minimum investment. Others have been also lowering the minimum amount required so that more people can start investing.
While it’s great that this lets more Filipinos invest in the stock market, there’s a scenario that often gets first-time investors off guard.
The typical scenario goes like this:
Person A is interested in investing in the stock market. He finds out that the minimum investment is only 5,000 pesos. “Sulit na! Kikita naman ako dito,” he thinks to himself.
Person A invests the minimum amount and picks two stocks “para mas mababa ‘yung risk.” That’s around 2,500 pesos in each stock.
After successfully buying the stocks, Person A checks his portfolio and “HUH?? Bakit loss na kaagad? Di pa gumagalaw ang presyo ah!”
That’s what happens when people don’t realize that there are fees every time you buy or sell a stock.
BEWARE OF FEES
Below is a breakdown of all the fees and charges included in every transaction:
Most of the fees are based on the Gross Trade Amount (number of shares x price), so the cost is always proportionate to your investment. For example, the PSE Trans Fee will always be .005% and the SCCP Fee will always be .01%. However, notice that the broker’s commissionis 0.25% or 20 pesos—whichever is higher.
NUMBERS DON’T LIE
So what does this mean for retail traders? It means you need to avoid buying or selling anything with a Gross Trade Amount less than 8,000 pesos. Otherwise, you will be wasting money on higher commission fees and incurring unnecessary losses.
In the example earlier, Person A bought two stocks, each with a Gross Trade Amount of only 2,500 pesos. This means that Person A’s total commission fees would have been 20 pesos for each transaction, or 40 pesos total. That’s an automatic 0.8% loss on commission fees alone!
But what if Person A invested 8,000 pesos in just one stock? His total commission fee would only be 20 pesos (or 0.25% of 8,000). That means he was able to cut the commission fee in half and invest 3,000 pesos more!
CONCLUSION
We know that saving money can be very hard—especially if you have a family to support. 8,000 pesos is a lot of money after all!
But remember that investing less than 8,000 pesos, means you are losing more money even before there’s any price movement. You can definitely still make a profit, but it’s like stepping on the gas and break pedals at the same time. It will be harder to break even or make a profit.
Weigh the risks carefully before making your decision, and ask yourself: How confident am I that the (potential) profits will offset my (definite) losses?
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In general, there are two sides when it comes to stock market analysis—fundamentalanalysis and technical analysis. Today we’ll discuss both methods and explain their advantages and disadvantages.
**Before we begin, you may want to check out these basic terms to help you understand this article better.
What are fundamental analysis and technical analysis?
Fundamental analysis a method of stock market analysis where investors study the intrinsic value of a stock (A.K.A. what it should cost) based on a variety of factors. Decisions on whether to buy, sell, or hold a stock are based on comparing the intrinsic value to the market price. Fundamental analysis is generally less structured than technical analysis and is used most by long-term investors.
Technical analysis, on the other hand, is easier to apply to short-term stock trading. This method uses historical data on price, volume, and other statistics to predict future price movements. Stock charts are commonly used in technical analysis to track and analyze patterns that can predict price movement.
In reality, most traders will use a combination of these two methods. A general rule of thumb is that fundamental analysis will help you determine which companies to invest in, while technical analysis will help you determine when you should buy and sell shares of these companies.
So how do each of these methods work? Let’s take a deeper look.
How does fundamental analysis work?
In fundamental analysis, our objective is to assess the company’s performance and stability—basically whether it is a good business or not. This includes looking at financial statements, its performance compared to others in the same industry, news that may affect the company’s operations, and more.
When looking at the financial statements, one of the most important indicators is the company’s net income. We’re not talking about NGO’s or charities after all. In the stock market, a company needs to be making money to be valuable. However, you should remember that a company’s income only shows one part of the picture.
Using a combination of financial statements and news, you can answer more complex questions such as: Are the company’s expenses high compared to the industry average? What amount of its earnings are retained and reinvested into the company? Are they constantly improving their product or service? What are their plans for the future and will these plans increase or decrease their value? What risks are they taking are you willing to take on the same risk?
