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Philippines Stocks at All-Time High – Should You Invest?

When you invest your money in the stock market, you shouldn’t have the same mindset like a gambler. Otherwise you could lose substantially.

The stock market is very difficult to forecast. People with years of experience do not necessarily get it right. 

Although it’s true that “the higher the risk, the higher the returns”, investing in stocks doesn’t mean you need to gamble with your money by investing without any substantial knowledge in what you are getting into.

What Investing Means

That’s why putting your money in stocks ought to always be “investing” and not “trading”. Trading implies speculating that the price will go up in order to make a quick profit. It’s considerably much riskier because no one knows exactly how the future will unfold. 

Investing in stocks, on the other hand, connotes being a part-owner of a business. If you believe that the business model is sound and that the people running it know what they’re doing, that’s the time you invest. This entails a careful study of the business. Studying how it runs and how it is performing based on financial statements are a good start. 

The stock price also affects investing decisions. But they are not the real reflections of the true value of the stocks. These prices are determined by supply and demand of the stocks. Investors’ appetite for the stock effectively determines its price. 

That’s why stock prices fluctuate quite substantially. A true investor should not be overly affected by the daily changes in stock prices when he invests in a business. Ideally, investing in stock is a long-term proposition.

Philippine Stock Market Rise

These reminders would surely help those that are now being lured with the recent record-breaking performance of the Philippines stock market. 

This week ended with the PSE index 18.26% higher since the start of the year while the Dow (US stock market) was only up by 8.84%. 

Stock analysts are furiously coming out with explanations for the surprising turn of events. They have pointed to the following positive factors:
  1. Low interest rates and
  2. Investor preference on emerging economies
The Philippine economy and governance has also been assessed to be doing well lately despite the sluggish 2011 GDP growth of only 3.7%. The Aquino administration’s initiatives to clean up government and push public-private infrastructure projects have started to bear fruit.

These probably affected the stock markets positively. But there are still some risks that may reverse the trend. These are:
  • The increasing price of oil 
  • The threat of Israel to bomb Iran
  • The continuing debt crisis in Europe
It’s almost impossible to know how and when these factors may affect investors’ confidence. This tells me that riding the rising trend of the stock market is not a very good idea. It’s good information to consider but it shouldn’t be the sole determinant of a stock investing decision.

Best Known Methods in Investing

With the high risk associated with stocks, it would not hurt to employ proven and time-tested methods when investing.
  • Diversification - Do not put all your eggs in one basket.
  • Cost-averaging - investing equal monetary amounts regularly
  • Divide your funds between high grade stocks and high grade bonds
  • Analyze the company’s underlying business and performance first before investing
For a more thorough discussion, I would recommend “The Intelligent Investor” by Benjamin Graham. 

If you think this is a lot of work, you can stop now and just opt to pay a fund manager to do the investing for you. This can be done by buying managed funds such as mutual funds, UITF’s, VUL insurance funds, etc.