(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)
Do you want to start investing properly in the Philippine stock market even as a beginner?
Investing in the Philippine stock market is easy.
However, whether one will be profitable is a different yet more important question.
In fact, this is a common challenge, especially for newbies.
With no enough experience and limited knowledge, they may have incorrect assumptions that could lead to losses when starting this venture.
This is what happened to one OFW turned investor who shared his realization.
And I have seen this happened to more people simply because of failing to do enough study before diving in.
How to avoid losing big when starting in the Philippine stock market?
You can watch the video tutorials below sharing the was you lose money in the stock market.
But in this post, let me share four simple tips you can readily apply as a newbie:
Start small and grow through time.
This is one of the most important lessons you should put into the heart while still a beginner.
Starting small allows you to limit your possible losses while you’re not yet used to investing and don’t have a full picture of what’s really going on.
There are as many ways to earn from your trades as there is to lose money, so this simple principle minimizes the damage you will incur in case you make a wrong move.
The stock market will always be there, so never rush your learning curve.
Don’t let the possibility of earning big or seeing others’ big profits lure you into making trades that will put you in a very risky position.
Consider investing first in Mutual Fund.
The good thing about online stockbrokers now in the Philippines is they also allow their clients to invest not just in stocks but also in Philippine Mutual Funds. You can watch this video tutorial on how to invest in Philippine mutual funds for beginners.
Shortly, Mutual Fund investment companies pool money from several investors and invest this pooled fund in an instrument in accordance with its design (with respect to its goals, risk tolerance, etc).
Because of the variation of the purpose and investing time horizon of investors, an investment company usually has several types of mutual fund offering, all of which are managed by a seasoned Fund Manager. And among these types is the Equity Type which is a mutual fund primarily invested in a basket of equities or stocks. It is this idea of “a basket of stocks” that also gives you the mutual fund benefit of “instant diversification”. Diversification is one form of minimizing risks in investing by not being over-exposed to any one single asset or company.
In short, if you want to have the feel of investing in stocks but want to minimize the risks that come from limited knowledge as a newbie, an Equity type mutual fund is a good alternative to start with. You can even start investing in these mutual funds with as low as Php 1000 only
Investing in Mutual Funds Online
In COL Financial and First Metro Securities, you can buy a mutual fund from our local mutual fund vendors just like buying stocks. Through time, you will see that your investment in a mutual fund will also fluctuate, the same as what would happen should you decide to buy individual Philippine stocks. The advantage here is you ride on the rich experience of the fund manager in terms of getting the best returns for your money while managing risks. This is a much safer bet as compared to counting on yourself who may still be making buying decisions based on whatever “tip” you see around. You can learn more about online investing in Philippine mutual funds here.
Slowly experiment with giant companies.
Once you have enough feel after investing in a mutual fund and with a considerable amount of funds by now, you can then choose to invest directly in specific stocks. On this, I’d suggest that you choose blue-chips, or those stocks comprising the Philippine Stock Exchange index. This ensures that you’re investing in the biggest companies we have, and therefore exposed to less fluctuations compared to penny stocks.
For practical purposes, another option is choosing Stock Picks of your brokers in their long-term sample portfolio.
Below is a sample from COL Financial (pls don’t rely on the stocks list in the image since it’s already outdated).
While brokers’ recommendations is never a guarantee that you will make money following so, you can at least be sure that there are some studies made in coming up with their stock picks. Just make sure that you’re looking at their long-term recommendations (usually at least 1 year) and not on their short-term guides which are designed for traders.
Exchange-Traded Funds (ETF)
Still another option is to bet on the market benchmark index with Exchange-Traded Fund (ETF). An ETF is like a pooled mutual fund but one easily traded in a stock exchange.
In the Philippines, you do this very similar to buying specific stocks using stock code FMETF.
This ETF mirrors the whole PSE index and therefore follows the trend of the PSEi with a very tiny deviation.
Remember that our PSE index is composed of the thirty biggest, most active companies from several industries so when you buy an index, you’re effectively buying a basket of stocks too, which is already a form of diversification.
Index-investing is actually a good way for people who just believe the market and our country as a whole will rise without the need to handpick and do the stock-picking analysis yourself. There will still be turns and dips here and there, but the long-term growth story of the economy will be your safety net.
Do a mix and match
Of course, you can do a mix and match of these. You can invest most of your money in a mutual fund or specifically an index fund, and invest a small portion in a specific high-conviction stock you personally screen. After some period, say from six months to three years, you can see which is much better for you: mutual fund investing, index investing, or doing your own thing.
Trade with your play money.
The three tips above pertain to long-term investing.
But if you really want to gain real experience in the heat of active trading, you can do so with play money.
By play money, I mean money you can really afford to lose. This mindset allows you to separate your emotions from your money which is a very common challenge of new traders. Also remember that proper trading follows exact rules under a trading system, violating which means you’re entering into gambling. This means, at the least, setting up your own rules – the entry and exit points, risk and position size and trading set-ups – before you even go into your first trade.
Doing the above approach will certainly lead you to some lessons and open you up to possible mistakes and hopefully improvements. And that is the best thing about the stock market: with continuous experience and humility to start small, and the humility to grow through time learning from mistakes, one can become better and better, rewarding you until your old age. By this time, your skills are hones and you’re more ready to expand to global markets. Does that sound good to you? 🙂
Have fun investing,
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