Isn't Stock Market Trading a Form of Gambling?

There are two kinds of stock market investors. The technical investor and the longterm investor. 


The technical investors are mostly day traders. These are the people who engaged in a lot of buying and selling in the stock market. Actually, in the Philippines, almost 80% of the investors are day traders. They don't care on the fundamentals of the Company like earnings, dividends, growth, and sustainability. All they care is the price of the stock and their charts. If their chart says the trend is buy, they will buy the stock but if their chart says sell, they will sell it. And then they will call it technical analysis where in fact it can be called speculation or fortune telling (manghuhula). These people normally buys a stock today and will sell it tomorrow or buy a stock at 8 am today and will sell it at 12 nn today. And no wonder, at the end of the bull bear cycle, 85% lose their money. This type of investing is what makes the stock market a form of gambling. 


Warren Buffet, one of the richest man in the world is allergic to these type of investors. He said  "We've long felt that the only value of technical investors is to make fortune tellers look good. Even now, Charlie and I continue to believe that short-term market forecasts are poison and should be kept locked up in a safe place, away from children and also from grown-ups who behave in the market like children.”  

Longterm investors (also called value investors) on other hand do not care whether the stock price will go up or down. They don't read the charts of the technical investors whose recommendation is different to the recommendation of the  long term investors. We act as if the stock market do not exist. We don't care what the technical investors are saying. The most important for us are the fundamentals of the business of the stock we are buying, the company earnings, growth, sustainability, management integrity, sound business strategy, etc.

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My friend Anna recently invested in the stock market. She bought a good company, Metrobank from her savings and plan to let the money stay there until her retirement. She said , "Metrobank has all the qualities I am looking for a long term investment so I am buying it". I told her " Wow, galing naman, keep on, keep on!".

 After one week she called me and a with a loud voice said " Randy, Metrobank has a sell recommendation and the stock is going down, my gosh I am going to lose my hard earned   money!!!" "Grabe, ang dami ko pa namang plano, bigla na lang mawawala!!!" 

You know what, I was also rattled, not with the news she brought up about Metrobank stock going down but rather with her skyrocketing emotions, high blood pressure and I thought she would faint. 

I asked her " Saan mo ba nakita?" "Sa Citiseconline dun sa recommendation nila ". Oh yes, if you will check their recommendations, its contradicting. The Technical Guide said sell but the Investment Guide said buy. Then I explain to her the difference between the  recommendation of the longterm investor and the technical investor. Do not look at the recommendation of the technical investor because you might just lose another strands of hair in your balding head. Warren Buffet said “I call investing the greatest business in the world because you never have to swing. You stand at the plate, the pitcher throws you General Motors at 47! U.S. Steel at 39! and nobody calls a strike on you. There’s no penalty except opportunity lost.” 

Disclaimer:

Investing involves substantial risk. I do not make any guarantee or other promise as to any results that may be obtained from using this blog. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing the prospectus and other public filings of the issuer. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in this blog prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Starting a Small Business...

One of the advantage of a small business over the Stock Market investing is the control on your money. When you start a small business, you usually make a feasibility study on it. You draft the income it will flow, the expenses it will incur, the profit it will generate, the competition, its strengths, weaknesses, etc. You yourself is planning the outcome of your business. Of course, you will control your expenses, set aside specific funds for payroll, equipment, materials, etc. You are at the helm of your funds at the end of the day. When the business starts rolling, you have a sense of ownership and accountability over your funds or resources. Stock Market on the other hand relies on various factors outside your control.The stock price can either go up or down because of Japan tsunami, Middle East brouhaha, US recession, investors timing and of the course the most important, Company Earnings. These are all outside your control and the money you invested in the stock market may eventually be wasted.

However starting a business is risky especially if you do not know the ins and outs of your business. Having lots of cash is actually harmful than beneficial for people starting his own business. You know why? Because you will normally use that cash to buy everything you need instead of being resourceful. You can use your own house before you start renting from others. You can use your existing stuff before buying new equipments or materials. You can ask your friend's assistance instead of hiring a new one. Your first business should only have little cash because first businesses usually fail. Some will thrive but others will collapse. Consider it God's redirection, redesign or rehashed, etc once it happens.

