How to earn from the stock market even during the bear market?


With the stock market in “red” territory nowadays, I would like to bring you back 8 years ago to a company that mostly love by Filipinos around the world. In this article I will show you how would your money grow if you started investing in the stock market by regularly investing even 5,000 pesos in a yearly basis with a single company.

As you have learn, there are two ways how you can earn from the stock market. You can earn through price appreciation and through dividends may it be in the form of cash or stocks. In this illustration I will show you what would be your money’s worth if you started investing 8 years ago, and the company that you are supposed to be investing was your favorite JFC or Jollibee Foods Corporation. Of course you know about this giant company listed in the Philippine stock market.

Below is a simple illustration.

JFC Gains

Regularly Investing

The data above shows an investor is investing a minimum Php 5,000.00 in a “yearly” basis from 2008 to 2015. With the investment the investor start to buy shares of JFC at first the number of shares bought are many and gradually decreases as the stock price increases (from 130 shares to just 20 shares). The investor will start to buy shares every January of each year. The total invested amount is Php 37,607.20.

Dividend Payments

Jollibee Foods Corporation gives a regular dividends to its share holders and the investor has benefited from it since 2008. It has given dividends 19 times in a 8 year span ranging from Php 0 .25 to Php 2.00 when totaled its value is Php 13.01. The total earned dividends received by the investor less than its commission of 10% is Php 4,451.85.

Commission Payments

In every transaction that you make in the stock market through a broker you will be charged with a commission may it be buying or selling stocks. With this I am using the computation of COL Financial for the commissions for every transactions it appeared in the above table in red fonts. Buying commission amount is Php 110.94 and Dividend commission amount is Php 494.65 total commission fee is Php 605.59.

Value Computations

By regularly investing Php 5,000.00 in JFC the moneys’ worth today is already Php 97,290.91 from a total of Investment cost of Php 37,607.20 only it has 206% growth rate. See computations below.

JFC Gains1

Price Appreciation

JFC price action

One way to earn in the stock market is the price appreciation of your favorite stocks. With the price action of JFC from 2008 to present it is not necessary to push the panic button to exit because in the long run the gains will still be accumulated base on its 8 year performance.

Happy Investing everyone.

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Overcoming “FEAR” of investing


I consider investing is the most important element of everyone’s financial future — but sometimes it takes a while before we really get it, so to speak.

Fortunately, I think it’s fair to say most of the readers here at Stock Market Beginners get it. But I’m willing to bet that there are still a few who might get the concept but have yet to put it into action.

As I read an article that defines F.E.A.R it says “False Expectations Appearing Real”, that is how I came to know that we live a life of choice. Everything we do everyday is a matter of our personal choices and nothing else.

Biggest success factor: Take the plunge

There are a lot of people who have the knowledge on investing and they even believe that it is good for them. But sad to say that they do not take the action to be an investor. I call them investing believers but do not have the desire to be investing doers.

A lot of reasons why these people does not transform themselves, and these come immediately into my mind:

  • They don’t think they have enough money.
  • They think of losing their money if they make mistake in investing.
  • They have fears about inflation or other extraneous factors they can’t control, and so forth.

Yes, those reasons above may sound valid, but no matter how valid the reasons sound, they still don’t remove the simple fact that, if you don’t invest now (and you continue not to invest), you will discover somewhere down the road that retirement is not an option for you.

From the time I started investing I’ve met people who invest and those who don’t, and I have discovered something that people who get to start investing in any form start at it. And the one’s who don’t, don’t.

Action reinforces action

The best way to start investing is simply to get started investing. By taking actions to what we have in mind (an investment, if we will), we begin to acquire an emotional attachment to it. From then we will begin to start sacrifices to keep that thing going, because the human mind is designed in such a way that once we devout ourselves to what we desire to achieve it will transform into a habit.

Just like those people who do not invest they will to continue to nod that investing is essential to their future financial health and continue on without investing. They commit themselves not to invest, because of the fear that they have in their mind about investing, and with that they take an opposite action, and it will be reinforce as they to continue to think of their  fear.

