Why You Shouldn’t Be Scared of the Stock Market
Published: January 7, 2016 | Updated: October 12, 2020 | Posted by: Bea Bongat | Personal Finance
According to the Philippine Stock Exchange (PSE), there are 640,645 investor accounts as of 2014. With a 1:1 ratio, this means there are 640,645 Filipinos investing in the stock market. However, in reality, some have more than one account, so the number is lower – less than 1% of the country’s population.
There are many reasons why people shy away from the stock market. Some believe they do not have enough funds (you can invest for Php 5,000) while others have heard nightmares of a friend or a relative losing lots of money, and thus, don’t want to touch stocks. However, there’s no need to be scared.
Coming directly from Attorney Roel Refran, the Chief Operating Officer of the Philippine Stock Exchange, here are 5 reasons why the stock market isn’t scary.
Table of Contents
Why You Should Not Be Scared With Stock Market
1. You diversify your investment portfolio
Investing in stocks isn’t an end-all, be-all option, and investors usually have a diverse investment portfolio. Not because one person is an advocate of stocks, he has 100% of his assets in stocks. An investor can have multiple assets in his portfolio, be it index funds, stocks, bonds, and real estate among others. Diversification is having multiple assets to minimize risk.
If you practice diversification, there is no need to be afraid of the stock market. With a diversified portfolio, investments that are less risky can provide cushion for potential losses for higher risk investments.
2. You do your homework
Investing in stocks is not gambling.
“In gambling, everything is by chance. When it comes to investing, you don’t just close your eyes and randomly put your money in any listed company. You pick a stock because mas kilala mo (yung company). You pick stocks that are familiar to you because you may be using their products or services,” says Attorney Refran.
“For example, lagi mong ginagamit yung expressway, we have a listed company that operates the expressway and Skyway. Lagi kang nasa mall; lagi kang nasa fastfood; iisipin mo ‘I want to be part of these companies because I patronize the goods and services’.” Is that gambling? Definitely not. You know that these companies have a track record. You know that their management teams are strong. You know their plans. That’s why you invest in these companies.”
The stock market is scary only if you don’t do your homework to familiarize yourself with the target company’s business and management. Take the time to learn about the companies you’re interested to invest in. Look at their financial reports and plans and projects for the future. Buying stocks of companies you believe in is not gambling because you should make an informed decision.
3. You start small
As with anything, take baby steps and get the hang of it before you jump right in. If you invested 100% of your savings and lost it in a market crash, you’ll definitely be traumatized to invest your money again. Take little steps. Don’t use your savings or emergency funds for investing purposes.
Attorney Refran suggests, “If you’re already earning, then a good rule of thumb is to set aside at least 10% of your income for investing. Depending on your circumstance, if you’re single, maybe 50% would be doable. If you already have a family, maybe 10% would be more realistic because you pay for the bills, the mortgage, etc.”
Start investing with a small amount first, and then once you see your money start to grow, you’ll be more confident in investing in stocks.
4. You know how to make money in stocks
When you invest in a company and buy its stock, you become a part-owner of the corporation.
“That part-ownership privilege allows you to earn two ways – through dividend income and price appreciation,” says Attorney Refran. “If there’s a dividend declaration, then you get to participate depending on how many shares you have. If the price increases compared to the time when you bought it, then that’s another upside potential.”
If a company declares dividends, then expect to receive a sum of money for being a shareholder of the company. As for price appreciation, if you bought a stock at Php 1 a share, and a year later, sold it at Php 2 a share, then you would have a 100% return on your investment. Those are the two ways to make money in the stock market.
Companies that give out the highest dividends and whose stock prices continue to increase are companies that continue to perform and grow, and thus, will keep growing your investment.
In addition, being a stockholder also entitles you to participate in the election of the members of the Board of Directors during the annual stockholders’ meeting.
5. You educate yourself
There is a wealth of information that one can use in picking the stock they will buy (e.g. studying financial reports, researching and agreeing with the company’s plans for growth, believing in their management team, etc.). Once invested, you can then expand your knowledge to understand the dynamics of the stock market, i.e., when is a good time to buy or sell. Don’t start buying stocks just because all your friends are doing it.
As with taking the time to study a company before you buy its stock, take the time to learn how the stock market works. Here are learning tools directly from the Philippine Stock Exchange to help you become a better stock investor:
Seminars and webinars – the PSE conducts free online and offline events that cover a variety of topics such as stock market basics, fundamental analysis, and technical analysis. To stay up-to-date on these events, diligently check the following PSE websites.
PSE Academy – is a comprehensive online platform that includes learning materials (readings and videos), events and exam schedules, and investment calculators to name a few.
PSE EDGE – is the official disclosure portal of the PSE. It also has an app version and is available on Android and iOS. Information in the app includes a list of all PSE companies according to the sector, stock data (open, closing, high, and low prices), corporate disclosures such as financial reports, and dividend declarations to name a few.
Say ‘Goodbye’ to Fear
As with anything, people fear the unknown. When it comes to investing in the stock market, the more you know and learn, the more confident you will become in investing in stocks.
As Attorney Refran says, “You pick (a company) because mas kilala mo. You pick stocks that are familiar to you because you may be using their products or services. Learn also by doing. After some time, you will be more confident as you make decisions to buy or sell stocks of listed companies”. As an investor and part-owner, buy stocks of companies you believe will grow. You’ll know this by studying and learning about the company through related news and their financial reports. The same works with the stock market. The more you learn and study about the stock market landscape, the more confident you will become in investing
For those already investing in the stock market, stay tuned for the continuation of MoneyMax.ph’s interview with Attorney Refran, the Chief Operating Officer of the Philippine Stock Exchange. He’ll share his insights on what stock investors can expect this 2016.
Disclaimer: This article does not endorse any specific company or stock. The article is for informational purposes only.