(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)
There are basically two ways how to invest in the Philippine stock market.
You can either be an investor or a trader.
Some call it passive investing versus active trading.
In a nutshell, passive investing in stocks is a long-term approach ranging from few to several years timeframe whereas active stock trading is a short-term strategy with days or few weeks duration.
Active trading means buying and selling every few days or sometimes even within a day. Passive investing just keeps on buying carefully chosen stocks on a regular basis and seldom sells, allowing more time for the investment to grow.
But before going straight to Strategic Averaging Method (SAM), let’s recall first the four rules of making millions in the stock market by being a long-term investor as summarized in Bo Sanchez’s book My Maid Invests in the Stock Market… and why You Should, Too!
Rule #2: Invest Even When There’s a Crisis
Rule #3: Invest Only in Giants
Rule #4: Invest in Many Giants
Needless to say, these are relatively sound stocks investing strategy, but also a pretty boring one. HAHA
If you stick to this strategy, you definitely need three things: money to regularly invest, discipline to stick to the strategy and patience to let your investments grow over time.
Good thing Bo Sanchez’ Truly Rich Club has its third alternative – and it’s called SAM, short for Strategic Averaging Method. This has some minor but profitable differences compared to the common Peso Cost Averaging method outlined above.
The whole story is contained in his book The Turtle Always Wins so you can grab your copy in bookstores to get the complete picture of it. But even before that, Truly Rich Club has already introduced SAM to all its members in its June 2011 stocks updates.
Read below Truly Rich Club’s discussion of what SAM is all about and the reason why the club has shifted to this kind of strategy of investing in Philippine stocks market.
Meet Your New Friend, Sam.
By SAM, I don’t mean Uncle Sam.
By SAM, I mean Strategic Averaging Method.
There Were Only Two Ways of Getting into the Stock Market, Until…
In my mind, there were only two ways to invest in the stock market: (1) passive investing and (2) active trading.
With SAM, I’m introducing a third way. (I didn’t invent SAM. My mentor did. He’s a billionaire who has done all three methods with incredible success. The stock market has been his playground for the past 38 years.)
Before SAM, I taught people to be passive investors, not active traders.
Reason? Eighty five percent of people lose money in the stock market. That’s a fact. And most of those are active traders. Active traders buy and sell stocks every day. I have friends who are successful active traders, and believe me, they’re very rare. They trade fulltime, they study every day, and they follow very strict rules. Without these rules, active trading is gambling, period.
Passive investing is long-term. Active trading is short-term.
Passive investing only looks at the quality of the companies. Active trading only looks at their share price. Passive investing comes by many names. Many people call it “money cost averaging”, or “peso cost averaging”, or “dollar cost averaging”. Citiseconline, our preferred online broker, calls it the Easy InvestmentProgram (EIP).
So what is SAM?
SAM is in between passive investing and active trading.
SAM is semi-passive investing.
SAM uses the 4 Rules of Passive Investing, tweaks them, and adds a 5th rule.
To refresh your memory, here are the 4 Rules of Passive Investing:
Rule 1: Invest monthly for 20 years or more.
Buying stocks each month using your small monthly savings. It’s really making the stock market your piggy bank. You do this long-term—for 20 years or more!
But in SAM, we tweak this rule. If you use SAM, there’ll be times when you don’t invest, and choose to stay away from the market. These are times when we believe the market is overbought and is going down. We’d rather wait for the market to go down and buy when the prices are cheaper.
Rule 2: Invest even when there’s a crisis.
Passive investing means disregarding if the prices are up or down, if there’s a tsunami, earthquake, coup d’etat, or recession. You just keep buying month after month after month. In SAM, we tweak this rule too. If possible, we try not to buy on the way down, we try to buy when it’s already down.
Rule 3: Invest only in Giants.
Passive investing means buying only established, enduring, blue chip companies that we believe will be there for the next 50 years. We don’t dabble in penny stocks. Because we believe in people who buy penny stocks will become penniless.