How do you break the inaction mindset?

In every self-help books that I have read, the key to success, therefore, is to simply break the bad habit/mindset and replace it with the healthier one. Easily said, you might say, but …

In the real world that we have, I’ve concluded that the biggest thing holding people back from getting started investing is very simple. They just don’t know where and how to get  started.

I know it held me back for 3 years from the time I learned how to invest into the stock market and the biggest thing which held me back though was, I didn’t know how to get a stock broker to start my stock market investment.

But how do we get to to break this inaction mindset was two things:

1. Knowledge

The more we learn about any subject, from exercise to investing, the less intimidating it becomes. More knowledge also adds mental ammunition to take the jump and stay on course, all the way to retirement. Also, the more knowledge we have, the more assurance we will feel that we’re not making obvious mistakes. There are many resources, free and paid, to learn more about investing.

2. Simply setting aside money

As the years gone by until the time I found my stock broker, I was setting aside a certain amount of my monthly income. First I do it manually through personally depositing it and later on I apply an automatic deduction of my payroll to my deposits. With that it won’t be a hassle anymore in part to personally deposit and it gives me more free time.

Making the decision to cut back is the hard part. Once you have done that, you get to the choice of where to put that money you set aside each month.

Play to your strengths

I believe there is no one-size-fits-all answer to investing, whether it be for retirement or any other future purpose. For instance, We consider these two type of investors, Mar and Jejomar. Mar worked an ordinary job his whole career, never making much more than an average income, and yet today he’s a millionaire. His strategy: investing in individual stocks with a conventional investing account.

Jejomar, on the other hand, has an auto repair shop, and has for many years. He knows nothing about index funds or anything traded anywhere. His wife works for a realtor, and so they began buying rental homes a decade or two ago. He’s a hands-on type of guy, used to fixing stuff and dealing with customers, so to him and his wife rental property was (and still is) a no-brainer investment. In every recession, they picked up a house on the cheap, and all their houses are cash flow positive today. They are saving now for the next recession, when they hope to pick up another bargain. Jejomar is still much younger than Mar, but it doesn’t take a rocket scientist to see that he will probably be in the same position as Mar when he reaches retirement.

The point is: Figure out who you are and what you’re comfortable with, and go with that. Mar just loves his job and career; and if he started with rental properties, it wouldn’t have taken him long to just say, “Oh, just forget it!” So, don’t listen to what others say you should invest in: Consider all the options and pick one or two investments that resonate with you.

Keep it simple at first

But whatever your investment interest is, start out with something simple. The two simplest options are:

  1. Sign up for a savings deposit account or similar plan at work, into which you put an amount you’re comfortable with every pay period. Automate that transaction, so it gets taken right out of your paycheck and you never see it.
  2. If you don’t have a job with regular pay, you can simply start your piggy bank and eventually deposit in a bank.

That is simple and easy.

Once you’ve stayed with the savings account or retirement plan for a year or so, you’ll discover that, while you weren’t looking, that switch in your mindset shifted from trying to justify not investing to trying to justify investing.

You are on your way to a secure financial future!

The important thing is not what you start with, but that you get started. The sooner you start, the more options you will have in your future when retirement beckons.

Future flexibility

One of the benefit of investing is that it will not leave us being locked in. The return of it can have you more options to diversify your investment allocations. It may be to open a new business, to buy more company shares, and any other investments that can grow your money. Also with great wealth it is more flexible to help other people in need especially your love ones and friends. That is the beauty of accumulating wealth at an earlier stage in life.

But you’ll never have that flexibility if you have nothing invested.

There is no way you will enjoy retirement or financial freedom later in your life if you don’t invest. If you have been holding yourself back by not knowing where to start, be held back no more.

P.S. Have you had to overcome the fear of investing? What advice would you give to someone that is trying to overcome their fear? Please share on the comment below.

Investors vs. Traders in the Marketplace


 trade vs investMany people use the words “trading” and “investing” interchangeably when, in reality, they are two very different activities. While traders and investors participate in the same marketplace, they perform two very different tasks using very different strategies. Both of these parties are necessary, however, for the market to function smoothly.

