Tuesday, September 20, 2011

Stock Market Investment Philosophy

Got this from the Monthly Stock Update from Bo Sanchez for the Truly Rich Club Members. I have been so grateful to be part of this club. The Stock Updates really helped in our investments.

Here are the principles:

1. Ignore the News
Warren Buffet doesn’t bother watching CNBN (a business news channel). Can you imagine that? Warren Buffet is the richest stock investor in the world. He’d rather stick to what he studies about the specific companies he invests in. If he believes that the company is extra strong and super stable, he’ll invest in it no matter how bad the economy is. Because long term, he’ll always win.

2. Diversify Your Investments
If we’re gamblers, we’ll put all our money in one hot stock. That way, we earn more. But putting a big bet on one stock is dangerous. What if it doesn’t play out? Then we lose. Being greedy doesn’t work. Thus, we invest in five to six companies. If one or two companies don’t grow, we can live with that. Because the growth of the other three to four companies will make up for our loss.

3. Invest in Dividend-Paying Stocks
Remember that there are two ways to earn money in the stock market: capital and dividend. Capital is when the price of the stock goes up. That’s what we’re familiar with. And many of us focus on this. But don’t forget dividends. Even if the share price doesn’t go up, you gain if the company declares dividends. This will make you build wealth over time. Two of our five recommended stocks give good yearly dividends. First Philippine Holdings (FPH) gives an average of 3.5 percent a year while Aboitiz Power gives 4.4 percent a year. That’s much more than what any bank gives. There are other companies that give higher dividends (Example: PLDT gives eight percent), but we have to balance capital gains growth and dividends. We believe that our five SAM Stocks have more potential to grow than other higher dividend-paying stocks.

4. Invest Slowly Over Time
Even if you have lots of money to invest, don’t put it all in one go. I always suggest to divide their big money into 6 to 12 parts, and invest slowly, putting one part a month. So you remove the question, “Is it the right time?” Ultimately, if you invest slowly over time, the answer to that question is, “Anytime is the right time.”

5. Buy When Markets Go Down
Warren Buffett said it best: “Be greedy when others are fearful.” But people do the very opposite: Be greedy when others are greedy.” So people buy when everyone is buying and sell when everyone is selling. No wonder 85 percent of people lose money in the stock market.
Friends, today, people are fearful. Because people are losing their money. Now is the time to invest. And with the Strategic Averaging Method (SAM), I give you a Buy-Below-Price. For a couple of months now, you couldn’t buy Metrobank (MBT) because the share price went above our Buy-Below-Price. But this month, you can buy MBT because the price went below our Buy-Below-Price. This strategy will multiply your future profits, because you don’t chase a price all the way to the top.

6. Nothing Lasts Forever
For some time now, a few of our SAM Stocks are negative. Don’t worry. Nothing lasts forever. Bear markets (that’s when markets go down) don’t last. And by the way, bull markets (that’s when markets go up) don’t last either.

I have been practicing these principles together with the other truly rich club members. The updates and articles being sent by Bo helped me a lot to be on track and hands-on to our Stock Market investment.

If you want to know more about the truly rich club, click here.

To our Financial Freedom!

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