How do I start Trading Stocks?

This is a question I always get from everyone I know who's interested in learning about stock trading in the Philippines. I'll share what I know about the Phil Stock Market and how to trade it.

I've actually began my adventure from learning about financial planning before trying to master stock trading. I have to insist that everyone learn this first. It will lay down your financial foundation and protect you from your inner greed. Everyone has one.That's also the reason why not many succeed in stock trading.

 

Let's begin by reviewing the basics. I have an article on this somewhere on this blog. Oh well, let me

 

1. Insurance - Protect the goose which lays the golden eggs. No goose, no golden eggs. Of course, that goose is  you. When the unforeseeable happens, you should also be ready for the defense. We all die, we all can have accidents. No one is exempted.  Only immortals don't die. You should prepare for this just in case.
 

2. Debt management - To maximize growth, eliminate negative interest-bearing instruments first. Debt. You can't grow a 20% annual interest investment with a 36% yearly interest of debt. Eliminate debt. Otherwise, the negative interest on your credit card will just eat up whatever you earn from investments.
 

3. Emergency fund - This should be 6 months to one year of living expenses (depends on where you are). In the Philippines, we compute it to be 6 months. How does this work? When you get laid off or if your business loses money, you still have some money to recover from such a disaster. It will cover your expenses while you look for a new job or start a new business. It will also cover other "emergencies" like medical expenses when necessary. This way, you don't have to apply for more debt or touch your investments.
 

4. Investments - mutual funds, ITF's, stocks, etc... This is mostly done after you have covered the first three.
So please keep these in mind before going into stocks. 

Here are useful news resoureces.

For news (they serve as catalysts):
 

http://business.inquirer.net/ - and other local business news sites are ok.
 

For international news, I use the following:

http://www.bloomberg.com/
http://www.cnbc.com/
http://www.thestreet.com/

 

 International events have an impact on investor/trader sentiments, and can be used as signal for entry/exit  points while trading.

 

 There are two major philosophies in trading. Technical and Fundamental analysis. Technical analysts follow price movements, chart patterns, etc... to determine valid entry and exit points while trading. Fundamental analysts need to know what caused these price movements and gauge if the current stock price is cheap or expensive based on business fundamentals. One of the most famous and successful user of fundamental analysis is Warren Buffet, one of the world's richest men. He's known to have built his wealth purely from investing in stocks.

 

If you want to learn technical analysis check out these links I found on the web.

http://www.informedtrades.com/trades.php?page=school
http://www.swing-trade-stocks.com/
http://thepatternsite.com/

There are more but these are the coolest ones.

For the Philippine Stock Exchange and PSE graphs:
http://www.pse.com.ph/

There's even a cool Pinoy Community with seasoned traders, brokers, or fund managers willing to help out.
You can check from the Online Trading and Brokerage Feedback Topics for advice on which
companies you can use.

http://financemanila.net/ - the forum is where most of the veteran traders hang out

http://www.traderspizza.com - another nice forum with its own gurus as well.

http://tsupitero.com/selection.htm - the broker (you can find his profile on this page too) he hangs out at financemanila.net as well

I only use BPI Trade but they said COL is better (they have their own graphs and tools). I might shift to COL as soon as I get back to the Philippines. If you want to open a BPI Trade account, ask the nearest BPI near you on how to open one.

 

Below is Citiseconline's website.

https://www.citiseconline.com/


Of course we can then chat, and share trades and learn which are possibly good ones or not. 

 

Good luck on your trading!

Asset Allocation Diversification

Hi Everyone!
Just a few more notes on diversification. This is for those who want to improve their portfolio.

Diversification is a good defense/protection strategy for those who aren't as versed quite well with the market. And I suspect, that's for most of us here. Not everybody is a seasoned stock broker. And even these professionals make some mistakes and lose a lot. If you don't have enough money to throw away, don't put all your eggs in one basket.


Diversification comes in at least the following 3 ways:

1. Diversify your risks. The following have varying degrees of risks. Generally the higher the risk, the higher the profit. That's one of the basic laws of investing. The trick is to diversify on the different type of investments that you have. - invest in equities (stocks), bonds, mutual funds, real estate, pension plans, time-deposits

2.  Diversify your currencies. If you invest in just one, you might gain in the share prices 9captial gains) but lose in the currency conversion rate. If you diversify, you offset your other investments' losses.  Strong currency investments can offset weak currency investments. (like in the relationship between the Peso and the US Dollar). - There is the Euro, the Dollar, the Peso, etc...

3. Diversify your companies. Each company has a different fund manager, hence different investment strategies. Their strategy could spell the difference between your success and your failure. If you're not too familiar with the fund managers, I suggest you diversify on this as well. - Philequity, MAA, Prudential Optima, Grepalife Assets, AyalaLand, Crown Asia, etc...