In SAM, we tweak this rule too. Generally, we don’t buy penny stocks. At rare times though, we find gems among them. And we make an “intelligent speculation”. Because of its volatility, we only put “extra funds” in these gems.
Rule 4: Invest in many Giants.
Passive investing means not buying one Giant but a handful of Giants. Why? There’s such a thing as “Black Swan” in the stock market—when an unexpected event happens. We don’t want all our money to be in one company—and tragedy hits that company.
If you’re doing passive investing, we recommend 10 Giant companies or more.
If you’re doing SAM, we recommend five to six companies only, because we’re able to move from one company to another.
I repeat: SAM uses all 4 rules, although tweaked a bit. But it adds Rule 5.
And Rule 5 is the magic sauce that makes SAM more profitable than passive investing.
The 5th Rule of SAM
What is the Rule 5?
Rule 5: We buy when the price is beneath our “Buy Below Price” and we sell when the price is near our “Target Price”.
In my Stocks Update Report, I’ll provide both the Target Price and the Buy Below Price for you.
Remember, SAM is in between passive investing and active trading. In one sense, it is semi-passive investing.
Passive investing never use timing. Active trading is all about timing. SAM uses a little bit of timing.
Passive investing looks only at how good the companies are. Active trading looks only at the share price.
SAM looks at both: companies and share price.
Passive investing never sells. Active trading always sells every day or every week. SAM sells after a few months. We’ll give you the “Buy Below Price” and the “Target Price” of each of our recommended Stocks.
Here are 4 Big Advantages of SAM
1. Faster Giants
As I write this, Citiseconline is recommending 16 stocks for its Easy Investment Program (EIP). They’re fantastic, enduring companies that will most likely be there 50 years from now. But from experience, having so many stocks to choose from can cause confusion. And confusion causes inaction.
For SAM, we’ll narrow down the list to five to six stocks only.
Lesser choices mean lesser stress for you!
Why narrow down the list to five to six stocks?
Because not all Giants are created equal.
Some Giants are so gigantic, their growth may be slower.
Some Giants are in a mature industry, so the growth will be minimal at best.
So we’ll choose the Giants that we believe will rise faster.
Obviously, we don’t have a crystal ball with 100 percent accuracy. So we could be wrong in one or two of our selections. But we’re hoping that our right picks will be enough to make your money grow faster than if you were doing totally passive investing.
2. Lower Prices
Just like in passive investing, you’re to buy a particular stock each month. But in SAM, you only buy when its price is beneath our “Buy Below Price.”
Here’s a secret in making more money in stocks: You make your money when you buy, not just when you sell. What do I mean? If you buy it at a cheaper price, your earnings increase many times more.
How does SAM do this? I’ll give you a “Buy Below Price” for each of our recommended stocks. This will prevent you from chasing a rising stock all the way to the top.
3. Secured Profits
In passive investing, you never sell.
In SAM, we’ll tell you to sell after a few months—when our recommended stock hits our Target Price. By selling, you lock-in your profits. You take your profits off the table. You take your money from a company that’s already gone up and put it in another company that still has room to go up. This multiplies your earnings nicely.
4. Nice Jackpots
And then there are jackpots. Lepanto (LC) was our jackpot stock this year. My mentor mentioned it to me last December 2010—and I wrote about it right away. If you bought when I recommended it last December, you would have earned 157 percent by now.
I warned people that it’s a volatile stock. It may go up or down. So this isn’t our bread and butter in SAM. But I told you that if you had extra money (that you’re willing to lose if things go wrong), you can buy Lepanto (LC).
My mentor calls these calls “intelligent speculations”. I repeat: As a rule, we don’t speculate with penny stocks. But every once in a while, he finds a gem among the penny stocks. It’s very rare. But when he finds one, he’ll tell me—and I’ll tell you. The risks are higher, that’s why I ask you to put your “extra money” only.
So there, that is SAM when it comes to investing in Philippine stocks. You can also scan through the click-by-click tutorial below to see an actual example how it worked recently (2014) for one sample stock. For your quick reference, you can get get a sample copy of this SAM discussion here.
Have fun investing!
– Omeng Tawid
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