There is no single way to do fundamental analysis, but at the end of the day there is one question every fundamentalist is trying to answer: Is this a business that I want to put my money into?
How does technical analysis work?
In technical analysis, people focus more on identifying trends and chart patterns rather than the company’s intrinsic value. The underlying idea here is that a stock’s market value is not always determined by its intrinsic value. Especially in the short term, a stock’s price is mostly influenced by external factors such as market sentiment. Patterns and trends can be identified based on historical data, and this is what allows us to predict how sellers and buyers (read: supply and demand) will react.
There is a long list of tried and tested techniques for performing technical analysis, but there are far too many for us to cover in one article. Some of the most basic methods include:
Identifying chart patterns such as the cup and handles, head and shoulders, ascending triangle, etc.
Assessing the market sentiment based on price movement, volume, moving averages, etc.
Identifying and riding trends until your preferred indicators signal otherwise
Whatever your preferred methods for technical analysis, the objective remains the same: To capitalize on patterns formed by the unified emotions and reactions of market players.
So which is better, fundamental analysis or technical analysis?
While everyone has their own preferences, neither method is really better than the other. That’s why they both exist! Each method of analysis has strengths and weaknesses. It’s just a matter of finding your own fit.
If you want to invest long-term, then you might want to go for a more fundamental approach. You’ll have to do more work initially, but you won’t be as sensitive to the day-to-day price fluctuations. If you are able to buy an undervalued stock, all those ups and downs will still result in an overall price increase and profit for you.
If you’re going for a short-term investment, then technical analysis might be a better option. Because prices tend to fluctuate, patterns in price movement will more accurately predict the stock price tomorrow or next week. The emotions and reactions of market players have a bigger impact on short-term investments because there isn’t enough time for the ups and downs to average out—unlike in long-term investments.
In reality, most traders use a mix of fundamental and technical analysis to manage their portfolios. This allows them to see the complete picture and make more informed trades. Information, after all, is power. Nowhere is that statement more true than it is in the stock market.
Our advice?
The more knowledge you have, the better. Learning both fundamental and technical analysis will not only help you make better decisions, but also give you more confidence in yourself and your trades. This will prevent you from giving into hyped up stocks or selling your stocks too early because you doubted yourself. It will also allow you to start building your own stock trading system and strategy—the foundation of any trader trying to make money in the stock market.
Even if you eventually become a pure fundamental or technical trader, you won’t know which method works best for you if you don’t try them both first! You may even use one method to validate your analysis using the other. So give both methods a try, and tell us about your experience in the comments below.
Got any questions? Leave a comment below!
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We all know that there is money to be made in the stock market. Big corporations and retail traders make millions from the market every day! But how do they do it? And how can a regular Filipino do the same? Where do we even start?
The stock market can seem very complex, and sometimes it is! But don’t let that intimidate you. Just like with any other skill, you have to start with the basics first. Walk before you try to run. Keep making improvements, no matter how small, and you’ll reach your goals before you know it!
There are literally thousands of trading strategies being used around the world, but you don’t have to (and you shouldn’t) be using them all. Start with one simple strategy before trying more advanced tactics. Learn what works for you and what doesn’t, and slowly but surely you’ll see results.
In this article, we’ll help you take that first step by explaining some basic principles along with two simple strategies that you can use to start trading in the stock market. Ready? Let’s get started!
BUYING LOW AND SELLING HIGH: WHAT IT MEANS AND HOW IT’S DONE
When asked, “How can I make money in the stock market?” a lot of people say that “It’s simple. Just buy low and sell high.” Well, of course! No one is going to make money by buying high and selling low. That’s just common sense. But how can we buy low and sell high? There is no crystal ball to tell us what the future holds or how the market will move, so how will are we supposed to know whether the current price is low or high?
Well, the good news is that you don’t need a crystal ball or a time machine to see into the future—you just need to understand the concepts that trigger movements in the market. The better you understand the forces that shape the market, the more often your predictions will be right.
THE BASICS: SUPPLY AND DEMAND
In one way or another, everything that happens in the stock market is a result of supply and demand reacting to one another. There are a limited number of stocks, so if a stock is in demand and more people want to buy it compared to those who want to sell, then the price goes up. The opposite happens when more people want to sell and fewer people want to buy.
