The typical ‘retail’ investor
If you’ve been wondering why the market has been breaking one record high after another, yet none of the stocks you are holding are doing as good and, worse, their prices may even be falling, chances are you are what they call a typical “retail” investor.
One characteristic of a “retail” investor is that your stock picks are not among those included in the major index. Also, your stock picks do not belong to any of the market segments influencing the market trend.
Your investment dictum is basically to make a “homerun” or, in local lingo, “jackpot.” As such, you are always polarized to speculative issues and stock plays. A recent example is that of Alcorn Gold Resources Corp. (APM).
To digress, the APM market play came about out of the plan of its principal stockholder to transform the company into his own holding firm. In less than a month, from the time the plan was announced, the market price of APM had traded high and wide.
It played into a 52-week price range considered as one of the most interesting in contemporary stock plays. Just before the announcement of the plan, the market price of APM was edging a little over the 52-week low of P0.014. After the plan was announced, it hit a 52-week high of P0.169 per share.
If you are one of the few “retail” investors who rode on the price play of APM from its 52-week low to its 52-week high, you would have made the fantastic spread equivalent to P0.155, or a capital gain of 1,207 percent.
When still holding on to it as of last Friday, after buying at P0.014 per share, your APM shares are still about 978.57 percent up.
Coming into play just recently, too, is Manchester International Holdings Unlimited Corp. (MIH). Unconfirmed reports say it will be taken over by the new gaming partner of Belle Corp. (BEL), Melco Crown Entertainment (MCE).
Just 22 days ago on Oct. 31, the price of MIH was reported to be P4.48 a piece only. As of last Friday, MIH closed at P15.52 per share.
At this price differential, the typical “retail” investor is making a capital gain of 346.43 percent.
Based on its 52-week record high of P12.51 per share and record low of P1.38 a piece, the capital gain is about 906.52 percent.
“Homeruns” give the illusion of leading you to financial freedom. Ironically, they don’t. They can only lead you to a long and fruitless search for big returns. This is because they occur only by chance and not as a matter of choice or deliberate planning.
Stock investing is not about chance but the sheer force of making things happen or a way of regularly making money. That is why you can make a living out of stock investing.
According to a professional reference, there are 12 simple ways to enhance your success in stock investing. Believe it or not, the first one is to “ignore the news.”
Like you, I can’t imagine not listening or reading the news. But accordingly, you need not. There is, however, a clarification to this advice. What it actually meant is you listen or read just enough news to keep you informed of what’s happening to your stock picks. However, you need to undertake a regular “due diligence” on their operating results.
Second, “understand your risk of loss.” Like a gambler, you must know your “risk of ruin” or possibility of entirely being wiped out in a string of losses. In other words, you must be aware of just how much you must trade at any time. Like a gambler, you must also know when to risk more and when to risk less. After all, you’ll be left bankrupt and thrown out of your trade if you don’t know your risk limit. This is called money management.
Third, diversify your risk. You must have heard of this advice when you were starting in stock investing. It’s better to spread your risks across several different stocks. This is also part of money management on the subject of “asset allocation.”
Fourth, build your core positions around dividend stocks. Even in bear markets, typical dividend-paying stocks continue to do well. This is especially true with companies with a long history of consistent growth. These stocks, according to the experts, will create your “safety net” in volatile markets.
Fifth, reinvest your dividends rather than spend it. This strategy will enable you to build wealth or financial freedom.
Sixth, buy slowly when going into new positions. Technically, this is “cost-averaging.” You must spread your stock purchases to arrive at an average price that reflects the true value of the shares.
Seventh, have a trading plan and act on it. This is, however, easier said than done. Nonetheless, when the market goes against your trade, it is better to have a “stop-loss plan” in place. This will keep you from losing more.
Eighth, be content to “take a single.” Like I said earlier, “homeruns” are great but a string of singles is just as good. Building true wealth is more a product of deliberate planning than by chance.
Ninth, “be able to recognize support and resistance.” This will teach you not to chase a stock. It will help you wait until the market falls to a known level of price support before you buy. This may spell your chance of winning or losing your game. After all, no stock ever goes all the way up straight.
Tenth, “be a little technician.” While you may be rooted in fundamental analysis, it also pays not to ignore technical analysis. It is handy in analyzing volume, price action and chart patterns. As I said, markets are like people—they repeat themselves.
Eleventh, keep in mind that “nothing lasts forever.” Stock plays like the bull and bear market cycles will eventually run their course. Be alert. As in a bull market, it is said that it begins when all seems lost. The bear market starts surprisingly at the height of the patty.
Twelfth, “buy at market corrections.” Market corrections always appear scary. But that’s the time when stocks have fallen into the “bargain bin.” “This takes about a 10 percent reverse movement from the market’s ongoing direction. It is also shorter in duration than a bear market or recession, but it can be a precursor to either.” Thus, a correction is “an opportunity for value investors to pick up good companies at bargain prices.”
Most importantly, always be aware that “all stock investments can turn risky.” You must always “allot a margin of safety” in your trades, especially when buying. This should be obvious to you for according to the reference, if you haven’t learned this by now, chances are you will never succeed and will always lose a wining hand.
(The writer is a licensed stockbroker of Eagle Equities Inc. You may reach Market Rider at firstname.lastname@example.org, email@example.com or at www.kapitaltek.com.)
Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.