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Running With The Bulls

by Diana Jose
31 Jul 2017 | 2:10 PM

The Philippine Stock Exchange stunned the world last year by becoming one of the best performing stock markets, and it's been on track to do even better in 2013.

For investors, it's clear that stocks are enjoying that much-awaited bull run. But the stock market isn't just for high-rollers. For the rest of us, the question now is: Is it time to start running with the bulls?

UNDERSTAND THE RISKS

Stocks, hands down, offer some of the best returns for investors, but they are not for the faint-hearted. High rewards, after all, can only come with high risks. Save for multi-level marketing, pyramid scams and the 5-6 loan arrangement your neighbor is offering you, all other investment opportunities are probably safer than stocks.

Unlike securities issued by the government or corporates that promise you your money back plus a fixed rate of interest, stocks provide no such guarantees. Buying a stock means buying into a company. If it grows, you grow with it. If it crumbles, you go down too. You can make a killing overnight and lose that fortune just as quickly.

These fluctuations, though, should serve as a word of caution, not a barrier to entry. Over time, stocks still outperform other investments. They are also very liquid and highly tradable - you can get in and out of any position quickly, unlike securities which tie you down for a set period.

GET A BROKER

"First-time investors need not gamble their savings to venture into the stock market," says Albert C. Reyes, who began investing six years ago when he was only 22. A starting amount of P25,000 can get you started on a small, diversified basket of stocks. If you want to increase this later on, you can reinvest your earnings.

He recommended that for those without technical know-how, you are better off getting a broker who can advise on trends in the stock market. Go with the reputable ones, from investment houses and banks with a stable track record.

Reyes says, "From there, you can do your own research and study how the market moves. While this may not make you a pro, it will at least help you make investment decisions more wisely."

For those who want to go it alone, you should learn how to study corporate disclosures, read financial statements and observe the earnings growth drivers of companies, says COL Financial assistant vice president April Lynne Tan.

BE CHOOSY

Tan recommends that in choosing stocks, investors should look at several factors. First, the firm must be in an industry that is growing in line with or faster than the economy. It should also have a substantial source of profits, reducing the volatility of earnings during downturns.

Moreover, its products have to enjoy market leadership or at least be distinct enough from competitors. "A company that is the dominant leader is also usually the most efficient player and has pricing power. Meanwhile, a highly differentiated product allows companies to enjoy premium pricing," she explained.

Last but not least, the management of the firm must be ethical, professional and transparent to their shareholders.

KNOW YOUR INVESTMENT PROFILE

A little introspection can go a long way. Are you risk-averse or ready to gamble? Are you looking to make a quick buck or in it for the long haul?

Those that have a long-term perspective should choose companies with a business model they are comfortable with, Reyes suggests. "If you look at many of the top conglomerates, you see names like SM, Jollibee, Ayala - all of them cater to what Filipinos like doing best: buying stuff."

But chances are, if you're a first-time investor, you're a risk-taker seeking quick returns, he notes. "For those taking this route, the most important skill cited by traders is knowing when to cut your losses. For some, it's 5% while others can afford to lose a little bit more."

Everyone thinks they can outsmart the market, Reyes warns, but even the most successful investors have made humbling - and expensive - mistakes.

"Sometimes we get excited and, in the heat of the moment, execute poor trades. This happens a lot. Emotion is your biggest enemy in the stock market," he says.