Think of it this way: A 1-pc Chickenjoy costs P89 right now. But what if that 1-pc Chickenjoy was the last one on earth and everyone wanted to eat it? How much would people be willing to pay for that? On the other hand, if there were mountains of Chickenjoy everywhere you look, would you still pay P89 for it? Probably not. It sounds funny, but the entire stock market functions on basically the same principle.
People want to buy and sell stocks for many reasons. Whatever those reasons are, they will cause either a stronger demand or supply. This will be reflected as an increase or decrease in price. So how does this help you see into the future? Simple. You just need to be able to identify the signals and triggers that indicate when a rise in supply or demand will come. All stock trading strategies, from the most simple to the most complex, are based on this idea.
BASIC STOCK TRADING STRATEGIES FOR BEGINNERS
Disclaimer: Before you read about the two basic strategies below, you should first understand the two schools of thought behind these strategies: Fundamental Analysis and Technical Analysis. You might want to first read about some basic stock trading terms here.
STRATEGY 1: VALUE INVESTING
Commonly described as “buying a business,” this strategy relies heavily on fundamental analysis. In this strategy, we assume that the market price will eventually become equal to the intrinsic value of the company. The basic principle here is to identify stocks whose market value is less than its intrinsic value. When you buy an undervalued stock and the market price corrects itself, that is where you make your profit.
There are many indicators and formulas people use to identify the intrinsic value of a company, but one of the simplest and most popular indicators is looking at the price-to-earnings or P/E ratio. To get the P/E ratio, just divide the price of the share by the earnings per share. Value investors will compare the P/E ratios of companies within or across industries to identify undervalued stocks. For example, if you see that the average P/E ratio for a company in the logistics business is 10 but one company has a P/E ratio of 5, then you may want to invest in that company.
There are many other indicators that you could use, but this is one of the most basic. Keep in mind however that a low P/E ratio is not always a good thing. Low prices could also mean there’s trouble inside the company, and that the value will continue to go down. That is why it is important to do thorough research after identifying potentially undervalued companies. As the name suggests, traders that use this strategy have to look for a good business with real value. Act as if you are becoming part-owner of that business, because that’s essentially what you are doing!
Other similar strategies that also use fundamental analysis are Growth Investing, Income Investing, CANSLIM, and more.
STRATEGY 2: MOVING AVERAGE CROSSOVER
On the other side of the spectrum, we have the Moving Average Crossover Strategy which an approach based on the principles of technical analysis. Here, we rely on patterns and data available in the market to predict future movements and make trading decisions. Your aim is still to buy low and sell high, but you are using different indicators and signals to do it.
To implement the Moving Average Crossover strategy, you simply have to monitor two moving averages: the 20-day moving average and the 50-day moving average of a particular stock’s price. If the 20-day average becomes higher than the 50-day average, it means that the price is going up and you should buy shares. If the 20-day average falls below the 50-day average, you should sell because it means the price is going down. Sounds simple, right?
Many find this type of strategy easier to implement because it is very objective and there is very little chance of becoming emotional. It also requires relatively less research compared to Value Investing, so it’s less intimidating for a beginner. However, you should remember that at the end of the day it is always good to understand the logic behind the numbers. The “rules” in any trading strategy are never fool-proof. There are times when they will be wrong, and understanding the sentiment behind the market’s behavior can only help you make smarter trading decisions.
If you want to learn more about technical trading, you can also review some basic concepts such as Support and Resistance, Candlestick Charts, and Trends.
Every trader is unique and must refine his or her strategy over time. Some traders have very complex strategies, while others prefer to keep it simple. As you execute your trades and test more strategies for yourself, you will find a unique style that suits you. These are some basic ones to help you get started, but remember that the most important thing is for you to simply START. You can read all the articles you want, but unless you try it yourself, nothing will happen.
Good luck on your trades and remember, we’re always here to help!
What are the best stock trading tips you’ve received? Share them in the comments below and let’s move forward together!
