Been hooked to your blog for about an hour now reading your posts related to finance. It’s nice to know that there are young bloggers who can actually share their insights about relevant topics like this hehe.
Anyway the reason why I’m sending you an email is because I want to ask you if you could give me some tips.. Maybe even talk me through about trading stocks. I’m in my early 20s and would like to go into the stock market. I have extra money which I want to triple before the year ends. I’ve been studying about it for quite some time but I’m still not that confident to play the game. I know that I could lose a lot in trading stocks but I’m open to it. I’m willing to gamble but of course, I know I’d be sad when I lose 🙁
Any suggestion on what to do? Would you suggest trading with a full-time broker or is it better if I do it alone? What study materials should I use? What info do I need to know before finally buying? I’m very curious how you started! Please.. If you don’t mind sharing.. 🙂
I hope you’d return my message. Thanks.”
– N, Interested Reader
via Ask Geri page
Thank you for your email. Pardon this long reply. Not sure from what country you are so I’ll just respond to you in general and try not to pertain so much to Philippine Stock Exchange.
To be honest, the first stock I bought ended in the red that same day, (I still recall haha!) so I had some paper losses but I was not daunted. Been investing /trading (there’s a difference) the past 6 years now, not full-time, and I would say I’m still a beginner. A braver beginner I suppose.
Where You Are Now
First examine where you are now. You mentioned you have some extra money, and so, is the stock market the best place to put it now? You may want to check this post on some possible investment options for newbies. You’re in your 20s, do you already have life insurance? Getting one will be good especially at your age. The younger you start the better. How about liquid cash for emergency funds? Etc etc.
If you say you have all the necessary prerequisites and you still have extra, establish what your objectives are. You mentioned you aim to triple your money by year-end, that means you need an annual return of 200% (or 400% for half-year). Frankly, you cannot get this in the stock market, or even other usual (and legit) investment options I know of. Unless of course you spot some speculative stock that triples in value in 6 months time, which is pretty dubious. But if you are beginning to dip your toes in the raging river of the market, I would not suggest you deal with speculative and rumor-laden issues yet. Otherwise, you might end up being traumatized.
Recall that buying stocks means buying ownership into the company. As such, even if the investing public is the one dictating how much the value of that ownership is, it is still intrinsically linked to the present and future value of the company. And I don’t think any established company can triple its value in 6 months.
The stock market can give you high returns for higher risk (or sadly higher losses). It is not a quick rich instrument though, otherwise all of us would be in stocks and all of us would have been rich by now. Create more realistic and preferably time-bound goals. A 6 month goal is short-term while preparing for your retirement while at your 20s maybe a long-term goal but necessary and very responsible. Personally, I plan to trade until my retirement days, as such my portfolio ideally is long-term.
It’s also good to hear that you’re willing to lose. That is a good attitude to start with. When I started with Php5k, I was prepared to lose it all. Though it’s realistically impossible unless the company stock you bought files for bankruptcy. Otherwise it can just go down to Php4k, Php3k or maybe a few hundreds. But not zero. Have that in mind, whatever your invested amount is. And by the way, clarify this with yourself: are you willing to gamble or willing to take calculated and educated risks? I hope you see the difference, if the former, might as well go to a casino like Solaire (PSE:BLOOM); if the latter, then you’re on the right track.
Which brings me to my next point.
Trader or Investor
Do you want to be a trader or an investor? Or both? Former is shorter term (3, 6 months or 1 year) while the latter is more long term (1 year or so). This should guide you on what to buy and what to sell and what to do during ups and downs of the market. The longer your investment horizon is, the less you should care about the daily and monthly swings. You should be more concerned about company prospects, news on the company, expansion plans, etc. Also, this should help you decide when to buy or when to sell. Others also recommend cost-averaging, buying in regular intervals whether it’s up or down. More daring and seasoned tsupiteros (day traders) buy and sell within the day. Personally, I don’t intend to be a tsupitero, and yes I usually just buy and buy and buy. I rarely sell really.
Fundamentalist or Technical Analyst
Similar to above, the former deals more with company financials and key items affecting company growth and prospects while the latter is more concerned about the momentum and trends and charts, much less actually on what stock we are talking about. The former is more long-term while the latter is more short-term. But you can make use of both. Fundamentals in choosing which stocks, technicals in timing your entry and exit points. Again, this should guide you in choosing what shares to buy. Will they be blue chips (big companies, not too volatile, not too fast either but more financially sound) or smaller-capped shares (volatile, can have bursts of gains or losses etc, higher risk especially if with no track record yet) Or both?!?
Where to Begin
I do my trading on my own via online trading accounts. Hiring your own official broker, I assume, will cost you more and will require a bigger portfolio, but it saves you the headache of monitoring your portfolio. It also gives you some expert advice as and when needed. But still you need to have decent knowledge of it so your brokers can take you seriously. Since I do my trading on my own (I’m a small time part-time investor by the way), I rely on daily news, company disclosures, company financials, online analyses and stocks forums and threads, stock charts tutorials, momentum indicators etc. These are readily available if you know where and how to look. Also, a more cost efficient way compared to getting my own broker / trader is to subscribe to groups that offer cheaper analysis (since they offer these online). Right now, I enjoy indirect broker research services via Truly Rich Club and PinoyInvestor.
If I have the time, I read up daily and monitor the swings since for me, it makes me braver. Others don’t since they are long-term investors, so they don’t bother with the daily movements. They don’t want to get affected. I purposely do so to make me less emotional about it. I want to get affected to the point that I’m numb to the daily and hourly swings but much aware on how they happen and why they happen.
Read and read and read. For fundamentals, you may want to start with this book by Peter Lynch. For technicals, there are many materials in the web on chart reading, Elliot waves, trend and momentum indicators etc. Read on economics especially in this increasingly global world, and business news.
Observe and observe and observe – the market and the world out there. Be on the lookout on how your prospective companies are doing in the real world – sales, profits, customers, reputation, ads, etc.
Establish a trading plan. Some sell if they are at 5% loss to “cut losses”. Others meanwhile sell 70% of holdings when they are 20% gain to “lock-in gains” while leave the 30% to capitalize on further upward swings, if any. To each his own really. What’s important is you follow these trading plans you have set and continue to refine them.
Last but definitely not the least, develop your gut feel. Or market intuition. Or what have you. It helps. Trust yourself, develop your guts, accept a loss and move on. Remember, the market is driven by fear and greed. And the market is always there so no need to chase soaring stocks – no stock goes up in a straight line. No need to catch falling knives as well. Don’t succumb to fear and greed, instead use these to your advantage.
Goodluck and I will await your progress and/or updates. If you’re a Pinoy investor, I hope you can join the discussions on stocks forums. Keep on reading. 🙂