What every newbie should remember
Aries Baloran used to find content every time he looked at his collection of Jordans and Kobe Bryant sneakers. He had 120 Jordans, 15 Kobe collectibles, in total about 200 pairs.
When he wasn’t playing hoops in his head, he was roaming Italy – where he worked as a gardener and waiter – on one of his five bikes. His total investments for his collection of sneakers and bikes? About 1 million pesos.
Now, instead of bikes and shoes, Aries collects inventory. He often tells me that his life changed the instant he heard me say, “Money is never the most important thing. But knowing how to manage money allows us to do the things that are most important to our loved ones.
He was one of the few who were able to open an account in 2020 before COL Financial was forced to temporarily reject new requests due to a record customer acquisition. Imagine: COL opened only 40,000 accounts per year. As a result, over 400,000 accounts were opened in the first nine months of 2020. “It was crazy,” said COL founder Edward Lee.
COL is not alone. Other online brokerages like Philstocks saw a 77% increase in new accounts in 2020.
More time, more money
These new traders are not your usual retail investors. With plenty of free time and surprised at the extra money saved from the usual ‘gimmicks’ and Instagrammable steak meals that they suddenly couldn’t have, these 20+ are very aggressive. Armed with the internet, they will post their massive gains on their social media pages, and a new group of their herds will rush in and attempt to replicate them.
Aries, for his part, says he made a lot of mistakes. He was seized with the fear of missing out (FOMO), as these investors laughingly call him. He bought GMA 7 at P1 per share and sold it at P7. It is now at P13.84. He says he should have studied fundamental analysis first, instead of technical analysis. He should have thought long term instead of looking for quick wins.
For 25 years, I’ve watched bears and bulls go from thrilling hip-hop routines to beautiful ballets in the blink of an eye. But when the applause and boos fade away, only those who have adhered to proven investment principles remain.
Here are a few:
Buy stocks as a business. Actions aren’t just numbers on a screen. They are living, growing organisms with sore spots and growing points. You won’t go into business with your friend if you didn’t know the product, how your friend was going to handle things, and if they had the right people. Why buy a stock just because your friend said it gave them a 100% return in a matter of weeks? If your belief is based on your friend’s prediction, there’s a good chance you’ll sell on the first wrong turn and lose money instead.
Take away all notions that you are a rational investor. No one can outsmart the market itself. So create systems and protocols for every turning point in the market. Learn the market cycles and decide IN ADVANCE what to do for each turn. But since you are aware that your brain is not designed for discipline – and this is precisely why young investors are given the FOMO and YOLO (you only live the attitude once) – create the system that will help you discipline yourself during your exchanges. For example, predetermine when you are comfortable cutting your losses or cap your wins. These take away the emotion of investing.
Invest for the long term rather than quick daily gains. You might not notice it, but your friction costs from constant churning can eat away at your bottom line. If you are looking for the excitement of trading, separate your portfolio into long term investments and short term trades. Invest more in long-term investments: boring blue chips that you hopefully buy for less than their intrinsic value; and then, maybe 5 percent of the total can be used for your “sexy speculation trades”.
Figure out what your limit rate is and let it guide you in how you monitor the return on your investment. Aswath Damodaran says your minimum rate of return is the return you need to generate, based on the risk you take, after looking at market size, growth, and profit potential. While you won’t be successful all the time, it’s important to know when you made the wrong call and then recalibrate. The best investors aren’t the ones who get it right all the time, but the ones who know how to fine-tune their strategies. Without knowing your hurdle rate, a lot of mistakes and losses can turn into bigger mistakes and losses.
Don’t invest your money for tuition, rent, or medical procedures. No matter how much profit you project, no matter how secure the returns seem, keep your emergency funds intact and never dip into them to invest. This way, you never have to retreat at a loss, in case the markets collapse while your blood pressure skyrockets.
If you can’t do all of these, that’s okay. Instead, invest in equity index funds. You pay the lowest management fees of all the different equity funds and with less capital you invest in the top 30 listed companies in the country. It’s instant diversification at low cost.
Salve Duplito is a financial literacy advocate with shows in ABS-CBN and online through his SalveSays Facebook, Youtube and Kumu social media pages. She is also President and CEO of Empower and Transform, OPC.
Subscribe to our commercial newsletter
Subscribe to INQUIRER PLUS to access The Philippine Daily Inquirer and over 70 other titles, share up to 5 gadgets, listen to the news, download from 4 a.m. and share articles on social media. Call 896 6000.