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Many people think that the stock market is complex and that trading is hard. Maybe that was true before, but nowadays there are many ways to make stock trading easy and hassle-free. One way is to use the tools, services, and information here on Investagrams!
Here’s how we can help you on your stock market journey:
Learn using our free videos and articles
If you’re a beginner in the stock market, or even if you have no idea about how stocks work, we have learning modules that can help you.
If you’re starting from nothing, you can read the Investagrams guide on How to Start Investing in the Stock Market first. For concepts that are more advanced, like how to read charts and understanding moving averages, you can follow Investa Daily—your trusted source for investing tips and stock market advice.
Find your ideal stocks using our automated stock screener
Once you’ve learned the basics of stock analysis, you can start to develop your own strategies and trading system. Use InvestaScreener to quickly and easily find stocks that match your criteria. Filter stocks based on the 52 week high, support, resistance, and much more.
InvestaScreener is a powerful and flexible tool that will help you save tons of time and effort when analyzing stocks. With this powerful stock screener, you can do what would normally take hours in just a few clicks.
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Our mission is to make your stock market journey easier and, of course, more profitable. We’re always developing new features and services to serve you better, so keep checking back to see if we’ve added anything new! If you have a question or a request, just let us know in the comments below!
In my opinion, he is someone who can confidently grow his investment portfolio through realistic means and without much stress. This confidence enables him to do what really matters to him as money is not the main objective of what he does. A happy and effective investor epitomizes “true financial freedom” because he knows that he can rely on the returns of his investment portfolio when he retires.
Contrary to popular belief, a happy and effective investor does not need to have a degree in finance or be an analyst (like me) or a stock broker. He just needs to have certain habits that are easy to adopt.
In this article, I’ll be sharing what I believe are some of the essential habits of happy and effective investors.
HABIT 1: INVEST CONSISTENTLY
A lot of people don’t invest because they think that getting a high paying job is enough to guarantee financial freedom. Ironically though, having a high paying job is not enough to guarantee financial freedom. If it were so, why are numerous highly paid celebrities and athletes bankrupt a few years after retirement? Moreover, according to a study by LIMRA on “when 25 year olds today reach 60”, a vast majority will be broke (63%), while 5% will still need to work. Only 1% will be wealthy and 4% will be financially independent.
Although getting a job that pays well is important, it is also equally important to invest consistently to become a happy and effective investor.
How much should you set aside? The 50-20-30 rule stipulates that you should consistently set aside 20% of what you earn on financial priorities which include investments. When you get a bonus, strive to set aside 50%for investments.
Resist the temptation to buy things that you want but don’t really need. Just remember that when you choose investments over your wants, your investments will eventually allow you to buy what you want. Every year, my husband and I set aside a certain amount for my children’s investment accounts because we believe giving gifts that keep on giving.
While investing consistently can be difficult like sticking to a diet or an exercise plan, you can do something to help you stay the course. For example, you can schedule an automatic fund transfer out of your payroll account equivalent to 20% of your salary every payday that will go towards the purchase of mutual funds or UITFs. COL Financial already has a function that allows automatic monthly investing of stocks and mutual funds.
HABIT 2: AVOID TIMING THE MARKET
When the market corrects,investors usually sell their positions with the intention of buying back when the market recovers. Intuitively, this should be a more profitable strategy as investors avoid big draw downs in the value of their portfolios.
However, studies show that timing the market is a very dangerous habit. According to a study conducted by Davis Advisors (using Bloomberg data), investors who just stayed invested in the S&P 500 from 1994 to 2013 would have generated an annual return of 9.5%. On the other hand, investors who had missed the 10 best days of the market during the same period would have seen their returns diminish to only 5.5% annually,while those who had missed the best 60 days would have generated a loss.
The same holds true for the Philippine stock market. In fact, market timers are hurt even more significantly given the greater volatility of local stocks. While investors who just stayed invested in the PSEi from 1996 to 2016 would have generated an annual return of 9.4%, those who had only missed the 10 best days would have already generated a loss of 0.4%!