Years ago, I started selling wine with flavors because I like the wine and besides I have extra cash with me that I can spend on this stuff. I gave the wine to my auntie and ask her to sell it in her store. Ask me what happened, nobody bought it. The wine are still on the shelf waiting to aged for one decade! My point here is simple: because of extra cash, little business sense, excitement on my first business venture, it failed. I also know a lot teens who started business with the help of their millionaire parents and then lost millions. Money is easy for them and they do not value it. In these instances, these teens lost the art of imagination, creativity, passion, perseverance which are necessary for a startup business. Yes, I don't have those values years ago.

Micheal Jordan is arguably the greatest basketball player in the world. He has 6 NBA championships, 5 MVP award, 10 NBA Scoring Titles, 2 Olympic gold medals, etc. After his first three peat Championship, he retired and ventured into baseball. The great Jordan in basketball is just an average in Minor League Baseball. The same legs, same arms, same body and same DNA is great in basketball but average in baseball. All of us has the gift or talent bestowed upon us that if fully utilized will propel us to greater heights. However, trivial decisions will come just like what Micheal Jordan did. Baseball is not his gift. After that baseball struggle, he came back to basketball and won another 3 Championships. Basketball is his core gift. He bless the world in basketball by inspiring a lot of people. His work ethic is just phenomenal. And people try to emulate the attitude he has put into his skills.  In business, the concept is the same also. You must venture into something you are very good at. A business that will serve as your playground. A business that you will be passionate about.


My friend Pedro wanted to start a business in the Philippines while working abroad. He wants a passive income. He commissioned his friend in the Philippines who is struggling financially to establish the business.Besides, he wanted to help his friend who cannot continue sending his children to school. He will provide the capital and his friend will manage it. He will earn profits while working abroad and at the same time help his friend who is in dire financial need. He trust him so much. Before he sent the first capital, he told me about his plan. I asked him some questions:


"Is your friend knowledgeable and skilled about the business you are going into?"


"Are you willing to refinance if the 1st project fail?"


"Do you have a control to avoid misappropriation of funds?"


Pedro paused and think for a while. He said he will come back again to answer those questions.


Startup business is risky and you might lose all your money although life favors the brave. Those who tried simply keep learning until they have mastered the art of doing business.


Better yet, in order to avoid all of the stress your passive income in business may bring, why not invest in the stock market, real estate, gold, etc for our future.

Disclaimer:

Investing involves substantial risk. I do not make any guarantee or other promise as to any results that may be obtained from using this blog. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing the prospectus and other public filings of the issuer. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in this blog prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Stock Market is so Risky! Why Take the Chance to Lose?

Most people think that the stock market is a dangerous game. They often hear stories of people who lost money in the stock market. The statistics of the stock market is by the end of bull bear cycle, 85% will lose money. That includes the government that gets all the taxes, the broker’s fee and the company that issued the shares. These are the winners. All speculators and traders who don’t understand the psychology of the market by the end of the day when the market collapse, 85% will lose money.


Most people are scared when the market collapse which is very normal. My second and third stocks that I sold earned a paltry 200 pesos. I bought them for 20,000 and sold them for 20,200 because I got scared that it will go all the way down. With that experience, I deepened my understanding on the psychology of the stock market.  I think it’s a process that most investors had to go through. Successful persons have failed considerably than the average ones. I have failed a lot of times and most of the time I almost wanted to give up. But then I keep on and then one day, the breakthrough will come.


My mentor Bo said that when there is blood, don't be afraid. Just keep on putting your 500 dirhams every month. When you are planning for your future, and you design a program already, you shouldn’t be afraid. When the stocks are down, I‘m happy because my 500 dirhams can buy more shares and when the stocks are up, it’s gonna multiply. When you received your dividends, reinvest it in the stock market, the compounding effect is there.


First time investors like me are encouraged to look to invest in the stock market on a much longer perspective. We can use the peso cost averaging. If you invest 500 dirhams a month for your retirement, or your children’s education, or you want to build your dream house, you just need to buy companies that pay good dividends. The biggest problem here is the discipline. Would you be able to continue saving 500 dirhams every month? In pension plans, insurance, etc, if you missed payments you will lose the principal. In stocks there is no threat in losing the principal but the threat there is you might not have the discipline to do it consistently which is really required so that it can work. The drawback of not doing it consistently is when the price goes down; you might lose that opportunity to buy more shares. 

