Practical guidelines on equity investments
There are certain points to consider when doing stock investing. As a matter of fact, volatilities continue to hound the global capital markets including the Philippines. For instance, goverment bonds in Western countries where yield curves, the gap between short- and long-term interest rates, have narrowed all year, considered at least a reliable indicator of growth pessimism.
Take note. You may lose all your profits and some of your capital if you speculate in low quality and cheap stocks that may be temporarily popular but the odds against investment success are pretty strong. It’s being human when investors often pored over for clues as to what the crowd is doing, always ignoring the need to have realistic expectations.
Keep this in mind. Just focus on the potential of the listed company well beyond the current events. Look for companies that have products or services on the market and a reasonable prospect for earnings growth. Get familiar with all the data research report on the stocks you intend to buy. Sometimes, promises outrun reality.
But as in all matters financial, the devil is in what and not the when. This means you better stay away from ridiculous risks and instead be factual and realistic with your stock selections. Here are the basic guidelines: (1) Do your homework. Read as much as you can about the stocks you plan to buy. Read also about the present state of the national economy;
(2) Related to item No.1 don’t be too quick to pull the trigger and buy something too soon. Be patient;
(3) Don’t try to time the market. No one can. Just stay in the market using only your long-term funds primarily allocated for your stock investing, and not those funds intended for living expenses. Remember your goal is to invest wisely and become rich;
(4) In buying stocks, go only for large stocks. The odds of success are greater with large companies because they have more capital to weather financial storms;
(5) Don’ t get too caught up in today’s problems. Political noises, floods, earthquakes, terrorism, currency fluctuations and other similar cases may appear to shake up the country. Don’t just sell when such events happened. Every day, as in all news reporting, stock analysts explain the stock markets’ ups and downs even it seems no sensible explanation exists at all.
For investors who place safety first, choose common stocks that have paid dividends for 10 years or more. Always check a company’s annual report to see if (A) the dividends have increased consistently as the result of higher earnings and (B) the company has been profitable in recent years and appears likely to remain so in the near future.
Also consider stocks chosen by managers of funds such as shares of big corporations listed on stock exchanges; institutional ownership, of course, is no guarantee of quality, but it does indicate that some investment professionals have reviewed the financial prospects and, for some validated reasons, have recomended purchase or retention. Needless to say, these companies must meet strict standards of financial strength, investment acceptance, profitability, growth, and to some extent, income.
At the end of the day, the wisdom to admit mistakes is as valuable as the wisdom to avoid mistakes in the first place.
***** Atty. Billy Cortez is an independent board director at First Metro (Metrobank Group). He was formerly FINEX president and co chairman of the Capital Markets Development Council.
abelardo.cortez7@gmail.com