Investing Word of the Day: Return

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source: http://www.tobysterling.net

We talked about inflation, that "thing" that eats up the value of your money, and how can it really affect your financial capability. That is why we invest in order to combat it. There are so many ways to fight it and eventually outrun it so that you can relax and sit back.

One important word you have to understand is the word RETURN.

RETURN is what you get from your investment over a period of time. Knowing this, how can we use this to fight inflation?

source: http://moneylifeblood.blogspot.com

In my beloved girlfriend's, Kris Diane Domingo, blog moneylifeblood she mentioned a concept about return in our small business back in her home in San Mateo. We opened a "sari-sari" store and some of her points really explained the usefulness of knowing your return. 

Return can be computed by expressing it in terms of a percentage. With that we can now compare it with the rate of inflation thereby we have a barometer to check if we are really making it, beating inflation, or just making it eat more the value of our money. As my Krissy mentioned, selling cheap seems like losing because we only get a small return but if we get that small return many times or faster it would be better than waiting for the return on a longer time period. Just like Chinese merchants they may be selling at cheap or near cost prices but the secret to it is to earn that amount faster thereby increasing the rate of return.

So for us in the stock trade it would be foolish to keep putting all money in a long term but we should allocate our funds to both long term and short term investments to fight inflation. We can continue accumulating shares of blue chips in small portions while earning more buying stocks for short term investments and re-investing the returns either to accumulate more of blue chips or expand our portfolio of stocks that gives good returns at a shorter period of time.

The faster you get your return on your investment the earlier you could sit back and enjoy your blessings with your loved ones and to all the people you really care for. So invest in different investment vehicles that give returns faster to fight inflation; know your rate of return.

Now how do you compute your rate of return? Simply divide your net profit by the cost of your investment. 

Rate of Return = Profit/Cost 

or to extend the equation

Rate of Return = (Earnings-Cost)/Cost

This will be your starting point. 

If your Rate of Return is negative or it is not even above the inflation rate you could do three things to improve it.

• Increase your Earnings and maintain your cost
• Decrease your cost and maintain your earnings
• Or do both: Increase earnings and Decrease Cost

It may be impossible at the beginning but with all the free resources out there we can fight inflation. 

Know your Rate of Return. 

Is stock investing gambling?

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sources: http://www.game-bler.com/ , http://www.leap.us/

I had a chance to chat with my ex-girlfriend this week, and as usual the friendly chat is everything under the sun. (It is nice to have my ex-girlfriend as a friend without the hassle of looking back in the past so I hope all couples who parted ways could still be friends one way or another but again this is just my suggestion, an advice).

So I told her that she can invest in the stock market at only Php 5,000.00 and she said "isn't that gambling?" So I ask her why she think stock investing is gambling, she has two good points on her argument:

1. There is risk involved

2. The market is unpredictable

So I thought about it and answered her "I beg to disagree but stock investing is not gambling."

This kind of thinking is one of the reasons why the Philippines has a very small percentage of its population engaged in investing. Filipinos are afraid to even try it because of the stories they hear for example a businessman who invested all his money in a particular stock is now in debt and without work because the stock he bought crashed big time. Another reason is that  people think that companies are just using their money for personal gain thus they don't want to participate in the stock.

Going back to the important things one must always remember when one starts to or even decide to participate in the stock market:

1. Invest only your free cash.

2. Invest in stocks of fundamentally sound companies

3. Always learn and don't stop learning

4.You only lose when you sell your stock below your total 
    purchased cost

5. Time the market

Let me relate these pointers why stock market is not gambling.

Gambling is when one puts everything he or she has against something which is uncertain, relying only on pure luck. That is why I and my friends have always advice to only put your free cash in the stock market. Yes it is due to the risk involved that everyone sees it as gambling. But the risk in stock market is what we call a calculated risk. You can always decide whether to go on or not in buying or selling because we have a basis like financial report and performance, on time news updates, and regulatory bodies that implement laws that safeguards us investors unlike in gambling where due to your desperation to recover your loses you bet your last centavo hoping against all hope that you will win this last time around without any basis. It is so calculated that is why we even advice only your free cash to really make sure you don't regret if the stock you bought will be at a negative for quite some time.

There are stocks that we call speculative and their are what we called fundamentally sound. The good thing at investing in stocks with good fundamentals is that no matter what happens they wont easily be affected by financial troubles. They will surpass and will remain standing, and they will be there and will still give you profits in times of harsh financial conditions.

