I have noticed a recent spike or surge in search key phrases (on Google and other search engines) dealing with stock market investing (as reported in my C-panel’s Awstat statistics). Among my regular OFW readers, I am quite sure some are wondering why I don’t seem to write much about investing in the stock market.
The recent surge in the Philippine Stock Exchange (PSE) index to 5,000 and above seem to have triggered a surge in interest in the stock market among dear readers.
Among all investment vehicles, there is probably nothing as fascinating as investing in the stock market.
Throughout investing history, stock market has always been the center of attention of most investors. There is also nothing which offers as much potential for gain with manageable risk as investing in stocks.
Well, back to the issue of why I don’t write much about stock investing in my blog, I can offer a few reasons:
1. Primary focus on the basics or ABCs
This blog’s primary focus is on the basics or the ABCs which is what investment literacy is all about. It’s about how to save upfront no matter how small the income is. It is about steering clear of debts, staying away from unwanted burdens, avoiding “impossible earnings schemes”, investing in what you know and familiar with, and asking advice from those who know.
In other words the thrust of this blog is laying the foundation for funds accumulation and intelligent investing.
The point I want to make clear is that unless one is grounded on the basics, one cannot proceed let alone effectively invest in stock market and mutual funds.
In the first place, without having maximized savings rate, one cannot even accumulate funds sufficient enough to invest in stock market.
In the second place, without maximized savings, there hardly would be investable amount to speak of (investable amount having been defined as amount which one will not use for the next 3 to 5 years).
In the third place, without a grounding of the basics, one can hardly practice emotional control so necessary to isolate ones’ judgments from the turmoil and fears of frequent market movements.
2. Stock investing not part of the basics or ABCs
The second reason is, of course a corollary of the first: stock investing is not part of the basics of investment literacy. The focus of this blog is on the basics of investment literacy and unfortunately, stock investing is not part of the basics or ABCs.
Having said that, it does not mean that we will not dwell substantially about stock investing. Stock investing is too important a topic to be left out. It is just that we have to get grounded first before we can even talk of flying, and that I feel I have not dwelt enough about the basics yet.
3. Most OFWs are not in a position to invest in stock market
With accumulated savings which would just rightly fit in as reserves, most OFWs probably will not be in a position to invest in the stock market.
In a previous post entitled, ”Are You Ready to Invest in Mutual Funds”, I mentioned three (3) requisites to determine readiness to invest in mutual funds. The same requisites apply to investing in stock market. One should have a home first, he should have investable money, and he should be able to practice emotional control.
Some investment experts say that a rough acid-test for determining readiness to invest in stocks is to ask whether one has the funds which he can afford to lose. Needless to say, only few can have this luxury of having funds which they can afford to lose.
4. Bull markets are not an ideal time to invest in stock market
The fourth reason for my not writing much about the stock market is the prevailing bullish sentiment or as some writers say, “exuberance” of the market.
Based on my knowledge and experience, a prevailing bullish market is generally not a good time to dabble in the markets. Bulls always precede bears which in turn, precede bulls. That has always been the case and I don’t think this time will be any different.
If you enter the markets in a bullish period, it will be very scary when the bears come. One can easily panic when he sees his stock investments clobbered down 30% and even down to half of its original value.
There are techniques of course, like “stop-loss triggers”, but these are not easy to implement in real –life and definitely these are not for neophytes and dabblers; these are for advanced investors.
The safest and probably the best methods are still the “value-investing” model popularized by great investors Warren Buffett and mentor Benjamin Graham. This is essentially a “buy and hold” strategy based on intrinsic values of stocks and where the core concept as per Buffett is that you are essentially buying a business, not a stock.
In any case these methods are difficult to implement in a bullish market awash with overvalued stocks, unlike in a bearish market where the universe is awash with “value” prospects and bargains.
In the ultimate analysis, the great John Templeton’s aphorism still holds true: “The time of worst pessimism is the best time to buy and the time of best optimism is the best time to sell.” Or something to that effect.