If you know the best approach, they say it is better to concentrate. I agree. But if you can't predict the future, safeguard your portfolio. Don't pretend to know what will happen. Play it safe. It's always better than be sorry.

Stocks and Bonds Diversification

Here's a very simply rule on how to diversify your stocks and bonds (fixed income).

According to Fast Money Trade School, you can make it easy by following this simple rule.

The percentage of fixed income in your portfolio should mirror your age. So if you're 30% years old, it means that 30% of your portfolio should be in bonds and the rest in stocks.

What can you see here? From what I see it means that the younger you are, the more percentage you can invest in more aggressive investments like stocks.

Like if you're 20 years old, you can put 80% in stocks. But if you're 30%, you can put only 70% in stocks.

Of course, this is only a general rule.

Happy investing!

The Secrets of the Rich - Accumulating Wealth

They say, it's not how much you earn but how much you keep. This applies to individuals, companies, and even countries.


What does that mean exactly? Let me explain.

It is said that there are USD 38 trillion being exchanged in transactions at any given point in time. There will always be money being exchanged between parties. Businessmen with all their creativity, device systems so that they can capture some of this money floating around. They do this in such a way that the net exchange will be favorable to them. These systems are called businesses.

As a consumer, you pay like P65 for a P35 burger to let's say Mcjollibug. The net exchange is that Mcjollibug earns P30 from the consumer. As you can see businesses are like money magnets attracting money from consumers!

In all this, there will be winner and a loser. One who earns from the net exchange of money and one who loses. Looking at the bigger picture, and when you really look at it, it is the consumer (who doesn't keep/save/invest) any money that loses. The income he gets from his employers, just passes through him and into the hands of another business.


Then let's look at investors. Businesses need to expand. For what reason? More money of course. They need to expand, gain market share, etc.. and to do that you need some money money to spend for their operations. If a business doesn't have money, it will look for investors willing to earn from the business expansion. So in this exchange, the investors earn from the earnings of this business. Want an example? Let's look at stocks. When you buy shares of stocks of a company, you become like an owner of that company. If the company earns, the price shares also increase. When you sell the shares, you as the the investor then earns. Hope that's clear.

Good businessmen, like most of our Taipans try to keep as much money as possible. If they have an airline, the food gets served by one of his food and restaurant companies. The bookings are done by his travel agencies. Most of his businesses are insured by his own insurance company. His expansions are funded by his banks. His condos tie up miles to his airline. His malls sell his own products. His banks and franchises rents in his malls. This goes on... But you do get the picture right?

As you can see, the good businessman knows how to keep his money. In the case above, it just revolves around his group of companies. This almost never goes out. But when it does, it becomes a small percentage of what he actually earns from his businesses. See the difference in the attitude of the common Pinoy consumer and the rich businessman? I'm not really surprised why the rich get richer and the poor gets poorer.

Now what am I saying? If you want to become wealthy or something close to it, adapt this mindset. Learn to save and invest. What's that I hear? You can't afford to save? But I say, during these times everyone cannot afford not to save. More so now since the percentage of middle class is disappearing into the poverty line.

Furthermore, when a person gets old and unproductive (like most of us mortals) what next? He could only rely on what he kept. If there are none, through the money of other people (relatives, children). If you love these people, act now. Save soon and save smart. Invest soon and invest wisely.

Bear-proof your Retirement Portfolio

This article is by Eric Petroff. Diversification is one of the most fundamental concepts in financial planning. I highly recommend that your read and learn. Nowadays in the information age, power belongs to the ones with the most knowledgeable and open minds and to the ones who put this knowledge into action. Happy reading!

It is simply a reality that market conditions play a significant role in retirement planning for almost everyone. Generally speaking, the more diversified you are, the less impact market events will have on your retirement plans.

If you happen to retire immediately before a prolonged bull market, there really isn't anything to worry about. However, if you end up retiring prior to a bear market, your retirement dreams could crumble if your portfolio is unprepared. Regrettably, there is no way to determine if you''ll be retiring into either a bull or bear market. With that in mind, let''s take a look at how to prepare your portfolio no matter what the market throws at you.

