I always pause when I'm approached to give investment advice to a person who has absolutely no experience in investment. Going into investment is like entering a whole new world, with its various risk and returns, opportunities and threats. One needs to have a steely stomach to stand the roller coaster ride of the market which is really worse than having a psycho girlfriend.
HAPPY INVESTING!!!
Note: Author is long BAC, JPM, HITK.
In this blog, I attempt to provide certain guidelines for first time investors. Im not sure if this is accurate and I do not claim it to be accurate, but take it from someone who has been in the investment industry since year 1997.
1. Be honest with yourself. Set your investment objectives keeping in mind your own needs and resources. If you are the type who needs the regular income from your investment, then you need to allot more in bonds and time deposits than in stock market. But if you are raking in money and can take more risks than the average Joe, then you can allot more in stock market and keep it there for accumulation of wealth. Point is you need to see how much you can allot for investments every month and put percentages to each investment type.
Investment Types:
Derivatives - Go for this only if you actually understand this product and its risk and return profile.
Equities/Stocks - Stocks provide superior returns, but use your excess money (money that you don't need in the immediate future and that you are actually prepared to lose) . The younger you are, the more you allot in stocks.
Bond Market - Perfect for first time investors; provides adequate return and good for people who need a steady income. Bonds are also great during volatile market environment. The older you are, the more you allot in bonds.
Real Estate - If you can wait a longer time to divest your money and reap its profit, then real estate is for you. Real estate is a good alternative during volatile stock market.
Gold/Diamonds/Silver/etc : Whenever there is a market crisis, people rush into Gold as safe investment haven.
Time deposit: For people with very little knowledge on investments, time deposit is for you.
Savings Account: Park your money in savings for those unexpected expenses.
2. Stick to your goals. Get into investments that you really understand.
You will hear a lot of noise from the media from the scare of real estate bubble to the rise of the technology stocks. But stick to the plan. Learn from Buffet. Get into investments that you actually understand. And that is so true. There are many investment products out there that is a hybrid of everything. If you don't understand it, don't put your money in it.
3. Read ... Read .... Read...
And I don't mean the entertainment type of reading. Read bloomberg, Listen to BBC news, read the wall street journal. Amass all that knowledge about the global economy and anything that is related to your investment. If you are not used to this, this is like reading greek. Underline those you don't understand and google it. Hard work, yeah. But I promise you, do this for one month everyday, and at the end of the month, you will get a grip of what's happening in the market, and you will have your own analysis of it.
I would recommend the Economist. Of all the financial reading materials, I enjoy the depth of analysis of the Economist.
Know the key success factors of the investment you are holding. Example, for JP Morgan, the key success factor for me is their CEO Dimon. So I know if he is gone, Im selling my JP Morgan stock. For ROP bonds, I know I have the advantage of knowing my country best. Others may perceive ROP bonds as very risky because it is guaranteed by the Philippine government (and what is the Philippine government in the global community anyway?) But as Filipino, I know that the Philippine economy is quite resilient due to the regular inflow of dollar remittances from OFWs plus the Philippine government will never renege on their promise in the global markets due to the value of "saving face".
4. Buy low, Sell high.
This is such a logical plan. Quite elementary. But people can get quite emotional (and may I add "panicky") when it comes to handling their money. So during the Lehman crisis, we see people flocking the stock market, ready to sell their investment portfolios. I have people asking me for advice if they need to sell , and if I tell them to please not do that and ride through the crisis, they nod their heads and the next day, they sell everything. Tsk... tsk... tsk... So for me, this is the hardest principle to follow. The discipline to buy low (during crisis) and sell high (when everyone is so happy and optimistic). We cannot time the market. Nobody can really do that. But get a good perspective of where we are right now, where we are going. If we are in a crisis, try to buy stocks that are known to be really stable and has the right fundamentals during that period. Now, its much harder to sell when everyone is so jubilant about the market. Some may even think you are crazy for selling. But this is the right time to sell, believe me on this.
Lets take Citibank for example. I have been eyeing this stock for the longest time. But trading at more than $50 (before the stock split) is just too expensive for me. So we wait awhile. Then the mortgage crisis came and Citibank was driven to trade at $1 a stock. Need I think if I should buy this stock? This is like eyeing the girl you wanted for so long , and then suddenly because of her indiscretion , the girl has destroyed her reputation and the whole village is ostracizing this girl. Rumors have its basis but more likely its worse than it really is, right? Same with the market. The market is worse than a village full of gossiping old maids.
5. Crisis means Opportunity (but please do your homework)
Go to any account officer in a bank, and chances are she would advice you to park your money in "safe" investments during recessions or volatile market.
But for me, I make the most money during this time. I pick stocks that have sound fundamentals, meaning they have a good management team, sound strategic plans, prudent decision making and good historical profitability. But they are trading at a low price because during crisis , almost all stocks are affected. Buy them. And when the economy is starting to pick up (and believe me , they will pick up one way or another. I believe in the human race. ), your stock will be the first to go up. After the panic mode, people will start getting logical again, and they will turn to those stocks that have good fundamentals. This is why one needs to read constantly. This is part of "getting to know"stage towards your investments.
HAPPY INVESTING!!!
Note: Author is long BAC, JPM, HITK.