HABIT 3: AVOID BEING EMOTIONAL
Investing in the stock market can be a very exhilarating exercise which is why many investors choose to trade actively instead of sticking to an investment plan that simply involves buying funds and some individual stocks on a regular basis. After all, a lucky investor who makes the right bet could more than double his money in a short span of time. For example, earlier this year, MAC was trading at less than Php3.00/share. Now it’s worth almost three times more at Php8.50/share! Assuming that you were the lucky investor who bought MAC earlier this year, you would be much richer today! People might also say that you are a genius for spotting MAC at such a good price making you feel proud of your achievement.
Most of the time though, investors are unlucky. According to a study by Dalbar and Lipper, the average stock fund investor returns from 1994 to 2013 is only 5.0%, trailing behind the average stock fund return of 8.4%. This is because investors typically buy at the top and sell at the low as they are overcome by greed and fear. This is why Warren Buffett said to “Be fearful when others are greedy and greedy when others are fearful.”
HABIT 4: ACCEPT VOLATILITY
Investing a certain portion of your portfolio in the stock market is important if you want to beat inflation and retire comfortably. However, a lot of people avoid investing in the stock market because of volatility. Unlike bank deposits, returns of stocks are very volatile. Even worse, they can go down in value and there are always many reasons why the market can go down in value (Examples: election of Trump as U.S. president, the declaration of martial law in Mindanao, Fed rate hike).
Although stocks are volatile, they also generate significantly higher returns compared to bank deposits. Moreover, the market goes up more frequently than down. For example, during the last 29 years, the market was up 20 years while it was down only 9 years. Total return during the said period was also substantial at 795%, significantly beating returns of bank deposits!
HABIT 5: BUY WHEN THE MARKET GOES ON SALE
January and July are my favorite times to go shopping since shops have their semi-annual sales. Like me, most people get excited to go shopping when stores go on sale.
However, the opposite is true when the stock market goes on sale. Instead of buying stocks, typical investors avoid the stock market, worrying that there must be something wrong.
In contrast, the happy and effective investor gets excited when the market goes on sale. He understands that buying when the market goes on sale allows him to generate even higher returns as history has shown that markets eventually recover after falling substantially in reaction to negative developments such as the Asian Financial Crisis and the Global Financial Crisis.
HABIT 6: DO YOUR HOMEWORK
People normally rely on tips when choosing which stocks to buy.
However, a happy and effective investor understands that to pick the right stock, he needs to do his homework. He knows that for share prices to remain in an uptrend, profits also have to be rising. This is based on the logic that profitable businesses are worth more. After all, who would want to buy a business that is losing money? He tries to understand what drives companies’ earnings, and determines whether these drivers are currently favorable for the company.
For example, from 2011 to 2013, CEB’s share price was on a downtrend because the price of oil was rising and oil is one of CEB’s major costs. At the same time, the airline industry was suffering from overcapacity as the growing popularity of low cost carriers encouraged new players to come in. This led to price wars that negatively affected CEB’s profitability.
However, towards the second half of 2014, oil prices started to fall. The industry also consolidated as airlines that were losing money either closed shop or were bought out by the bigger players. The said factors led to the rebound of CEB’s profitability and its share price.
Aside from knowing where profits are headed, the happy and effective investor makes sure that he is paying a reasonable price for the stock he is buying. This is measured by the price relative to the amount of earnings that the company is expected to generate or the P/E ratio. The lower the P/E ratio, the better, as this would improve a stock’s return potential.
A happy and effective investor avoids buying penny stocks based on tips. He understands the dangers of buying penny stocks, which could lead to his investment becoming worthless.
For example, in 2012, CAL was one of the most popular IPOs as its share price rallied by 219% in 9 days! However, at the peak, CAL was trading at 73.7X P/E which was very expensive considering that the PSEi was trading well below the said level. Moreover, instead of going up, CAL’s profits went down. As a result, share prices fell significantly.
HABIT 7: BE COST CONSCIOUS
The happy and effective investor understands that active trading, while exciting, is very costly. Did you know that the cost of buying and selling a stock (including taxes and commissions) is around 1.1%?