Stock traders: Individuals or entities engaging in the trading of equity securities, or the transfer of financial assets in any financial market, either for themselves, or on behalf of someone else. They operate in the capacity of agent, hedger, arbitrageur, speculator or investor.

Stock investors: Individuals or entities who use their own money to purchase equity securities, which offer potential profitable returns in the form of interest, income or appreciation in value (capital gains).

There is quite a variation of characteristics. To go into further detail on investors and traders:

Stock investors

Stock investors are the market participants whom the general public most often associates with the stock market. They rely primarily on fundamental analysis for their investment decisions and fully recognize stock shares as part ownership in the company. Many investors believe in the buy and hold strategy, which, as the name suggests, implies that investors will buy stock ownership in a corporation and hold onto those stocks for the very long term, generally measured in years.

These investors, who purchase shares of a company for the long term with the belief that the company has strong future prospects, typically concern themselves with two things:

  • Value – Investors must consider whether a company’s shares represent a good value. For example, if two similar companies are trading at different earnings multiples, the lower one might be the better value because it suggests that the investor will need to pay less for Php 1.00 of earnings when investing in Company A, relative to what would be needed to gain exposure to Php1.00 of earnings in Company B.
  • Success – Investors must measure the company’s future success by looking at its financial strength and evaluating its future cash flows.

Both of these factors can be determined through the analysis of the company’s financial statements along with a look at industry trends. At a basic level, investors can measure the current value of a company relative to its future growth possibilities by looking at metrics such as the PEG ratio – that is, their price earnings (value) to growth (success) ratio.

Stock traders

Stock traders are market participants, either an individual or firm, who purchase shares in a company with a focus on the market itself rather than the company’s fundamentals. A stock trader usually tries to profit from short-term price volatility with trades lasting anywhere from several seconds to several weeks. The stock trader is usually a professional. Persons can call themselves full- or part-time stock traders/investors while maintaining other professions.

Markets involved in the trade of commodities are beneficial to a stock trader’s strategy. After all, very few people purchase wheat because of its fundamental quality – they do so to take advantage of small price movements that occur as a result of supply and demand. Stock traders typically concern themselves with:

  • Price patterns – Stock traders will look at past price history in an attempt to predict future price movements. This is known as technical analysis.
  • Supply and demand – Traders keep close watch on their trades intra-day to see where money is moving and why.
  • Market emotion – Traders play on the fears of investors through techniques like fading, where they will bet against the crowd after a large move takes place.
  • Trader support – Market makers (one of the largest types of traders) are actually hired to provide liquidity through rapid trading.

Ultimately, it is traders who provide the liquidity for investors and always take the other end of their trades. Whether it is through market making or fading, traders are a necessary part of the marketplace.

Clearly, both traders and investors are necessary in order for a market to function properly. Without traders, investors would have no liquidity through which to buy and sell shares. Without investors, traders would have no basis from which to buy and sell. Combined, the two groups form the financial markets as we know them today.

P.S. I will post on Saturday the different type of Traders in the Marketplace

Too Much Emotions Will Kill You


The Philippine stock market has been in the “red zone” throughout the previous week except on Friday when it reverses and gained to as high as 180 points and closes with 75 points. Some analyst has termed it as a market correction or consolidation.

Investopedia defines correction as a “reverse movement, usually negative, of at least 10% in a stock, bond, commodity or index to adjust for an overvaluation. Corrections are generally temporary price declines interrupting an uptrend in the market or an asset. A correction has a shorter duration than a bear market or a recession, but it can be a precursor to either.”

