Stocks are Securities, Not Chips in a Casino
June 20, 2010
Unfortunately, the general public and majority of investors treat stocks that way. Speculation, rumors, chance and popularity are powerful share price movers. Most invest in a stock as short as an hour to a week or a month. Technical analysis is perceived as the best and only tool in stock-picking. The stock market will always be this way.
Since inflation annually erodes the value of our money same as how depreciation decreases the value of fixed assets, we must go through the exercise of investing our cash to preserve and increase its value. Prices will rise, and it will always be that way. Aside from real estate and establishing a business, there are securities such as bonds, the upcoming REITs and shares of stocks.
Like bonds, stocks are bought to give the investor a favorable future return. Bonds though give a fixed return over a certain period of time. Stocks do not guarantee any future return so they have to be evaluated as BUYS or SELLS. The best way to invest in stocks without the tedious process of evaluation is to equally buy all the 30-stock composition of the PSEi. They are the broad-based blue chip companies representing the Philippine economy. If one has done so in the start of the year and never sold, one would have made an 11.0% return on his stock portfolio already. This is already a favorable year-to-date yield.
First and foremost, one has been able to beat inflation already, the main objective. In a June newspaper article, the BSP forecasts inflation at 4.7% this year and 3.6% next year. Second of all, compared to the various Investment Funds available in the market today, the diversified 30-stocks PSEi investment has outperformed all the bond funds and seven out of the 16 balanced and stock funds year-to-date. That’s not bad.
As for the percentage allocation and period of investment in stocks, it is recommended to invest 50% to 70% of one’s regularly generated savings in stocks in the long term. By this, we mean at least ten years, selling only at the utmost need of cash. Share prices will always fluctuate, thus the periodic accumulation of the PSEi stocks will smoothen out the volatility in the long run and generate the favorable return. This is an unpopular but effective method in investing in stocks as securities. It also protects the investor from the high risks of the stock market.
Pymwymi Fund Performance
The Pymwymi Fund is up 23.3% and the PSEi is up 11.0% from the start of 2010.
Note: Philippine Stock Market Trading Advisory Disclaimer and Pymwymi Fund Background Below. Inflation rate and PSEi graphs data sourced from the BSP and PSE, respectively.