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Wednesday, June 1, 2011

Simple Guide to do before going to Philippines stocks market investment

Simple Guide to do before going to Philippines stocks market investment

Philippines stocks market investment
Some people think that investing in Philippines stocks is as easy as going to a convenience store and buying what you want. However, in my opinion, to be able to become successful in investing in Philippines stocks you need to have a proper knowledge and proper discipline.

Based on my own experience, below are the need preparation to do before venturing in Philippines stocks market investing: 

1. Put your finances in order 

Most of us says like this, I'm really interested in trading stocks to earn money. But "How can I invest in stock market? But first, can you lend me some money to do investing? because I used up already my salary in my daily expenses and paying my electricity bill". 

Imagine! How can someone think of investing in stocks when he can't even prioritize his expenses. People who invest in Philippines stocks market without proper financial plan will either end up to loss more money. Reason is because they are the one that gets emotional and panic during the bear market. Also beware of turning the stock market into online casino as it can be addicting and like any gambling will result to losses. 

If you're in debt and you're living hand to mouth, you should first make a budget plan and payment plan to reduce/eliminate your debt by prioritizing expenses and cost cutting. Only once you are out of debt then you can proceed to investing in stock market if you have an extra money otherwise save money first. 

2. Save money consistently and religiously 

Saving money is actually a co-requisite and/or integrated to your debt-payment and budget plan mentioned in number 1. The "Pay Yourself First" mantra that you've always heard is true and effective. 

And when I say "save money religiously", I literally mean you need to do it as if it is a mortal sin not to save money. Make frugality a habit and you are guaranteed of achieving the wealth that you have been dreaming of. In any investment, money is needed either for capital or perhaps for your personal needs while waiting for the result of your venture so there's no such thing as starting business at absolute zero capital. 

3. Create an Emergency Fund 

Our future is unpredictable, we cannot say what will happen tomorrow or maybe next day, month and year. So it is better always prepare. Create an emergency fund. 

Emergency Fund is a reserved money that you can use in case of emergency like accident, sickness, death, losing your job, or anything that you can define as emergency. I'm not trying to scare you but things like these are not impossible to occur. 

Stocks investing should be long term and so I always tell my friends to invest only spare money or money that you will not need in the near future. To be more objective, you can invest money that you will not need in the next 5-10 years or even longer. If you have an emergency fund, this will serve as your cushion to protect you during emergency without forcing you to sell your stocks at a loss. 

Having this fund will also keep your sanity no matter what happen to the market be it bear, bull, pig or any animal type of market. In my case, I put up an emergency fund that is equal to my 6 months' salary. 

4. Study about Philippines Stocks Market

There are a lot of technical words in the stock market world and it is important to learn it to avoid mistakes. You need to be savvy in personal finance management since stock investing is just part of your portfolio. As a golden rule in personal finance, don't invest everything in stocks. You should consider bonds, money market, mutual funds, unit investment trust fund, real estate's etc as other instruments of diversification and be the expert yourself in optimizing your risk and return. 

5. Know the listed companies 

The common mistake of investors is investing in ticker symbols and their corresponding charts. They didn't even know what is the business of those companies. I tried to study technical analysis before but all I see was unpredictable trend of stock price. Maybe I was wrong, but relying solely on charts for stock picking are nothing but a logical fallacy wherein all people say "this is expensive and precious so you should buy it". 

How to learn these companies? Just go to the company websites or download and read the latest financial statement. Yes I know that it is time consuming but nothing is free in this world. Also, you don't need to read the financial statement from cover to cover but focus on the operation and financial discussion. 

6. Practice first without using money 

If you've done the first 5 steps, then you are almost there. However, just like in sports you need to do some practice first before the actual event. What I did during that time is I do dummy trading without money using the PSE Stock Trading Game. This is free and all you have to do is to sign-up and start trading with virtual money worth PhP 1Million (again, it is just a dummy so don't get carried away). 

The point of this exercise is to acclimatize yourself in trading without the risk of losing money. Interestingly, after 6 months when I stop playing the game, when I check again my dummy trading account, my portfolio earns more than my actual portfolio. This prove that investing in long term without emotional intervention is more profitable technique than daily monitoring the was a lesson learned. 

7. Open a trading account 

The final step is to open your online trading account. Its up to you and depends on your preferences of choosing a broker. But my suggestion is if you can open a two different account and choose the brokerage that has tie up with your bank. This will make your fund transfer more convenient and also it is less risky than the fly-by-night brokerage company. If you have questions about opening a trading account feel free to ask question or visit the website of your brokerage company. 

There you have it, I hope it gives some help to you if you're planning to go on Philippines Stocks Market. Good luck.. Remember this is guide only. Its up to you to take the action.

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