Rate of Spending vs. Rate of Return
 To begin, keep in mind that a successful retirement portfolio is one that provides a steady and growing stream of income. To accomplish this, you must set a realistic and sustainable spending rate - the percentage of your portfolio that you remove each year to pay for living expenses. The spending rate must allow your portfolio''s growth to offset inflation. Generally speaking, most investment professionals would consider a 4-5% spending rate to be a realistic target, implying a total return needed of 6.5-7.5%, assuming 2.5% inflation.
In order to achieve this rate of return, a substantial allocation to equities is necessary; probably about 50% of your portfolio. Unfortunately, when you shift from fixed income into equities, you significantly increase your portfolio''s overall risk. This increased risk translates market value and spending volatility.
Retirement certainly isn''t a time when you want to have huge swings in your income level. Because there is no way to know in advance if you''re retiring into a market upturn or downturn, it is best to prepare your portfolio by seeking as much diversification as possible.

How To Get There
Fortunately, achieving a meaningful level of diversification really isn''t all that hard as long as you keep a few fundamental ideas in mind.

1. Don't rely on individual stocks and bonds. Individual investors (and brokers) are sometimes ill-equipped to research and monitor enough individual securities to provide proper diversification. Serious investors, like colleges and foundations, hire money managers (or mutual funds) to achieve diversification. Take a lesson from them.

2. Never use a single mutual fund family regardless of how good it seems. Generally speaking, mutual fund families tend to have a consistent investment process across their products even though the names of their funds are different. Though their process may be worthwhile, having professionals with different viewpoints on investing is another essential aspect of diversification.

3. Don''t put all of your money in one style of investing such as value or growth. These investment styles will go in and out of favor depending on market conditions. Diversifying against these market trends is very important, as these trends can easily last five years or more and produce vastly different rates of return.
In addition to these diversification tips, you need to be extremely conscious of fees because they represent a structural impediment to success. For example, retail mutual funds may charge 1-2%, and brokers may charge 1-2% as well for wrap accounts. This means total fees can be between 2-4% per annum, which comes directly out of your investment performance. One great way to avoid fees is through an index fund provider or ETFs, which can generally provide a fully diversified portfolio for about 0.50%. Moreover, by investing in index funds you will achieve very broad degrees of diversification within a given asset class.

Conclusion
It is essential for investors to realize that market conditions, and timing thereof, can play a major role in their retirement plans. Since it is impossible to anticipate how markets will behave, diversifying your assets is simply the most prudent course of action. Take an active role in your portfolio, and do it by diversifying your assets and picking good mutual funds in which to invest your money. Such activities are most likely the best use of your time.

Important Questions to Ask Yourself Before Investing

INTRODUCTION TO UNDERSTANDING INVESTING
Before investing, you first should know the answers to basic questions including:

• How much money do you want to invest?
• What type of investment return do you expect to achieve?
• How much risk are you willing to take?
• What are the tax consequences of your investment decisions?
• How does inflation impact your investments?

What is a Financial Analyst?

Financial analysts help people decide how to invest their money. They work for banks, insurance companies, mutual funds, and securities firms. They often meet with company officials to learn more about the firms in which they want to invest. After the meetings, the analysts write reports and give talks about what they found out. Then, they suggest buying or selling that firm's stock.

Financial analysts may specialize. Those in investment banking study the companies that want to sell stock to the public for the first time. They also might study the pros and cons of a merger (when two companies join together) or a takeover (when one company buys another). Some financial analysts are ratings analysts who find out if companies can pay their debts.

Financial analysts usually work in offices. They may work long hours. They sometimes work on evenings or weekends. Many analysts face deadlines. Their day is filled with telephone calls and meetings.

Money Cost Averaging vs Value Averaging

This topic will be very useful for mutual fund investors.

Money-cost averaging is a strategy in which a person invests a fixed amount on a regular basis, normally monthly purchase of shares in a mutual fund. When the fund's price lowers, the investor receives slightly more shares for the fixed investment amount, and slightly fewer when the share price rises. It turns out that this strategy results in lowering the average cost slightly, assuming the fund fluctuates up and down.

Value averaging on the other hand is a strategy in which a person adjusts the amount invested, up or down, to meet a prescribed target. An example should clarify: Suppose you are going to invest P10,000 per month in a mutual fund, and at the end of the first month, thanks to a decline in the fund's value, your P10,000 has shrunk to P8,000. Then you add in P12,000 the next month, bringing the value to P20,000 (2*P10,000). Similarly, if the fund is worth P22,000 at the end of the second month, you only put in P8,000 to bring it up to the P30,000 target. What happens is that compared to money cost averaging, you put in more when prices are down, and less when prices are up.

It is said in an article that it showed via computer simulation that value averaging would outperform money cost averaging about 95% of the time. "Outperform" is a rather vague. I wonder what they based that adjective on. From what I read, whatever the percentage gain of money cost averaging versus buying 100% initially, value averaging would produce another 2 percent or so.

Warning: Neither approach will bail you out of a declining market with all of your monies intact, nor get you fully invested in the earliest stage of a bull market.  Makes sense right?