PSE

This period of the market cycle are mostly favorable to long term investors of the stock market. This is the time to accumulate more shares of your favorite companies at a “discounted price”. As the famous Warren Buffet says “Sell when others are greedy and Buy when others are fearful”, the “buy button” may apply to this scenario. For stock market beginners this may also be the best time to enter the market since prices of stocks are low. Some may even ask Will it still go down? How low will it go? probably these questions may linger in our heads as beginners. But still the stock market cannot be predicted perfectly as it is full of emotions as I have written on my previous article “Understanding the 14 cycles of Emotions of the Stock Market”. These emotions makes the stock market unpredictable thus it requires a lot more of understanding as we go along on our investment. It is like much more of understanding a person’s behavior since stock market are driven by people and every person has its own personal behavior towards investing. This maybe confusing but that is really how stock market works and the Philippines has no exemptions to this. So to be able to contain and win over those emotions we must be able to act accordingly and the key is to control our greed and fear when it comes to investing. Long term is the very best way to learn the reactions of emotions of the stock market.

One example of emotion base investing that affected on this week trading is Meralco’s (MER) stock price which increase on Friday to as high as Php 283.00 price per share from a low of Php 270.00 it was an overwhelming Php 13.00 pesos increase in a single day. One very obvious factor affecting it is the current price hike of electricity that was published on the news on TV, broadsheets, radio and online that brought more emotions of investors to buy more MER shares and resulted to an abrupt rise on its stock price. And together with these power hike issues most of the power industry listed in the stock market have gone high on Friday’s trading.

EDC

So emotions has got really something to do in the stock market thus controlling it is really necessary in order to have all its positive on your side. Speculations may pose high risks especially to those beginners in the stock market due to so much emotions like being very greedy when the market goes high and become very fearful when the market goes the other way thus losing your hard earned income to drain.

trader
Image Credit: http://squaredawayblog.bc.edu/

Four years ago I was into this emotion base investing, my first entry into the stock market makes me worry and sleepless for a week since it went to a bloody red portfolio. It was because I feel very fearful looking at my Php 5,000 investment becomes Php 3,000 for only 3 days after I bought my stocks. But when the time my stocks started to gain a sigh of relief was in the air especially when it break even. Once my stocks started to grow more  and more another emotion is getting into my stomach the emotion of being greedy. My questions during that time was “Is it already time to sell these stocks? How about if it will still go up the next day? Will I already sell it since I already profited? But I want to profit more so I will sell it the next day”. Emotions greatly affect your investment if you cannot find a way to control it.

Steps to overcome emotions :

  1. Define your investment goals
    • You are into investing because you have certain goals to achieve, may it be buying a house or a car, for your kids education, to travel to different places and many more. But without a specific goal for a certain period may confuse you on what will be the priority. So defining your investment goals must be a top priority.
  2. Develop Strategies to achieve that goal
    • A simple allocation of some percentage your monthly income is a strategy to reach your goals. The discipline of asking yourself before you spend on something is another strategy.
  3. Evaluate your Strategies
    • With all your set strategies there maybe some of it that needs more adjustment, thus evaluating or checking your strategies regularly can help you to overcome your emotions towards investing.
  4. Continue to Learn
    • Continuous education on stock market investment is a great way to achieve success. This must be your first priority to invest in yourself before anything else. Derek Bok once said “If you think Education is expensive, then try Ignorance”

P.S. You can leave a comment below on this article

Battle for Greatness: Investing Strategies


Before the biggest boxing fight in history will happen tomorrow, let me share some of my insights which I got from these two boxers that I may relate into Investing in the Stock Market.

20150501183603-pacquiao-mayweather-boxing
Image Credit: FoxSports

Let’s start with our very own Manny “Pacman” Pacquiao

1. The 3D’s. Being able to Dream, Desire and have the Determination to be successful is being what Pacquiao has shown to every Filipino in becoming one of the best boxer and athlete in the world. As a kid he dreamt to help his family and his desire to become a boxer have put his determination to become the best of his class.

Pacquiao Investing Strategy 1Having these 3D’s as an investor can help a lot in choosing to invest our hard earned money. We need to dream big, desire for a financial freedom and have a determination to achieve the lifestyle we want.

