The Easy Way of Investing in Philippine Stock Market – Peso Cost Averaging for Beginners

The Easy Way of Investing in Philippine Stock Market – Peso Cost Averaging for Beginners

(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)

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.

Geesh..

Imagine a friend coming up to you and says “I have a business now where your chance of earning is only 20% or less. Do you want to invest?”.

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 I believe 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 can be 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 time, 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 gives us an established way of an investing strategy 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.

Peso Cost Averaging (PCA) is a strategy where you buy stocks of greatest companies, regularly, little by little.

What you do here is basically to invest a fixed amount of money, one you won’t need at the short-term,  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’re betting in the future.

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. (You may want to do Market Timing instead).

But if you are the type of person 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 regularly, say every month or two or three, 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 a fixed amount on your established schedule, 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 bigger uptrend 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 few years before your retirement years.

And that lies the biggest risk of doing this approach – you’re betting in the future.
And this future is obviously uncertain.

That’s why you need to select only those companies that you believe would still have consistent great earning even after decades time. Their solid history being industry leaders and consistent earnings growth will serve as the safety net surrounding your investments even without your active monitoring. In short, close scrutiny of company fundamentals is very essential here. The last thing you’d want is to have put all your savings in a company in a long time only to find it going in a sharp downtrend when it’s your time to sell.

Personally…

Right now, I have two sets of funds.

One is my investment/retirement fund, and the other my emergency fund.

An 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.

What’s the use of an emergency fund?

It’s part of the budget that’s strictly for emergencies or surprise expenses not normally part of your yearly budget,  and therefore is saved in short-term liquid instruments, making it readily available anytime. Normal ATM accounts can be a place for an emergency fund. If the time comes you need to fix something broken in your house, you simply go to a nearby ATM and withdraw a part of your emergency fund. Your life is still normal and you have no worries that your budget will won’t be enough for your monthly regular expenses.

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.

Your Emergency fund also gives you that inner peace knowing that you’re more than ready financially anytime in case these unfortunate events happen unexpectedly.

(Think of what happened in COVID-19 crisis where most people were suddenly left unemployed without enough savings, forcing them to depend on assistance from other people and government. You can watch this video – Defeating your Financial COVID virus related to this.)

With this mentioned, it’s also prudent to complete again this emergency fund in case you have used it up for your needs.

But if you’re all set with your emergency fund, then you can now start considering starting your regular investments using the Peso Cost Averaging technique.

Important Note

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 of sticking to this strategy while seeing your investment going up and down, sometimes at a huge loss, and not minding the fluctuation. The emotions involved often go in the way and can break your investment horizon.  If that happens, you’re then stepping 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.

Seeing your portfolio at a loss could even lead you to abandon your strategy altogether.
That’s why it’s very important you’re psychologically ready and have the solid financial foundation when doing this. This solid foundation includes proper financial planning & risk management on a personal level. (You can set an appointment with my trusted financial advisor if you need help on doing this. Click here.)

The Four Rules of Making Your Millions in the Stock Market

In Bo Sanchez’ book My Maid Invests in the Stock Market, Bo simplified investing, and shares four house rules of making millions in the stock market:
RULE 1: Invest Small Amounts Every Month for 20 Years or More

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).]

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.

Important!!! Be aware that their EIP list of stocks is updated from time to time due to market developments and changes in company fundamentals. Make sure to always check their updated list on their website by following the tutorial here.

As of this 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.

Download an updated Recommended Stock List for EIP as of Oct 1 2014 HERE.
Again, check their updated list on their website by following the tutorial here.

 

COL Financial EIP List of recommended companies

How to invest in Philippine stock market for beginners

 

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 you can afford not to use within the next 10-20 years, can leverage on PCA, letting it grow steadily through the years you’re focusing on your primary income stream.

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 president’s love life.

Just 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!
Omeng 🙂

NOTE: Truly Rich Club, a great learning club started by Bo Sanchez, now employs Strategic Averaging Method or SAM in investing in Philippine stock market.

This works very similar to Peso cost averaging but with some modifications for faster growth and locking-in profits. This in turn multiplies the earnings nicely.  You can learn more about it on this page. It’s also my personal strategy of choice.

No fear for newbies with peso cost averaging

 

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!

It’s actually way more than stock market investing, and the stocks update they send me is a tiny portion of what the club offers to its members.

Click here to find more details about it.


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