Then if you have some time, and extra cash and you want to learn the psychology of the market, then please do so. There are a lot of sources that will teach you how to time the market. Basically there are two kinds of people who plays the stock market, the long-term investor or value investor who puts money every month whether the stock market is up or down. The second type is the trader or the active investor who times the market. He buys when it’s low and sells when it’s high in bottoming market. 

When a baby is born, normally the father opens a bank account but there this one father who instead of opening a bank account he opened a stockbroker account. He bought PLDT shares every month in small amounts to spend for her child’s tuition fee when she grows up. After 15 years, the money is more than enough to cover the tuition fees. There are a lot of good companies that analyst have summarized that will last for the next 20 years, 50 years or 100 years. Examples are Jollibee, Ayala Land, PLDT, SM Prime, Manila Water Company, and BPI.

Disclaimer:

Investing involves substantial risk. I do not make any guarantee or other promise as to any results that may be obtained from using this blog. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing the prospectus and other public filings of the issuer. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in this blog prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

Why Invest in Stock Market When I Can Save in the Bank?

In the previous blog, I assumed that I am earning 3,000 dirhams and my monthly savings is 515 dirhams.

Perhaps I will just leave the 515 dirhams in my ATM and let it stay there until the next salary and my ATM balance will just keep on growing .And then when my vacation will come I have enough savings to bring home. I will add another room in our house back home, I will go to the beach, I will treat my friends, and so on and so forth. Yes, that is my plan and I will enjoy every minute of it. All my hardwork will come into fruition. And then I will go back to Dubai again and realized that all my savings are gone. Sometimes, even my fare going back to the airport is borrowed from my neighbor. And I am back again to that grim reality that at the end of the day, I don't have money to buy a parcel of land, a house or a car which are some of the reasons why you went to abroad.

I don't want that to happen so I am devising a method where I can park my money elsewhere so that I cannot touch them. Time deposit? Banks are giving tiny interest to the money we deposited. The more funds we deposit, the happier they are. Why? because they can lend it to others whom they charged with gargantuan interest. And so they expand, and their businesses flourishes.

Now, instead of lending them money perhaps WE CAN OWN THEM AND BE A PART OF THEIR SUCCESS. By buying their stocks, we own a part of the bank. When they declare dividends to the stockholders, we have our own share of it. Dividends are portion of the profit generated by the Company and paid out to owners. Beautiful isn't? Our money are now working for us instead of us working for the money. And that's not all, when the Company expands like banks opening a new branch in your municipality, the Company earnings increases and the value of the Company as well. Since the Company value increases, your shares increases also and after ten years when you retire, your money has worked for you and served you well. Banks will not teach you about investing because if they do, they will lose their business.

How can we invest in the Philippine Stock Market, if we are here abroad? Online investing will work for us. We live in a digital world where all transactions are being made online. I do my transactions online.

I just watched in Youtube a simple and frugal woman who invested with the company she is working for and shelled out $120 to buy three shares. Guess what? Her $120 investments has grown into $7 million dollars over time and just donated them all. Warren Buffet, one of the richest man in the world, started investing in the stock market at a young age and he is now reaping the fruits. Stock Market has been good for them, and we who don't know anything about investing can learn from them.

Disclaimer:

Investing involves substantial risk. I do not make any guarantee or other promise as to any results that may be obtained from using this blog. No reader should make any investment decision without first consulting his or her own personal financial advisor and conducting his or her own research and due diligence, including carefully reviewing the prospectus and other public filings of the issuer. To the maximum extent permitted by law, I disclaim any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations in this blog prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

My Salary Is Not Enough To Buy Stocks!

This has always been a problem to most of us OFW. Most often our salaries are just enough to buy food, clothes, send money to the Philippines and a few savings (if ever there is).

My salary is 3000 dirhams. I pay 500 rent every month plus dewa. I have a 10,000 credit card loan. I need to send 800 dirhams to Philippines. I buy 1 pack cigarettes a day. I commute to metro. I buy personal supplies, etc.

So how in the world can I save and INVEST? Forget about it? Think again. The system below requires a lot of discipline and you can amend it to suit your personal interest.

 I've been doing this system for quite a while and it works 99% all the time. Here you go.
When you receive your salary, you must divide it into six categories. Buy six envelopes and mark them each with the title below. 