When buying funds, the happy and effective investor also studies fees that are charged by asset management companies. These include front load and back load fees, penalties for early redemption, management fees (0.25% to 2.15%) and other costs (up to 2.25%). Unfortunately, higher fees do not necessarily translate to better performance.
While costs of 1% to 2% may seem small, the slight reduction in portfolio returns spells a big difference when compounded annually over a long period of time. For example, a Php100,000 portfolio that generates a compounded annual return of 10% would be worth Php259,000 in 10 years. This is 8.7% more than a portfolio that generates a compounded annual return of 9.0% (because of a 1% cost annually) and 16.8% more than a portfolio that generates a compounded annual return of 8.0% (because of a 2% cost annually)! The difference increases even more over time as can be observed in the table below.
HABIT 8: DIVERSIFY
When I was a teenager, I remember envying classmates who had Sony Walkman. During my teenage years, having a Sony Walkman meant that you were “cool”.
When I had my first baby, I wanted to make sure that all the pictures I took of my baby were perfect. This was why I always bought Kodak film since I didn’t want to leave anything to chance.
However, cassette tapes and film cameras are now obsolete. And if you had only bought shares of Sony and Kodak because of the popularity of the Walkman and film cameras twenty years ago, the performance of your portfolio would be very disappointing.
The happy and effective investor understands that diversification is important to manage risks. Aside from protecting his portfolio from significant volatility resulting from unforeseen incidents (such as obsolescence of products), diversification also helps him manage the cash flow of his investments, so that he will not be forced to sell investments at a bad time.
Below are some basic types of diversification.
HABIT 9: THINK LONG TERM
The happy and effective investor is a long-term investor. He understands that by investing long term, he is maximizing the power of compounding to grow the value of his portfolio.
Did you know that by age 65, someone who invested Php5,000 a month starting at the age of 26 will have significantly more than someone who invested Php10,000 a month starting at the age of 46? This is despite the fact that both have set aside the same amount of Php2.4 Mil as investments.
The happy and effective investor also knows that when investing in the stock market, the risk of losses diminishes in the long run. Based on the study of the S&P 500’s performance from 1802-1997, it was impossible for an investor to register a loss assuming that he had a investment time horizon of at least 20 years. The same holds true for the Philippine stock market based on the study of the PSEi’s performance from 1987-2016.
HABIT 10: REVIEW YOUR PORTFOLIO
A happy and effective investor diligently reviews his portfolio on an annual basis. He determines whether he can increase the amount of money that he sets aside as investments. For example, did he get a pay increase or a big bonus that will allow him to invest more?
He also checks whether his portfolio allocation between different asset classes (such as stocks or bonds) is still appropriate given his current situation. For example, will he have a major expenditure soon that will require him to reduce his equity exposure?
He also tries to see whether he still likes to keep the individual stocks in his portfolio and whether his allocation to the different issues is still balanced or acceptable. Have fundamentals changed? Or is the stock now too expensive, making it a good time to lock in gains?
In summary, here are the 10 habits of happy and effective investors. I hope that you can adopt these habits so that you can become a happy and effective investor.
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We’ve all been there—one minute you’re just going through your day as usual and the next minute you’re swept off your feet by the sight of something breathtaking. Without any warning, the pretty girl walking down the street smiles at you; or the cute guy in front stops to hold the door open for you. In the same way, you might just be browsing your news feed when suddenly you see a stock chart that’s about to break out at any moment. You feel a rush of adrenaline and, without waiting another second, decide to go all-in.
Sometimes, we get blinded. We fall hard and we feel in our gut that this is it. We put everything we have on the line and just hope for the best. Sounds romantic, right? But is that really how we should be making our decisions? Can we trust ourselves to make the right choices in these situations?
In many ways, stock picking is very similar to dating. When we see a person or a stock that we really like, it’s exhilarating. We get so excited that we don’t realize how dangerous the situation is. We make impulsive decisions and invest much more than we should. We dive too deep too quickly—all without getting to know the person or the stock at all.
It’s true, there are times when we have to take risks, both in dating and in trading, but that doesn’t mean we can’t make smart decisions about when to jump in and when to hold back.
