Money Matters
Music-inspired approach to stock investing
By Efren Ll. CruzPhilippine Daily Inquirer
Question: What is the best way to “play” the stock market?—Eager Beaver
Answer: You should not “play” the markets as they are places where serious money can be made and lost. But so as not to bring on hypertension, here are 10 light-hearted, music-inspired tips on stock investing.
1.) You cannot say to a stock, “You’ll never get to heaven if you break my heart.” Love has no place in stock investing because stocks do not love their investors back. Remember that stocks represent ownership in companies. So focus on the company giving value to the stock. Are you looking at the break-up value of the company, its rich dividend policy or its high earnings prospect? You could say that a stock is the logo and the company is the brand. The logo just adds meaning to the brand. And without the brand, the logo is meaningless.
2.) Getting too attached to stocks lets you get easily caught between goodbye and I love you. Invest with a heart of stone. Avoid emotions as Jesse Livermore, the world’s greatest stock trader would say. If there are ABC’s in investing, there are also FGHI’s, which are fear, greed, hope and ignorance. These emotions cloud the mind and will only lead to poor stock investing.
3.) Don’t leave stock investing to just saying a little prayer the moment you wake up before you put on your makeup. The Filipino expression of “bahala na” actually means “Bathalan na,” or I will do my best and let God take care of the rest. So do your homework. Did you know that Warren Buffet, the world’s richest investor and third-richest man, does not do daily monitoring of stocks that he buys? Why in the world would he do such a thing? Well, because he would do his homework before he buys one. He would buy only those companies that would tend to profit regardless of what happens to the economy that they are in. And he would only buy companies that he understands. If he bought companies with management, marketing, manpower and production practices he did not understand, he would be gambling and not investing.
4.) Moderate and steady profits are better than quick gains. Remember that like a comet blazing across the evening sky, easy money is gone too soon. But you say, “I believe I can fly!” Sure you can. But first learn to walk so that you can live to tell the (trading) secrets that you have learned. Till then, let them burn inside of you.
5.) Sometimes, stock price movements will follow patterns. Combine these patterns with a careful study of corporate and economic factors to develop winning portfolio moves whenever these patterns repeat and it is yesterday once more.
6.) Losses are part of investing. Be ready to get back up and dust yourself off. If you had indeed done your homework, then the time will soon come when you will smile again like a child of three. In fact, your senses should be sharper during these down times as they present great buying opportunities. So keep that spark of magic in your eyes. Also, be guided by what Warren Buffet says and that’s, “It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”
7.) It’s more than just a manic Monday for stock investing. Every day, the stock market will display manic-depressive tendencies. This is because stock prices are tossed into a volatile soup of the ABCs of investing clashing with the FGHIs in daily epic battles. Rise above the noise of the market to see that, betcha by golly wow, investing is not that topsy-turvy after all.
8.) Believe you me, a man can tell a thousand lies and I have learned my lesson well not to fall for rumors and free tips. Advice on specific (and not broad) investing moves freely given should not be advice freely taken. Avoid the greater fool theory as well, which states that a person will make a not so well-informed investment decision because he believes that a greater fool will buy his investment later at a higher price anyway. Do that and you might just end up being the lone fool on the hill.
9.) Yes, I know that there were times when you bit off more than you could chew; times when you went into margin trading, cross-currency investing, warrants and options. If you understand the risks well, then go ahead. If not, limit your exposure amount to what money you own, what investing concepts you understand and what level of risk you can take.
10.) At the end of day, it is you who will make the decisions, and it is you who will execute your transactions. It is because of you that your life (and wealth) will change. Your investment adviser or broker will only give you advice. Nevertheless, thank your investment adviser or broker for the invaluable help.
Happy investing.
(Efren Ll. Cruz is a registered financial planner of RFP Philippines, personal finance coach, investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-5050709 or e-mailed to efren@personalfinance.ph. To learn more about the RFP program, visit www.rfp.ph or e-mail info@rfp.ph.)
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