1. Spiritual Fund. (85 dirhams)
     Give back to God. Any form of help like giving money to foundations, to your uncles in need, to the church or to the poor. It should be   specific e.g 1000 pesos (85 dirhams)  a month. Money is just a symbol of value. The more you give, the more it will come back to you. It is one of the natural laws of life. Others call it Law of attraction. Once your money increases, please give more to this fund.

2. Retirement Fund (515 dirhams)
      Buy a piggy bank and put your monthly savings there. Once it reaches 2500 dirhams, go and apply for a Citiseconline account (this is where I do my stocks transactions). Once you have send your money to them,  never ever touch that until you retired from working. The reason why this is the second envelope and not the last one is because we need to save first before spending our salary to various expenses. Yes, this is a must to do task every time you receive your salary.

3. Emergency Fund ( 500 dirhams)
     Maybe you have savings every month but when an emergency comes in, all are gone. And you are back to   square one again. You save again, an emergency comes in (e.g. the roof is leaking, tuition fees, children school projects, relatives in the hospital, etc) and you go back to square one again. It's a cycle. It's a VICIOUS CYCLE that if you won't do anything, nothing will change. So set aside an emergency fund so that when the emergency  comes in, your savings are not touched. You have a fund that will take care of them. If this fund reaches 500% of your salary (3000 dithams multiply by 5 times = 15,000 dirhams), you can invest the 50% (15000 dirhams divide by 2 = 7500 dirhams) to the stocks.

4. Daily Expenses Fund (500 dirhams)
       You need to buy a napkin, toothpaste, shampoo, soap, perfume, food, etc. Cost is let's say 500 dirhams.     Ok, maybe that is not realistic because perfume alone cost 200 dirhams. Well, I have friends who live on a 100 dirhams a week. That is 400 dirhams in one month. If they can do it, you can do it also. I'm adding 100 dirhams for miscellaneous expenses.

5. Remittance Fund (800 dirhams)
   One of the reason why we go abroad is because we want to help our family back home. We want them to live a better life while we continue to live in misery here in abroad and far away from them( just kidding). Of course we need  to send money for our siblings/children's tuition fees, their allowances and daily expenses there. You have their daily expenses there and you also have yours here. Double whammy isn't?  Well, when you are at your deathbed, you will never regret that you have given all of what you have for your family.

6. Rent Fund(600 dirhams)
      Of course we need to pay this wether we like or not. Otherwise we will sleep under the bridge just like what Aga did in the movie Dubai.

Total = 3000 dirhams.

If you have a credit card loan, you need to PAY them as fast as you can. In this case, your 515 dirhams (Retirement Fund) should be used for paying the credit card. There is no logic in saving while you have a mountain loans to pay. Loans are good only in BUSINESS but never in personal consumption. Do you know that if you only pay the minimum amount, the actual interest that bank is charging you every year is actually more than 40%? Yes, that is why most banks will encourage you to pay the minimum only.

Do not take credit cards! The maximum credit cards you should have is one and you should pay them before even reaching the monthly statement date.
  

How the Stock Market Works?

I have always wondered how the stock market works and I think  Bo Sanchez has explained it better than what I have read so far about it. Here you go.

Own a Great Company
When I was eight years old, I learned that my parents invested in the stock market. I overheard them say that they owned shares of San Miguel. (My father worked for San Miguel Corporation for most of his life.) I asked my father, “What do you mean by stocks, Dad?” He said, “If I bought a few shares of stock of San Miguel, that means I own a tiny part of San Miguel.” “Wow,” I gushed, “if you own a part of San Miguel, does that mean they’ll give us free Magnolia ice cream and Coke?” (At that time, San Miguel also owned both companies.) Dad shook his head. “No. It means if San Miguel earns money, they’ll give me a tiny part of their profits. They call them dividends.” “Oh, I see.” Actually, it was as clear as mud to me.

Dad looked at my face and knew I was lost. So he gave me an example. “Let’s say your mother puts up a small candy store in front of our house…” “But Dad, Mommy doesn’t like candies. She loves chocolates.”
Dad rolled up his eyes. “This is just an example!” “Then make it realistic. Let her open a chocolate store.”
“Okay! Mommy needs P50 to buy the chocolates and another P50 to buy a small table for the store. So she needs a total of P100. But let’s say she doesn’t have P100. Let’s say she only has P90. So she walks up to you and asks, “Bo, can you give me P10? In return, you’ll own 10 percent of my candy store…” “Chocolate store,” I frowned. “OK, chocolate store. So you give Mommy your P10.