Before you go all-in, here are three important things you should know before risking it all:
1. It doesn’t have to be all or nothing
Sometimes, excitement can get the better of us. We see something we want and we want to have it right away. We feel like if we don’t grab the opportunity now, then it will be gone forever. While that is true in some cases, it’s not true for all of them. Often, we can easily take things one step at a time without any real consequences.
In dating for example, you don’t have to propose right away when you meet a beautiful woman. You can start by asking her out on a date and getting to know her. If you get along, then you can go on more dates and eventually, when you know each other very well, you may even get married.
In trading, if you see a stock with potential, then buy a few shares first. Monitor it to see how it performs. If things go well, then buy more shares. Wait for positive signals each step of the way and build up your investment slowly. There might be some opportunity cost if the stock performs very well, but at least you won’t lose all your money if the stock performs badly.
2. High risk, high reward
We’ve all heard the saying, “High risk, high reward.” But how many of us really understand what this means? It means that you will first have to take a big risk if you want the possibility of getting a big reward. The key word here is “possibility.” It does not mean that if you take a big risk then you will get a big reward. (Oh, how we wish!)
Yes, it’s true that sometimes things work out and the risk pays off. It’s easy for us to see the positive side because we see it all the time—in movies, TV shows, and even the news. Everyone is constantly talking about the success stories of people who took big risks that paid off—and that’s great! Especially when we’re struggling, we want to know that there is hope and that good things can happen. The problem is that a lot of people act like all stories will end this way, and that’s just not true.
Stephen King said, “Hope is a dangerous thing. Hope can drive a man insane.” Do you agree? Isn’t it true that people are willing to risk it all, in love and in stocks, because they have hope that it will all pay off? Maybe a little too much hope? Hope is good in small doses, but when there is too much, it becomes very dangerous. Too much hope makes people lazy. They become convinced that things will work out, so they don’t bother putting in the work. They forget that success in dating and in stock trading are not based on one “big break”. Both require time, dedication, patience, and so much more.
Don’t fall into this trap. If you’re going to go all-in, know what you are risking and know that there is a very real chance that you could lose it all. Ask yourself: If this doesn’t work, will I be okay with that?
3. Information is power
Once you’re sure that you really want to go all-in—whether your risk ends up paying off or not—then it’s time to be smart about it. You don’t have to go in blind. Do your research. Do the work, and you’ll give yourself a much higher chance of success.
For example, if you want to win a girl’s heart, you have to get to know her first. Find out what makes her smile or what her favorite flowers are. Find out about her fears and dreams. That is how you can give yourself the best chance at success.
It’s the same with stocks. Before you go all-in, you should do your research first. Study the company’s history. Find out what their plans are. What is the best price where you should buy? At what price should you sell? What is your cut loss point if things don’t go your way? What signal will confirm if your theory is right or wrong? These are all questions you need to answer, so that you are prepared to give yourself the best chance of success. Don’t just invest all your hard-earned money and then leave it up to the market. You can increase your chance of success. That’s what they call calculated risk, and that’s also why investing is not the same as gambling.
So whether you’re going after the man or woman of your dreams, or that perfect investment opportunity, always remember:
You don’t have to go all-in. You can take it one step at a time.
If you have to go all in, be sure you know what you’re risking.
Just because you’re taking a risk, doesn’t mean you should be lazy. Find out how to give yourself the best chance at succeeding.
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If you want something you’ve never had, you must be willing to do something you’ve never done. – Thomas Jefferson
A lot of people think that investing is just for rich people — that you need a lot of money to be able to buy stocks and hire good financial advisers — but that’s just not true! Today, it’s easier than ever to start investing in stocks and here are 5 reasons why you should start, especially when you feel like you are overworked and underpaid:
Time is Money
Let us be clear about one thing: Successful investing takes time! It’s not magic. Don’t expect your money to grow 5 to 10 times in just a few days if you aren’t doing anything. Investing in the stock market is not a get-rich-quick scheme like what we usually see in coffee shops these days (If you know what I mean, POWER!). Just like establishing a business, there are risks involved in stock trading. But with proper risk management, discipline, and patience, your hard-earned money can grow not just by the thousands but by the millions!How does that happen? Through the concept of compounding interest! Many people have used compounding interest to achieve success in investing, and there’s no reason why you can’t too.