Savings: Why bother, brother?

Someone pointed out in a comment arguing that there really isn't any point to saving. He reasoned that we are a poor economy with limited resources and no matter how hard we try, saving isn't going to change our situation. We were born poor relative to the standards of first world countries and it will be likely that we'll live and die poor. So why should we even bother saving?

To me, the best answer was by Dr. Johnny Noet Ravalo in and Inquirer article. He said "we judge how well we have saved by benchmarking it against the opportunities we would have lost out on had we not saved in the first place."

Let's explore what I think he meant. I'm an engineer, and I'm more likely to be direct and just write things down in bullet points or list. So I'll do that.

The Many Reasons/Opportunities Why We Need to Save
- to extract more money for investments

- to figure out how to quit a job, move, build a house, have a baby

- to get out of debt

- to prepare for big expenses like college, a new house, a vacation, a face-lift?

- to retool your life after losing a job or becoming too sick to work

- to keep money from slipping through your fingers

- to be able to buy what you want

- to prepare for the harder times

Three Reasons Not to Save

- You're rich enough to buy anything you want and still have plenty of money left over

- I forgot the other two

Hey, even rich people save. So why don't you?

Basic Financial Strategy

MOST PEOPLE DONT PLAN TO FAIL, THEY FAIL TO PLAN!

Step 1 - Increase cash flow How would you feel if you had extra income each month? Does your family live paycheck to paycheck?

Step 2 - Manage Debt How long will it take to pay off debt (credit cards, loans, etc.)? Do you have a strategy to get out of debt?

Step 3 - Create Emergency Fund What would happen if you lost your job? What about unexpected expenses?

Step 4 - Ensure Proper Protection Are you prepared and protected if you become sick, disabled or die?

Step 5 - Build Long-Term Asset Accumulation Are you saving enough for your retirement goals? If not, do you know where and how to start?

Step 6 - Preserve Your Estate What will you pass down as a legacy to future generations of your family? Do you have a strategy to help you meet these goals?

How Should Wealth Be Defined?

What is wealth?

The best way to define wealth as prescribed by some financial experts would be how long you can live without having to work for money. It is not defined by an absolute number or value of a currency but by the number of days you can live without having to work for money.

So if you have savings that are good for 3 months of your current lifestyle, your wealth is equivalent to 3 months.

Hence, financial independence is equated to the state of not having to work for money ever again. You are free to do the things you love to do without having to work for income.

This is determined by two important factors:

1. How much passive income you have? Passive income is income from assets like mutual funds, bonds, stocks; rental income from your properties; royalty income; etc... This is income you get without having to work for money.

2. How much is your expense rate? This is determined by how much money you need to live with your current lifestyle. Do you live simply? Do you live below or within your means? Or do you live the life of a prince with a pauper's income? Are you currently living above your means?

In mathematical terms, Financial Independence is achieved if:

Passive income = Expense rate

If you can make this happen, you can afford never work for money ever again. So the real target should be: Don't be a slave of money, instead let it work for you.

Build your assets. In fact buy/build assets, not liabilities. Save some money and use it to buy assets that can generate passive income (rental property or some shares of mutual funds, stocks, etc...).

What? You can't save?!? Really huh?

The reason why most people "can't" save is because they follow the equation below:

Income - Expenses = Savings/Investments

For most people, nothing is ever really left for savings. What can you do then?

Work on a budget. Cut down your costs. Save on electrical bills. Reduce watching movies from thrice a week to once a week. Eat in restaurants less often. You're making other people, the businessmen who own these businesses rich. You are giving your money to them. Will they pay for your medical bills when you get sick? Will they support you when you get laid off from work? You should be making yourself rich.

Instead, do this and pay yourself first:

Income - Savings/Investments = Expenses

So give money to yourself first, then the rest you can use for your expenses. Come on. You know you can still survive. Cut out all those unnecessary spending. Once your passive income grows, things will be much easier. You will feel more secure. You don't have to be entirely dependent on your job for money.

What do you really want: You working for money? Or money working for you?

We will teach you an effective Financial Strategy:

1. Increase Cash Flow - Earn additional income. Manage expenses. Take note, I meant positive cash flow.

2. Manage Debt - Consolidate debt into one with the easiest payment scheme. Strive to eliminate debt.

3. Create an Emergency Fund - Save at least 6 months income. Prepare for emergency expenses.

4. Ensure Proper Protection - Protect against loss of income. Protect family assets.

5. Build Long-Term Asset Accumulation - Outpace inflation. Reduce taxation.

6. Preserve your Estate - Help reduce estate taxes. Build a family legacy.