At the end of the year, the chocolate store earns a nice profit of P10. So Mommy decides to share with you P1, since you own 10 percent of the store. That P1 is what you call your dividend.”  “That’s great. So you’re earning dividends from San Miguel, Dad?” “Yes, but that’s just one way of earning. The other way is through capital appreciation.” “Capital what?”

The Company Gets Bigger
“Let’s go back to Mommy’s chocolate store. Do you remember how much was the store worth?” “No.”
“How much did she need to buy all the stuff?” “P100.” “Yes. That’s how much Mommy spent to buy the
chocolates and the table. But after a year, business was so good, she decided to sell biscuits too. From the profits of the business, she bought an entire pack of biscuits worth P50. She also bought a second table for another P50. So Bo, how much is the store now?” “P200.” “And how much percent do you own?” “I own 10 percent of the store.” “That’s right. One day, your sister says, ‘Bo, I want to buy your ownership of Mommy’s chocolate store.’ What will you say?" I crossed my arms and pouted. “I’ll tell her it’s not for
sale.” “But if you wanted to sell it, how much should she pay you?” “Ten percent of P200 is P20?” I flashed a smile, “Hey, I earned P10…” “That’s capital appreciation. You pick up fast. But that’s not all…”

The Company Has More Potential
“You know how your sisters like to buy the same shoes and clothes? Let’s say your other four sisters want to also be a part-owner of Mommy’s chocolate store. Because they believe that the chocolate store will spread to 100 branches all over the world. They foresee Mom opening stores in Paris, New York, Moscow, Tokyo… So they go to you and beg you to sell them your 10 percent share. What will you do?” “I don’t know.” “Think.” “I guess they’ll gang up on me, twist my arm, pinch my ear, and whoever causes the most pain wins.” Dad rolled up his eyes to the ceiling again. “Bo, imagine if all your sisters are kneeling down in front of you, asking, ‘C’mon Bo, sell me your 10 percent ownership! Please! Pleeeeeeaaaaase!’

That was my lightbulb moment. I got it. “Hey, I won’t sell it for P20,” I said, “since they’re fighting over it, I’ll sell it for P30. Or P40. Or even P50! I’ll sell it for P100. Plus, whoever buys it from me must be my slave for the next five years.” Dad chuckled. “So you realize that the price of the stock is determined by two things: Real Value and Perceived Value. Real value means the cost of the store — how much are the chocolates and tables. Perceived value means how much are people willing to buy it. Perceived value is based on potential.
Perceived value is based on demand.”

The OFW Investor

I've been an Overseas Filipino Worker (OFW) for almost five years now. I was hired by a General Trading and Construction Company here in Dubai. Five years ago, I dropped my resume to several agencies in Manila hoping that one of them will call me and eventually will land that opportunity of working abroad and earn a very high income. One evening at around 10 pm, an unnamed caller rang my phone and ask me if I am available for interview. At that time, I thought this was just one of those guys looking for a victim to get some money from me. As the interview went on, my doubt disappeared and I got pretty excited.

In just seven days after that interview, I was off to the airport saying goodbye to my loved ones. Since it was my first time to go abroad, I was so nervous! I only have my visit visa with me and would you believe this, two 1000 peso bill in my wallet. Yes,it's kinda suicidal but my guts and faith that I have are overwhelming. The agency told me that I can cash advance upon my arrival and will just deduct it from my salary. They told me that somebody will pick me up in the airport. I just kept on praying.

Perhaps you are wondering on why the hell did I not borrow to have some money especially on cases like this where you are on your own, not knowing what kind of Company I will have. I don't know also why I did that. But here's one thing I know, I have the most beautiful and wonderful parents in the world. They send us to private schools and along the way incurred debts and loans. And while going to the immigration, I promised myself that my parents while they are still here will not not incur loans and debts. And so my journey to financial freedom for myself and my parents began.

I began to buy books on stock investing, I hired a mentor and just keep on learning along the way.

In this blog, I wanna share what I have learned in the stocks, and real estate and all things about investing to all the unsung heroes(OFW) out there who by our collective efforts make our country proud.

First World Philippines? We've got to start dreaming and believing!