20 5 Basic Rules of Investing in Stocks

 
Rules of Investing in StocksIf you're a seasoned trader or a disciplined investor already, kindly skip this post. You might even raise an eye brow with some of the things you'll read. You'll just get bored with all the usual stuffs you've been hearing since the day you knew about how to invest in stocks.

This post is for the newbies, who have finally started to invest but still want more guidance to make it work.


1. Commit Long Term
If the price of the stocks you bought went down, why worry? You're in for the long term! The price of that particular stock started from the bottom anyway and will only take some time to go up once again. This is simply because, historically, the market will eventually return to normal over time. This means that periods of market volatility or extreme dips never last forever. So it's important to have a clear plan and stick to it. Don't get hyped or discouraged by all the daily noise!

Investing - Commit Long Term
 
Don't chase after stock prices
 
If the price of the stock is going up, wait...until it goes down, and then buy! As much as possible, don't buy if the price is already close to its 52-week or 30-day week high, mainly because this is when most traders cash in for gains. Also, don't buy if the price is going down. Buy when its already down! 

2. Don't Put all your Eggs in one Basket
This might be a cliché, but some people still don't get it right. Diversifying your stocks portfolio means investing in different companies in across different sectors. However, you should consider limiting your choices to seven at most. Why? In case of a short market dip or correction, don't expect diversification to actually save you from losing your gains because you're practically invested on the same stock market. Instead, this allows you to take advantage of buying shares at a lower, if not bargain prices! However, If you have more than seven stocks in your portfolio, then the more cash you'll need to buy shares so you can do cost averaging.

Investing - Don't Put all eggs in one basket
 
3. Invest in Giants
Invest mainly in companies that compose the PSE index or what they refer to as blue chips. Check for their Free/Public Float Level (lowest 12%) and Market Capitalization.

As of today, here are those giants:
  • AYALA CORPORATION (AC)
  • ABOITIZ EQUITY VENTURES, INC. (AEV)
  • ALLIANCE GLOBAL GROUP, INC. (AGI)
  • AYALA LAND, INC. (ALI)
  • ABOITIZ POWER CORP. (AP)
  • BDO UNIBANK, INC. (BDO)
  • DMCI HOLDINGS, INC. (DMC)
  • FIRST GEN CORPORATION (FGEN)
  • GLOBE TELECOM, INC. (GLO)
  • GT CAPITAL HOLDINGS, INC. (GTCAP)
  • INTERNAL CONTAINER TERMINAL SERVICES, INC. (ICT)
  • JOLLIBEE FOODS CORPORATION (JFC)
  • JG SUMMIT HOLDINGS, INC. (JGS)
  • LT GROUP, INC. (LTG)
  • METROPOLITAN BANK & TRUST COMPANY (MBT)
  • MEGAWORLD CORPORATION (MEG)
  • MANILA ELECTRIC COMPANY (MPI)
  • METRO PACIFIC INVESTMENTS CORPORATION (MPI)
  • PETRON CORPORATION (PCOR)
  • PUREGOLD PRICE CLUB, INC. (PGOLD)
  • ROBINSONS RETAIL HOLDINGS, INC. (RRHI)
  • SEMIRARA MINING AND POWER CORPORATION (SCC)
  • SECURITY BANK CORPORATION (SECB)
  • SM INVESTMENTS CORPORATION (SM)
  • SAN MIGUEL CORPORATION (SMC)
  • SM PRIME HOLDINGS, INC. (SMPH)
  • PLDT INC. (TEL)
  • UNIVERSAL ROBINA CORPORATION (URC)
Investing - Invest in Giants
 
In addition, most of these giants give dividends to their share holders. Dividends can either lessen your negative or red Profit/Loss column or add up to your profits. So choose stocks that yield dividends, because this will challenge the company management to strive for the better.
 
4. Master your Emotions
Have you heard of the phrase “Emotionless Trading”? While it's pretty much self explanatory, it's still a different case when you're dealing with yourself because basic human emotion is perhaps the greatest enemy of successful investing. If you see a stock price go down, and your greed tells you that you should take advantage of it, will you listen to it? If you see another stock and starts to take an upward momentum and your fear of being left out tells you that you should chase it before it gets too high, will you follow it? “Emotionless Trading” means not listening to any of both. Instead, you stick to your buy-hold-sell strategy. You buy when the price reaches your target entry point and you sell when the price reaches either your target gain or cut-loss points.

Investing - Master your emotions
 
By contrast, a disciplined approach to trading - whether you're a long-term investor or trader - is definitely key to lock in profits.

5. Know the P8,000 Rule
Online stock brokers, such as BPI Trade and Citisec Online, have a commission rate of at least 0.25% on the gross value or a minimum of 20 pesos (whichever is higher). Basic Math would then tell you that this commission rate is actually equal to P20.00 when you invest P8,000. Let's make it graphic:

If you invest five thousand pesos, the commission rate is 0.25% * P8,000 = P12.50
However, the minimum commission rate is P20. And since P20 is higher than P12.50, you will still be charged P20 for your buy or sell transaction.

Now if you invest eight thousand pesos, the commission rate is 0.25% * P8,000 = P20
Therefore, by placing an order of at least P8,000, you're able to maximize the commission cost.

Investing - Rule of 8000

Bonus
Unless you invested a really huge amount and waited at least x years after, investing in stocks with one-time opening of less than 6 digits won't make a fortune (unless you're into trading, of course). So again, make it a habit to save and invest regularly.

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20 comments :

  1. Norman LorenzoDecember 10, 2017

    The 8K rule is amazing! Thanks for this awesome article! Keep them coming!

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  3. Joseph SantosDecember 13, 2017

    Mastering your emotion is quite the hardest to accomplish, especially for newbies like me :(

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  4. Catherine GaraDecember 20, 2017

    With the impending tax law on investment transactions, the 8K rule may no longer be applicable :(

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