2. Do not settle for less, but for the best. Pacquiao embraces the tougher fights of his whole career which started in 2001 whereas a replacement fighter against Lehlohonolo Ledwaba of South Africa ending a sixth round knockout. Then he chose to fight more bigger opponents from Marco Antoinio Barrera, Juan Manuel Marquez, Erik Morales, Oscar Dela Hoya and eventually goes up and become an 8th division champion beating down Ricky Hatton, Antonio Margarito and many more on the list. And now he is now facing the biggest fight of his career facing Mayweather and not shying away for a rematch whenever possible.

Pacquiao Investing Strategy 2: Settling for less doesn’t make your money grow, if you only keep what you earn. There is a financial quote that says “Saving is good but investing your savings is great”. Investing your money in the stock market may have higher risks but it has also higher returns. Thus find the best options to grow your money can be found in the stock market.

3. Persistence. With his stunning defeat in the hands of Juan Manuel Marquez in their December 8, 2012 fight, Pacquiao kissed the canvass and suffered his worst defeat in his boxing career. Many analysts and boxing fans predicted that it is the end of his boxing career. But the persistent Manny Pacquiao has defied his critics and said that “He will rise again”. Learning some lessons from his defeat he rose again and defeated another boxers Brandon Rios and Chris Algeri in an impressive way and that gave him credits to face Mayweather in the biggest boxing match in history.

Pacquiao Investing Strategy 3: Investing in the stock market needs perseverance since not all of the time you are gaining from the shares of the stocks you chose. To be able to get your desired gains from the losses you’ve got from your stocks, being persistence as an investor is the key to success. Reverse thinking of the cycles of the market especially during the bear cycle can make you accumulate more shares and eventually gives you more gains if you just persist.

For the American boxer Floyd “Money” Mayweather

1. Game Plan. Mayweather has something of a reputation for taking on a a game plan one example of choosing less-challenging opponents. Although that tactic’s easy to criticize since it may appear as though he’s avoiding the toughest boxers. On the other hand, without a game plan, his way to success may not be that great, he may not even get where have been today. As the saying goes “If you FAIL to PLAN; you PLAN to FAIL”. Mayweather’s choosing of an opponent which can be part of his game plan still a strategy towards success. The right keyword here is “PLAN” your way to success.

Mayweather Investing Strategy 1: Every investor has always a plan while investing their money in the stock market. Every plan has to be developed in terms on their financial style. They base their plan on 5W’s Who? What? When? Why? Where? and 2H’s How? and How Much?. Having your own investing plan is very much of help in the stock market. With this you can maximize your gains and minimize your losses.

2. Be Consistent. Being undefeated for two decades isn’t easy in the world of boxing without fail. But there’s Mayweather, with his 47-0 record. This is, in large part, because he’s known as one of the hardest-working boxers in the sport. There have been countless stories in boxing history where a champ slacked off in preparation for a subpar opponent only to be embarrassed in the ring. Mayweather’s never put himself in that situation. He’s tireless in his training and truly obsessed with his craft. That kind of dedication will end in massive success — no matter the line of work.

Mayweather Investing Strategy 2: Consistency in your investing plan can help you set targets and achieve your goals in the stock market. Being consistent can help you trace what went wrong and what went right during your investing periods. And with this you can check and decide to revise or improve your investment plan, correct the wrong actions and maintain the correct actions.

3. Build your defenses. Eversince the boxing world has known Mayweather for his defensive style as a boxer. He uses his elbows and shoulders to defend himself from the strong blows of his opponents. Thus making him hard to be hit and being knocked down during a boxing match. His defense mechanism as describe by some boxing analyst can save him from the fury of punches that Pacquiao is expected to throw during their match on May 2, 2015 at the MGM Grand Las Vegas.

Mayweather Investing Strategy 3: Setting targets either a gain or a loss is a very important defense mechanism in the stock market. Being incorporated in your investing plan the set targets when to Buy and Sell your shares can help save your losses when the market is not in your favor. Thus building your defenses is as important as making your offenses while investing.

While the sports world especially the sports of boxing is awaiting the “Biggest Fight in the Century” to be able to distinguished who is the greatest boxer in the world, the examples set by these two vastly different boxing superstars can be applied to a number of investing strategies. Investors and traders, regardless of their field, and these two men have figured out how to play the game.