A surefire way to win with stocks

QUESTION: I am going through a roller-coaster ride with the stock market. At times I get frustrated because I seem to incur losses as many times as I earn. Is there such a thing as consistently making money in the stock market? If so, will you share that technique? —asked at “Ask a friend, ask Efren” free service available at www.personalfinance.ph and Facebook.

Answer: There is no investing method that will always make you earn money from stock investing in particular and investing in general. Even the world’s greatest investor is not immune to losing money. Many, however, have come out with techniques in making investors substantial net winners in the stock market. What I will share with you will be a combination of these methods as summarized in songs.

1. Keep your eye on the prize. People mistakenly think that winning in the stock market is all about making the most money possible. Well it’s not. Money is just a unit of measurement. Winning in the stock market is all about finding the right companies that will help you grow your money enough to reach your particular goal in life and within the risk that you are willing to take. Don’t work hard for the money for money won’t treat you right.

2. Embrace your losses. Unforgiving as they may sometimes appear, losses are there to make you more steadfast, not in making money but rather in pursuing your goals. You can’t get to no better days unless you make it through the night.

Losses are also there to shake the foolishness out of you. Such foolishness can come in the form of following unconfirmed tips (a.k.a. blind obedience) and allowing fear to lead to selling winners too early while holding on to losers too long. So shake it off, shake it off.

3. Only if needed, be active in the market. If you have sizeable money and a long investment horizon you can afford the passive buy and hold strategy of investing. You can even just mimic the allocation of a stock index like the Philippine Stock Exchange composite index or PSEi.

But if you can afford to only invest periodically, earning the same rate of return as one espousing a passive strategy may not produce for you the absolute Peso amounts that you will need for the future. Being an active investor means constantly looking for that company whose stock price is experiencing a temporary steep discount on its intrinsic or true value. It is not enough to buy a stock just because its current price is trading lower than its historical average.

Acting investing makes for a bumpy ride. Sometimes you will even feel like you are the only one looking at buying a stock. But that is how more money is made. Just don’t forget to temper your trades with the risk you are also taking. In a sense, ride like the wind to be free again.

4. Be forward looking. Read the business papers or at least the business pages of newspapers. Watch the business channels. Use them as bases to build your case for the prospects of the companies you are aiming to buy or sell. Much too often, the unsophisticated investor focuses on yesterday’s news and today’s noise.

You may not be able to create financial forecasts on your own. You will need to secure research from the stock brokers you deal with. You may supplement those with research reports that are available from the web like from international news agencies, which can be for free or for a fee. Regardless of source, value more company research reports that are for today than yesterday; but not as much as those that are for tomorrow.

5. Avoid shortcuts. By now you would have concluded that I did not give you any easy way to win with stocks. That is true because all I said was surefire. Easy was never part of the equation.

It is part of the brain’s protection mechanism to rely on shortcuts so as not to develop headaches and stress from overthinking things. But investing is not one of those areas you can just leave to shortcuts. Do the hustle and you will surely celebrate good times (come on).

To learn more using money just as a unit of measurement, please visit www.personalfinance.ph. There are free tools on the proper use of money. You can also attend our EnRich™ Wealth Management training in Davao on Aug. 8, 2015 or our Financial Planner’s Training program for the cities of Davao, Mandaluyong, Cebu, Iloilo, Cagayan de Oro and Baguio. Check our website for the details.

(Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and best-selling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected]. To learn more about value investing strategies, attend FREE stock market investment talk on July 23, 7 p.m. at PSE Center. For more details, inquire at [email protected] or text <name><email><AFA> at 0917-3464126.)