Some Remarks on Investments
Not all stocks would be suited to you, so you best know if a particular stock is best for you and your goals.
I have been in the banking and investment industry for some time already, taking up courses and certifications—both local and international—as well as having experience in managing individual to big institutional accounts. From retail accounts worth P2,500 to as much as P6.5 billion in assets under advise, I had the chance to interface with beginner investors to savvy boards of directors, thereby sharpening my skills as a financial advisor.
From these experiences, I learned lessons. Here are some of them:
Costs matter. Whether for investment management account or stock trading, the cost of doing investment matters. For instance, buying and selling in the equities market necessitate costs in terms of broker’s commissions and taxes—and trading in high frequency increases them. If the cost of trade, say, is 1 percent of the amount and you doing the trade would give yourself a 2 percent gain, then maybe the 1 percent net gain (2 percent return minus the 1 percent cost) is not worth the while; better just to hold the stock and wait for the price you want. That way, you still get the price appreciation, minus the costly trading. Moreover, these costs accumulate over time, and the costs incurred could have been reinvested instead for more returns. The same is true for mutual funds—a 5 percent entry fee for every investment, accumulated over time, would be significant already, money that might have been invested for more returns over the long-term.
Nobody really knows. One pervading illusion I see in the market is that one can know with conviction and impeccable accuracy what the market will do and where it is headed. Well, nobody really does. Not even experts, not even gurus. Nobody. I had the pleasure of writing market forecasts for a magazine and the reality versus expectations cemented the case. For instance, experts saw a 10 percent-15 percent finish for the index for the year 2013—it finished off 1.33 percent; 2014 is better as forecasts saw 14 percent-26 percent and it finished off 23 percent; 2015, 5 percent-11 percent forecast but it finished -3.9 percent; next year 2016, forecast at 9 percent, finished off 1.6 percent; 2017 forecast at 8 percent-14 percent, finished off 25 percent. And intra-day, sometimes, the market is down in the morning session then suddenly it would go up in the afternoon and vice versa.
Truth of the matter is that nobody can really predict. Black swan events, unforeseen ones, surprising developments—all of these can support or derail a forecast. So now, I take these as guidance, and not gospel.
Materiality is important. A lot of times, investors would ask me if it’s a good time to go into the market; and I ask back, “How much would you be investing?” For a brief context: usually the stock market moves around 0.3 percent -0.5 percent—whether up or down—in a day. A movement of 1 percent and up is quite significant already.
Now, if the amount in contemplation is, say, P5,000 so that worst-case scenario of significant dip of 1 percent in the market equates to P5,000 x 1% = P50, then the question is: “Is P50 worth the effort and hassle to monitor the market and time it”?
Of course, the case would have been very different if the investment is P50 million. I had one client who called me up and said that he would be investing P50 million. Of course I had to time the market as a 1 percent dip could mean P500,000 more value for their money. That, for me, is material and so best execution through proper market timing is necessary.
So it is all about cost-and benefit at the end of the day: are your efforts worth the benefit and returns you are getting?
Nothing beats your own research. Too often, people follow the crowd, a guru or an expert for their investments and trades. Well, they are people, too, and as human as they are, they also make mistakes. And their advice, if taken uncritically and lead to mistakes, can cost you money. Besides, they are not accountable to you: should you follow their advice and their advice or stock tip do not work out, would they reimburse you for the loss? Are they even beholden to you to give the best advice that suits your personal circumstances?
Remember, not all stocks would be suited to you, so you best know if a particular stock is best for you and your goals: meaning, they would appreciate enough to get you to the money you need. So nothing beats your own research and study to know which stock or investment would be best for you. Should you wish to take advice from a professional, make sure you ask questions and make sure all bases are covered and everything, transparent.
Budget for your goals. Each one of your financial goals—your retirement, child’s education, dream vacation, etc.—has a corresponding investment per year, per month or even one time starting today. So set aside money from your monthly paycheck or bonuses today, and you will be assured that your future goals will come true. The more you invest for them, the greater the chance you will achieve them.
Rienzie Biolena is a Registered Financial Planner of RFP Philippines. He is a Senior Financial Advisor at asset management company, and Columnist of The Manila Times.
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