Many say that the stock market is dangerous.
And you know what, I agree.
After all, statistics says that an average of more than 80% of all the stock market players lose money.
Mark Twain once said, “October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.”
That’s essentially the whole year!
An office mate actually once shared to me his first impression on investing in stocks. He said he couldn’t see the returns being worthy of the time, energy and brain cells being poured into it.
And there’s some truth into that. With the many things that need to be factored in when evaluating entry to and exit from the stock market, it’s really very hard to discern when to start and actually plunge into it.
But the last time I checked, ignorance remains to be not an excuse in trying out something. Most of the times, you only need to know the very basics of anything to make it sense for you.
(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)
The Easier Option
History acclaims an established way of investing in the stock market that requires minimal effort. Your fifteen minutes time every month to browse the internet would be enough for this method of investing. That translates to three hours every year – the same amount of time you spend in liking status in facebook a day! :p
It’s called Money Cost Averaging, or in the Philippine context, we say Peso-Cost Averaging.
The strategy is basically to invest a fixed amount of money at regular intervals over a long period in a great company you believe will perform well in the long term.
This is a very passive approach.
Here you’re eyeing for the long run.
You don’t expect big earnings in the near term, but instead a decent profit in the long haul.
(You can watch the short video below discussing this approach to the stock market.)
If you’re the type of person dreaming for instant money back and returns, sorry, this is not the strategy for you.
But if you are the type who just wanted to make something more meaningful out of your money you won’t need anytime soon, to earn something greater than what Philippine banks normally offer, without breaking your day to day routine, this is the exact method for you.
All you need to do is buy every month of a company which you believe would continue to perform spectacularly in the next 10 to 20 years.
You do it little by little, maybe monthly, not putting all your money in one big shot (lump sum).
You simply invest fixed amount month by month, without worrying about the present market condition.
In other words, you don’t do timing here.
You don’t mind the slips and turns, because you know those are just tiny pixels of the uptrend larger picture you expect in the future.
When will you sell?
Oh, you sell after ten or twenty years or more. Seriously.
In most cases, this will happen come your retirement years.
That’s why you need to select only those companies that you believe would still be consistently earning even after decades. Their solid history and consistent earnings will serve as the safety net surrounding your investments even without your active monitoring.
Right now, I have two sets of funds.
One is my investment/retirement fund, and the other my emergency fund.
Emergency fund is a non-negotiable before you go to investing, and ideally should be worth three to six times of one’s monthly salary.
It’s part of the budget that’s strictly for emergencies, and therefore is saved in short-term liquid investments, making it readily available anytime. Normal ATM accounts can be a place for an emergency fund.
What’s the use of an emergency fund?
This will serve as your buffer fund. This is important because you don’t want to see yourself dipping into your investments, or worse selling your stocks at a loss, just so you could cover your emergency needs.
Emergency fund also gives you that inner peace knowing that you’re more than ready financially anytime in case these unfortunate events happen unexpectedly.
With this mentioned, it’s also prudent to complete again this emergency fund in case you have used it for your needs.
But if you’re all set with your emergency fund, then you can now start considering starting your regular investments using Peso Cost Averaging technique.
Just always bear in mind that Peso Cost Averaging if applied strictly really takes a long time.
For beginners, it’s difficult to develop that patience while seeing your investment going up and down and not minding the fluctuation. The emotions involved often go in the way and can break your investment horizon. If that happens, you step on the border of another strategy called marketing timing, which is a more active approach and therefore requires more resources such as time and skills.
The Four Rules of Making Your Millions in the Stock Market
RULE 2: Invest Even When There’s a Crisis
RULE 3: Invest Only in Giants
RULE 4: Invest in Many Giants
(You can download a free copy of that book here).
- My Maid Invests in the Stock Market
...and why you should, too!
Obviously, the rules only make things straight using the Peso Cost Averaging technique.
COL Financial’s Easy Investment Program (EIP)
Online brokerage firm COL Financial, formerly Citiseconline, the leading online stock brokerage firm in the Philippines, has launched its Easy Investment Program (EIP), making it easier for its passive customers to apply the method of Peso-cost-averaging.
Under this program, investors are to put consistently (though not mandatory) fixed amounts every month into solid giant companies with criteria summarized in the acronym GEMSS (Growing Industry / Earnings Visibility / Management Credibility / Superior Products or Services / and a Strong balance sheet). These criteria assure that clients only choose solid fantastic giants and dynamic corporations that compound their expansion over time. COL already provides customers with a list of stocks they can choose from based on the GEMSS criteria.
Since it started last Aug 2008, the EIP list has included only six companies namely ALI – Ayala Land Inc,; BPI – Bank of the Philippine Islands; JFC – Jollibee Foods Corp; MWC – Manila Water Corp; SMPH – SM Prime Holdings and TEL – PLDT.
As of this writing (2011), they expanded their recommendation list to sixteen (16). You can click here for the expanded recommend stock list for EIP or just click the image below. (Make sure to always check their updated list).
Keep the habit
So you now see the importance of your regular saving habit as your first step in investing.
A portion of your savings, that which you can afford not to use within the next 10-20 years, can leverage on PCA, letting it grow steadily year after year after year.
Invest that small amount regularly every month, and then go back to your normal life.
No need to actively daily watch the market, or hear news about our economy, or be aware of the Wall Street happenings, or bothering with gossips about our bachelor president’s love life.
But take note that you still need to monitor it from time to time, maybe once a month.
Enjoy time with your loved ones instead. Focus on your job or business to increase your cash flow.
Then after ten to twenty years, go back to me.
Subtract from your millions by treating me and my children a Jollibee hamburger!
Take charge of your financial future. Retire a multimillionaire.
Have fun investing!
This works like Peso cost averaging but with some modifications for faster growth and securing profits. This in turn multiplies the earnings nicely. You can learn more about it in this page. It’s also my personal strategy of choice.
PS: You can also check out Truly Rich Club and see if it will fit your investing needs.
This club gives exact spoon-feed directions specifically when and what stocks to buy and sell.
I’ve been a member of it for years and it has really helped me improve my financial life!
Click here to find more details about it.