Basically, interest is compounded when the profit you’ve earned from your investment is added to your principal which can now also earn interest.
For example, if you invest Php 10,000 in a stock and it earns 10% interest, you would get an additional Php 1,000. Instead of spending that Php 1,000, you can add it to your investment to increase your capital to Php 11,000. Now if you earn another 10%, you will earn Php 1,100. That’s Php 100 more than what you earned the first time! Just keep doing this—add your earnings to your capital—and your money will grow much faster.
Be a Part-Owner of Big Companies
Whether we want to admit it or not, all of us wish we could own a successful business at some point—to be like the famous tycoons who earn millions every day or even just a small business owner who can manage his own time. At least you wouldn’t have to go to work every day and get paid so little!
But the sad reality is that not all of us will be able to give the time, effort, and money it takes to establish a huge business. Not every business is successful, and even successful businesses don’t make money right away. Sometimes it takes years for a business to start earning, and many of us cannot afford to do something like that. We have other responsibilities. We have families to take care of. So what do we do now?
Well, the answer is simple! You can easily become part-owner of a successful business simply by buying shares of successful companies in the stock market! Be part of their exponential growth—like in the case of Jollibee! Did you know that if you invested Php 10,000 in Jollibee in 1994, your investment would now be worth Php 309,000! Take note: that doesn’t even include the dividends yet! You don’t even need to go through the hassle of owning and operating a business to share in their profits!
Beat Inflation
Are you familiar with the concept of inflation? Inflation is a general increase in prices and fall in the purchasing value of money. (Source: Investopedia) In other words, inflation is what makes the value of your money go down as products and services become more expensive. This is one of the main reasons why you need to invest your money—because if you just save it, your money actually becomes less and less valuable as time passes.
Let’s look at an example: This 2017, the average inflation rate from January to July was 3.1%. If you put your money in the bank, a time deposit would have given you a maximum of 2-3% interest. That means that the real value of your money decreased by at least 1%—if you could use that money to buy 100 cups of rice before, now you can only buy 99. But if you invested in something like the stock market, you would be in a very different situation. On average, the Philippine Stock Exchange Index* produced a whopping average of 18% annual interest from January 2000 to August 2017—and that’s just the average. You can actually beat that by investing more in individual high-performing stocks!
*The Philippine Stock Exchange index is a collection of the 30 best-performing stocks in the market. These stocks are used to measure the movement and performance of the Philippine stock market in general.
Have Your Dream Retirement
A lot of us have a picture of the life we want to have—a life without deadlines, strict bosses, traffic, and stress. We work so hard and for so many years because we want to save enough money to do the things we dream about. We want to travel the world, build a home, and enjoy new experiences.
Unfortunately, a lot of us don’t realize that just working and saving won’t be enough to achieve these things. By the time you think you’ve saved enough money, you’ll realize that your body has become too weak or that you have other things to pay for—medicines, tuition for your kids, etc. It’s not that these are bad things to spend on, but what we’re saying is that you shouldn’t keep putting your dreams on hold. There’s more to life than working from 9 to 5 until you’re 60, and sometimes you need to step out of your comfort zone to do the things that will make you successful and happy! Through investing, you are not just striving towards your goal, but you are also moving forward at the fastest possible pace so that you still have time to enjoy the fruits of your hard work.
Live Your Purpose
You cannot give what you don’t have.
It feels great to help other people, but it also takes money to help other people. Investing isn’t just for those who want to buy cars and houses or go on vacations. The best part about investing is that it can help secure your family’s future and do good things for the people around you. It can help you improve people’s lives—especially in a developing country like the Philippines. Investing can help make a positive impact in the community and that, in our opinion, is priceless.
These are just five out of a lot more reasons for you to start investing. We hope this helped you realize the full potential of the stock market and your full potential as a person, too!
Interested in investing in the stock market? Here are a few links you might want to check out:
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