The stock winning strategy

Despite what people think, investing in stocks is not difficult. I believe that the financial sector is doing its best to make it appear unreachable to common people but the truth is that it’s not.

Nevertheless, you MUST follow some rules in order to successfully invest in stocks. Failing to follow these rules and you are not an investor anymore, you would become a gambler.



RULE #1: BUY STOCKS FROM SOLID COMPANIES!

As my previous posts explained it, stocks always go up in the long term AS LONG you invest in solid companies.

This is how I define a solid company:

1. It’s a company that people need or that people often use.. For example, we all need water, electricity, banks, food, etc. Also, I’m sure you noticed many people are watching television in this country. You might want to buy that too.


2. It’s a company that has been there for the longest time. Avoid new companies that haven’t proven themselves.


3. It’s a company that has a recognized brand. For example, the company Ayala Land is associated with good products that cater for the upper middle class or even the elite. A condo made by Ayala has automatically more appeal to the public.


4. It’s a company with a good track record. Meaning it has never disappointed their clients or investors.

 

RULE #2: HOLD THE STOCK FOR VERY LONG TERM!

As I explained previously, for you to be successful in stocks, you must hold the stock for a very long term i.e.10, 20 or 30 years. Remember that in the long term, stocks always go up.

Buying and selling stocks in the short term is not efficient. Transactions fees will penalize you. For instance: brokerage fees, taxes, etc…

 

RULE #3: KEEP BUYING!

This might surprise some of you but you’ll make more money in stocks when the price of the share goes down.

Your strategy should be to spend the same amount of money in stocks in a regular timeframe. For instance, if you can afford to save 10,000 pesos every month, use that money to buy shares.

Here’s an actual example of this strategy. I will use Ayala Land (ALI) to illustrate my point.



 

Here’s how ALI performed the last 12 months:

I’ll give you two scenarios and compare them to each other. In the first scenario, you’ll be spending 10,000 pesos every month for 12 months for a total amount of 120,000 pesos invested.

Scenario 1:



 

Scenario 2:



 

By buying every month like in scenario 1 especially when the price of the share is going down, you can buy more shares. It’s like in the supermarket buy 4, get 5. You’ll get “free” shares.

At the end of the 12 months, the value of your stocks will be 127,190 pesos while you spent 119,800 pesos. You’ll then make a profit of roughly 6,500 pesos.

In the second scenario, you just bought 120,000 pesos of shares and you just keep them for one year. After 12 months, the total value of your shares will be roughly 113,500. Meaning you will have an unrealized loss of roughly 6,500 pesos.

Same share, same conditions, two different strategies. With scenario 1, you got 127,190 pesos and 113,635 pesos with scenario 2. The difference between both strategies is roughly 14,000 pesos. Quite huge difference, don’t you think?

To summarize, keep buying the same amount of stocks at regular intervals.

 

RULE #4 DIVERSIFY

In order to reduce risks associated with stock investing, you should be able to diversify your portfolio.

Diversify means better you don’t buy only from one company but better you buy from different companies, from different industries and from different locations.

For instance, buy stocks from companies located in the U.S, in Europe, in Asia, etc…

Also, those companies should come from different industries, for example banks, food, real estate, technology, etc… etc…

If you only focus your investment on one company, what would happen to your money if the company is not performing well or go bankrupt?

If you only focus your investment on one industry, what would happen to your money if the whole industry is suffering from a crisis?

Same thing with the location of your investments, what would happen to your investment if it is focused on one country and that country is going through a difficult time?

This is why you must diversify your portfolio.

Nevertheless, diversifying is hard because you have to buy many different stocks and this will cost you more money in fees.

There are investment vehicles that can help you diversify like mutual fund, exchange trading funds, index funds, etc. but again, they will charge you extra fees.

In the beginning, I would advise you to buy shares from 5 different companies that are from different industries. For example, from a bank, from a real estate company, from a food company, from a television channel, from an energy company, etc…

I would advise you to balance your investment not only in stocks but also in bonds. I will explain this strategy when I’ll explain what bonds are and how to benefit from them.

 

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