Stock investing commands continues learning or what the Japanese termed Kaizen. Even the veteran like the likes of Warren Buffet still do their homework doing due diligence before buying stocks of companies. Probably this is one of the reasons why so many avoid the topic or even the idea of investing in stock, its nosebleed. With the so technical and so complex concepts and words to learn many have avoided it. But I always say this, you are the investor so don't be afraid to ask. Many think that it cost a lot to learn about stock investing but with the invention of the internet information is all around us.... and one of the best ways to learn is to share what you know and listen to other person's perspective. Always remember always be humble to learn about stock investing even if you have a PhD degree or MBA.

Again many people are afraid to invest in stock market because they think they are losing when their portfolio is in the read. I remembered when I first made my first investment: mutual fund at Philamlife. At that time it was the beginning of the subprime crisis in the US. I asked the fund manager who was also a former seminarian like me and said that the problem why the market continues to fall is because people panic and starts to withdraw form the stock market thinking that they will lose there hard earn money. In accounting we call this unrealized loss or in layman's term paper loss. This is, as the term says, not real loss. As long as one does not sell a stock which has a value lower than one's purchase cost, one has not lost yet. It only becomes a lost when it is realized by way of selling it below its purchased cost.

That same thing applies to the stock market, remember they are just the same that they are traded in the market but with this difference: no matter how good quality a mango is it will still rot, no matter how bad the times is a stock with good fundamentals will still stand after the storm.

I have this idea why people lose in the stock market, they look at it as gambling thus they do gambling approach by betting all they have on wrong stocks without proper timing, impulsiveness, and limited information. That is why I started blogging about stock investing to share my ideas at the same time attract ideas of others. In a way it is a collaborative way of learning by looking at others perspective.

Though it is not gambling I would like to borrow my friends advice---- trade at your own risk :)

An update regarding NTS with PSE

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A buzz regarding the new system is out.

The PSE is moving to a new trading system leaving behind the Maktrade system. To read more on this new trading rules please visit the PSE website at www.pse.com.ph or click here.

The question now is how would this new trading system affect investors. In reality the entities that are directly affected by these changes are the stockbrokers. They need to update themselves as well to able to follow the PSE trading. On their part they must see to it that the investing public will be able to seamlessly use their online ordering system without much hassle on the side of stock traders like yo and me.

The PSE is on its final stage of transferring its operations in the Makati trading floor. The move was to operate wisely by only having one trading floor. Though the PSE has been earning cutting cost is one way of boosting bottom line. For the mean time he PSE will trade at the Makati until such time they find a new place for their main floor and office.

Want to feel the stock trading: Try the Stock trading game

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If you are still unsure about stock investing why not try the PSE's stock trading game.

Just create an account and read the rules. The stock trading game is only active during the stock trading in the PSE that is 9:30 to 12:10 Monday to Friday. You are given a play money so to speak to play with. You can test your skill and your theories and all that you've learn so far in stock trading in test mode while you are not yet ready to make a real trade. 

As Robert Kiyosaki said that true learning is better achieve in simulation mode just like his Cashflow101 board game. So don't worry if your initial experience in the stock trading game made you lose more money. Just have the feel of it and learn from your mistakes. Place your buy orders and sells order "as if" the play money is real. Make your mind think that its a real trade so that your mind will be push to think and make decisions. If you make a mistake don't blame anyone and yourself but rather appreciate the invaluable lessons you will pick up from the game. 

So what are you waiting for: I have an advice. The Dow has been down last week and probably tomorrow's  trading will start slow as well. Its a buy time so buy stocks in the game and experiment if you can sell it at a profit. 

It's game time :)

PSE website: Board Lot Table Part 5

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We're back again at investing in Philippine Stock Exchange. It is worth knowing what this table is. Below is a screen shot of the table I got from PSE's website:

This table is a guide on how much one can buy depending on the stock price thus it follows also how much money one needs to buy stocks. 

Let say you want to invest in Bank of the Philippine Islands with the stock symbol BPI which is currently at Php 43.00 so based on the board lot the minimum number of shares you can buy is 100 shares and thus you need Php 4,300.00 to buy BPI shares.

How about PLDT with the stock symbol TEL which is currently at Php 2,380.00? Minimum shares you can buy is 10 thus you need Php 23,800.00 to buy 10 shares of TEL.

Or how about United Paragon Mining with the stock symbol UPM which is at Php 0.01 per share. The minimum share is 1,000,000 thus you need Php 10,000.00. Also if you notice the second column says minimum fluctuations. This is a guide for the stock trading prices either you are buying or selling.

To learn more go to  http://bit.ly/EXPERT-STOCK-SCREENER

When you are buying you are said to be bidding. And in the stock quote the number of fluctuations allowed is three starting from the last trade. So for example BPI's minimum fluctuation is Php 0.50 thus the possible bid prices you can bid is 43.00, 42.50, and 42. On the other hand if you are selling you are asking. The asking price starts from the next increment as per the boards fluctuation. So for BPI the ask price are 43.50, 44.00, and 44.50.