Stock market investors are a funny lot.
They get excited when stocks are rising in value, but get nervous when its value is down. This is true of stock investors here in the Philippines and in other countries as well.
In an up market (aka bullish), all of a sudden they become investment experts and try impress their friends in Facebook or in Twitter by posting positive projections of the general market up-trend — as if the party is going to last all night long. And of course, not to be left behind, Stock Experts in the Philippines would also try to get their share of limelight by appearing in your TV Screens.
The story is different, however, when the Stock Market is down (aka bearish). Investors get nervous and silently wish their friends would not know that they are hurting inside. Their Social Media accounts also become silent. The most ridiculous part is when local Stock Experts (aka Stock Idols) suddenly go into hiding, their faces nowhere to be seen in Investment TV programs. Instead of showing Stock Quotes, they start quoting the Bible for cherry-picked verses.
Do You Believe In Luck?
“The basic story remains simple and never-ending. Stocks aren’t lottery tickets. There’s a company attached to every share.” — Peter Lynch
You see, investing in the Stock Market is not for the faint of heart.
Stocks — whether Individual Stocks or Stock Funds — are a crazy place to park your money for just one year and hope that at the end of the twelfth month you’ll rack up 15% total return.
And yet, so many beginning stock investors are doing just that. Without proper education and armed only with the faintest of financial advice — which I suspect they probably gathered by attending a half-day Stock Investing Seminar — there are only two things that can possibly happen to these investors and their investments:
- They get lucky and actually experience a positive return in the short term. Gamblers call this phenomenon the “Beginner’s Luck” and indeed it happens. And although investing is not the same as gambling, short-term success such as this one certainly can boost your confidence. But don’t let this fool you into thinking it will be like this in the future.
- They end up licking their wounds when their investment goes down the tank — negative 20 or more down the orginal amount they invested.
“The fool and his money are soon parted,” is an old proverb that will always be true forever and ever.
It doesn’t have to be this way. Investing is not gambling, where your chances of success is very slim. If you have done your homework correctly, investing in stocks should be a rewarding experience.
“The day the Stock Market crashed in 1987, I went from having a million dollars to less than a hundred thousand. But do you know how much attention I gave it? One hour. Did I make it back? Many times over.”
— Deepak Chopra, questioned in Money Magazine
I am writing this piece at the time when Asian Stock Market — the Philippines included — is experiencing a downturn. For those of you who’ve just started investing in stocks, say, for a couple of months or years, this is not a particularly good time to watch your investment portfolio.
But those of you who have been in the market for 5 or more years already should know better and should be immune to this temporary shock that we are all experiencing.
Truth be told, no one can predict exactly where stocks are headed in the short run.
And whoever tells you he can do so must either be a liar or a scammer — or both. Walk away from that guy immediately.
In the long run, however, the story is different. Stocks tend to move up, higher and higher over time.
As Ric Edelman aptly puts it, “By focusing on the daily ups and downs of the market, people forget the more important point: Stocks rise more than they fall.” That’s taken from his book entitled The Truth About Money, which I highly recommend you keep in your investment bookshelf.
Smart Strategies for Smart Investors
So, your stock investment porfolio has take a dive lately?
If it’s any consolation, here are some tips to keep in mind from your friendly Mutual Fund Advisor.
1. Don’t panic.
“If you don’t know who you are, the stock market is an expensive place to find out.” –George Goodman
Keep your cool.
Ask any Day Trader and he’ll tell you that stocks go up and down every single minute of the day.
This volatile nature of stocks is what makes them a risky investment.
By the same token, herein lies the two great opportunities associated with stock investments:
- making a quick money, by trading stocks in the short-term basis; and,
- building wealth for the long-term.
Equity Mutual Funds, on the other hand, are valuated at the end of any business day and so they change values once a day. It’s a good choice if you don’t want to be involved in the hassle of deciding which individual stocks to buy and which to sell. Investing in a well-managed mutual fund of carefully selected stocks is a smart choice for long term investors.
I can’t emphasize this highly enough. Investing in stocks should be for the long term.
It becomes clearer if you consider the two graphs below which show the performance of the Philippine Stock Exchange Index (PSEi) for the periods spanning 6 months and the 7 years, respectively, ending June 2015 — that’s the time of this writing.
As you know, the PSEi represents the collective stocks of the country’s best and biggest corporations. So take a look at the graphs below.
See? If you invest in stocks and hold on for the long term, your patience will eventually pay off and you will be rewarded handsomely.
2. Stop listening to news of doom and gloom.
“A recession is when your neighbor loses his job. A depression is when you lose yours.” –Ronal Reagan
I don’t know what it is with people that make devour news about scandals, crime and corruption and other end-of-the-world predictions. Maybe as a species, we are naturally drawn to the negative vibes of others.
It is my hope that you are not one of them.
Historically, the world over has already experienced all sorts of catastophic events that could have placed us all into a Financial Blackhole.
- The Great Crash of 1929 which led to The Great Depression in the US and then followed by…
- The Great Recession (1937 to 1938). This is recession within a depression – the worst time to be.
- The Black Monday aka the Market Crash of 1987
And in recent memory:
- The 1997 Asian Financial Crisis
- 9/11 Twin Towers Bombing
- The Financial Crisis of 2007 and 2008
They certainly affected the Investment Landscape of the world.
But the thing is, the Stock Market has always been back on its feet. It’s like the Kung Fu master who never gives up no matter how many times he got beaten by a sumo wrestler.
And did you know you that even in the worst of times, there are certain kinds of stocks that go up in value?
You see, even if people are losing their jobs or their hopes, there are certain things that we just can’t stop doing — eating, drinking and buying groceries, for example.
And who make those burgers that you eat? And those softdrinks that you drink? And the stuff that you keep in your refrigerator?
That’s right, big businesses and corporations.
To be continued…
This is the first part of a two-part series. In the next article release in the coming days, I’ll discuss three other tips that stock investors should take in a down market.