Are You A Cool Investor?

If a friend took your wallet from your pocket and tossed it off the Pasig River, how would you react?

In times like these when the stock market seems like going down the drain, it is but natural to feel really bad especially if you just started investing less than a year ago. Just like your wallet thrown off that muddy, murky, filthy urban river.

At the same time, when the market seem to go up like forever it’s also natural to feel really good. In any case, emotions will always be there. But would you always give in to your fears and joy as an emotional investor?

Here are some friendly reminders.

Investing is Like Shopping. But Don’t Do Impulse Buying.

I’ve been asked this question several times by friends and forum members who are invested either directly in stocks or through mutual and UITF equity funds:

“When do you think will the market start to inch up again? When will this bear run end?

The first answer I would always give is “I Don’t Know.” The second would be “I Don’t Care.” In fact, NO ONE knows. Others can only predict based on trend. Sometimes they hit it right. But most of the time, they miss.

Don’t buy more shares now just because the price is going down or you have “extra funds” coming from your piggy bank (read: emergency fund). Don’t sell just because everyone else is selling. Don’t time the market. Just keep on investing using your regular monthly savings. Be patient to wait until your money grow.

Don’t make hasty investing decisions based only on what you see on the technical graphs and charts.

 

Long-Term Investing is Cliche for Short-Termers

But should not be the case for you who looks beyond 10 years as your investing horizon. When the market is down, never mind those who pull your leg and telling you that you are “naipit”.

If you plan to withdraw your investing tomorrow and you have no returns in your investments today that you can pull out, then that’s naipit. But since you don’t have any plan to sell and withdraw anytime soon, then you’re in the right time and the right place to continue investing.

Sila lang ang na-ipit.

What’s Your Risk Profile?

What is risk to you? How do you respond to risks that you encounter? Knowing your risk profile can help you have confidence in your portfolio especially during times when the market gets scary. Your risk profile is simply the level of risk that you’re willing to take on.

So if you just started and looking at 10 to 30 years before you withdraw your investments, then you can choose to buy blue chip stocks or even stocks that are a little bit challenging because of their volatility but with good fundamentals.

For those who are fast approaching their retirement years, then choose bonds or funds that are invested in fixed income securities or a little bit of blue chip stocks instead. You need more stability in your investments comparing to where you were 20 years ago.

Do More Cost-Averaging To Reduce the Hurting

How would you feel if invested P100,000 (around US$2,300) yesterday just because the price seems lower than the other day (or you have extra funds naman) and then finding out today that your money has gone down the drain and is now 70% lesser? Ouch, that really hurts.

Following the cost averaging method is the best solution for a long-term investor. Cost averaging is dividing your money into equal portions and investing them at fixed intervals. Not only it is safe, it will also reduce your emotional investing because you buy shares regardless of what’s happening in the market. You buy fewer shares when the price is high, and buy more shares when the price is low. Lesser emotions today but more sure money in the future.

For those who follow the strategic averaging method or SAM, make sure that you still do cost-averaging even if you are following a certain buy below or target price levels. Don’t put all your cash (including your emergency fund) one-time in your SAM stocks just because it’s bargain season! Break your cash into equal chunks and buy your favorite stocks within 3 to 6 to 12 months until it reaches the target price. Upon selling, switch your funds immediately to buy new SAM stocks.

Another solution is for you to invest in equity mutual funds and UITF’s (unit investment trust funds) therefore making your investing automatic without you having to look into your portfolio more often.

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P.S. 1. Bro. Bo Sanchez has appointed me as a coach for our young and new investors at the TrulyRichClub social site. It’s a fun, learning family with the purpose of “helping good people become rich”. I’m inviting you to join the TrulyRichClub too and email me at burngutierrezblog@yahoo.com.ph if you have any questions. Click here to join!

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Photo credit: wstera2