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Thursday, October 16, 2014

Ten Investment Advice for the Newbie Investor

This post was inspired by the Reader question below:

Hi Filipino Investor Admin,

I'm John and I happen to come across your blog. I got interested with investing in the stock market a month ago and I can't help but read and learn everything I can. The thing is I am in Qatar working. I started saving enough to start my investments. Any advise you can give? More powers!

Regards, John

Hi John,

Thank you for query. I think a lot of new guys to investing have the same questions. Having this said. I'll answer your question through a blog post (and here it is. Haha).

The following are more of a general rule of thumb that I followed in the last 4 years of investing the PSE and it has served me relatively well. I hope you learn something valuable in one of them.

1. Save regularly.

2. A portion of that savings you invest regularly.

3. If it's too good to be true - it probably is, hence if someone approaches you and offers you an investment with a very high reward and at the same time a very sure investment. (example: double your money in 1 year, 100% sure) Politely walk away.

4. If you're investing in stocks make sure you understand the company you're buying. When I say "understand", this doesn't necessarily mean for you to know everything about the company or you know every line in the company's financial statements. What I mean by this is for you to know enough about the company to the point that you have convinced yourself that it is a good investment, simply put - you know enough to be a comfortable owner of the company, because when you buy a company's shares of stock (regardless of of how small your shares are) you are effectively becoming a part-owner of the company.

5. Have a sense of the valuation of the stock vs it's peers and the overall market, Price to Earnings, Price to Book Ratio, Dividend Yield are very useful measures of value, I use them all the time.

The Filipino Investor publishes a monthly Top 25 cheapest stocks in the Philippines, you may want to check it out to serve as your starting point of reference.

6. Have a sense of where the price of the stock is trading right now vs it's historical levels

Items 4 to 6 is kind of a thought process on how you approach stocks and I have a post that shows how I've done this on my end, you may want to check it out 

7. Avoid "hyped" stocks. This is somewhat supportive of items 4 and 6, because you should never buy a stock just because everyone's buying it. Unless of course you've convinced yourself that this stock is a good investment and it just so happened that the whole town is also talking about your stock, then that would be an exception. But the point is you're buying because you've done your research and you have arrived on that decision of buying because of your research and not because everyone you know is already buying it.

8. Know when to take profit.

9. Know when to take a loss.

and finally always remember that

10. The key to succeed in investing is to do it for a long period of time and to survive - survive in the sense that you don't wipe out your capital because you bought a stock at the extreme highs, you've positioned a huge part of capital in it and you get wiped out when it drops. Remember, slow and steady wins the race.

Filipino Investor

1 comment:

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