PSE Dividends and Rights as of September 10 2015 via Accord Capital

Source: https://www.philstocks.ph

How to Minimise the Risk in Stock Market Investing

Equity investing is one of the potentially rewarding investment and at the same time a high risk type of investment. But, is there a way to lessen the risk? 

Well, I think there is, it is called "Money Cost Averaging". It is an investing strategy where you invest fixed amount of sum at a regular interval over a long period of time. The amount of money invested at each interval remains the same over time, but the number of shares purchased varies based on the market value of the shares at the time of a purchase. When the markets are up, you buy fewer shares due to the higher cost per share. When the markets are down, the situation is reversed and you purchase a greater number of shares. It's a strategic way to invest because you buy more shares when the cost is low, so you get an average cost per share over time, meaning you don't have to invest the time and effort to monitor market movements and strategically time your investments. Having said that, this strategy then works well with mutual fund investing. This is because in mutual fund the fixed sum is simply divided with the cost per share to get the number of share bought, whilst when you are directly investing in equity, there is a minimum lot to buy depending on the cost per share. Of course, you can choose to buy or sell through odd lot but, you might find it difficult to buy or sell as few only trade in it. Using this strategy in direct equity investing will result to often have remainder on the fixed amount invested. Thus, the core concept of the strategy to which it will invest with a fixed amount at a regular interval is hardly meet. Keep in mind though that, unless the mutual fund NAVPS you invested in is increasing fast enough to compensate the investment fees involve, it might take a while before you appreciate the result. 

Below is the illustration of how money cost averaging supposed to works to lessen the risk given the 3 scenario in equity market. (Click to Enlarge)

Click the Image to Enlarge

Click the Image to Enlarge

First, when the market or the NAVPS is suppose to be in bullish trend. With this scenario, you probably wish you have invested huge amount early on so as to gain more but, keep in mind that equity market is not always in bullish trend. The gain may be reduce but then so as the risk in this scenario.

Second, when the market is suppose to be moving sideway. As seen in the illustration, even though it's moving sideway, still the result yield to be favourable.

Third, when the market is suppose to be in bearish sentiment with up trend bias. As you can see, with this scenario the result still yield to be positive.

In all the scenario, the result may seem like always favourable but this strategy requires discipline to stick to it over a long period of time. It may seem easy but when emotional thinking kicks in like say for instance when you speculate that the market is going to be bullish, you are probably tempted to invest more than the planned fixed amount to be invested at a regular basis, and when at bearish trend, fear will probably kicks in and will reduce or not fund the investment yet. So, to avoid this, keep in mind the core idea of this strategy and, most importantly study the fund you are planning to invest in, understand its feature and know the fees involve. The illustration shows only the sales load but there is another visible fee which is the exit fee, that's if you plan to withdraw your investment within the allotted holding period. 

Investing in Mutual fund in Philippines comes with a cost, Click: (Understanding Mutual Fund Fees), know how much will it affect your gain because, I'm sure for the first few months you will not appreciate your investment result as it will be dragged down by the visible fees involve, unless of course the fund you invested in grow fast enough to compensate the investment fees. You'll realise this if you monitor your investment closely factoring the fees involve and inflation. This probably is another reason why it is most advisable to invest long term in mutual fund following this strategy diligently.

My Own Stock Strategy Plan, Do you have one?

1. Buy only company with good fundamental value.

2. Before buying and or selling, check the technical Indicators. As much as possible buy only when MACD is at lowest point or when just about to cross the line upward. And, sell when at highest point or when just about to cross the line downward.

3. Don't speculate that the stocks will further go up when MACD is at highest point, exit already, if it does go up further, don't ever feel regret. Be thankful. 

4. Likewise, don't speculate that the stocks will further go down when MACD is at lowest , buy it already, if it does go down further. Cheer up. Don't ever feel regret. Be happy still.

5. Remember, you cannot predict the future. If you buy and or sell at a wrong timing. So be it. Sometimes you lose sometimes you win, it happens. Be thankful always.

6. Remember 'The Sunk Cost Fallacy'

• Misconception: You make rational decisions based on the future value of objects, investments and experiences.
• Truth: Your decisions are tainted by the emotional investments you accumulate, and the more you invest in something the harder it becomes to abandon it.

For this reason be FIX, if your lose already at 10% and has no good news. Exit already.

7. If within months the strategy is not working. Think twice and come up with new strategy. Never feel regret that it did'nt work. Treat it as a learning experience.

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