Investing in Stock Market (Part2)

(COLUMN)

MONEY MATTERS

By: Engr. Arlen Macaspac

=== While you see how exciting it is to get higher rewards of gains in the stock market, the next question is “Do you have enough understanding, patience, personal research, and time?====

Investing in the Stock Market may not be that simple as others may perceive, but with persistence and motivation to learn, I would say that it is worth trying.

I guess you heard that people should buy when the price of stock is low, and sell when the price is high. But when is it considered high and low? One of the natures of stock investing is volatility, in layman’s term; it is the constant changes (up or down) on the movement of stocks over short period of time. This is where the active investors time their entry in the market and can make gains in a short period of time. On the other hand, the passive investor usually ignores the short term fluctuations and considers long term horizons since the fundamentals of the companies is their guiding principle in choosing their stocks and realize their capital gains due to increase in market price over a long period of time. Investors can also earn in stock market by Cash Dividends, Stock Dividends and Rights offering. As gains in stocks are relatively higher than gains in bonds or banking instruments, you must always remember the Risk and Reward principle or what we call high risk for high returns and low risk for low returns, thus the high volatility behavior of stock investing has a tremendous level of risk associated with it.

Philippine Stock Market Index behavior over a 2 year period

Oct 2007 – 3819 level Oct 2008 - 1700 level Sept 2009 – 2754 level

Notice the sharp decline from September 2008 which was the start of the financial meltdown.

If you ride on the Phisix starting from the lowest level of 1700 in Oct 2008, up to level 2754 in September 2009, your gain is already about 62%. Will the Phisix go back to its 2007 level of 3819? Who knows, most of the risk takers get the highest rewards!

Individual Stock Prices Oct 2007 to Sept 18, 2009
Stocks	Oct-07	Oct-Nov 2008	Sep-09	Oct 2008 VS
Code	Price/Share	Price/Share	Price/Share	Sep-09
Ayala Corp (AC)	620.00	177.00	315.00	77.97%
BDO	63.00	23.00	36.00	56.52%
EDC	7.60	2.36	4.65	97.03%
First Gen (FGEN)	60.00	11.75	16.75	42.55%
Globe (GLO)	1720.00	725.00	990.00	36.55%
Meralco (MER)	83.00	47.00	170.00	261.70%
Megaworld (MEG)	4.40	0.56	1.48	164.29%
Robinsons (RLC)	20.75	4.75	10.00	110.53%
SM	382.00	170.00	320.00	88.24%
PLDT (TEL)	3070.00	1960.00	2300.00	17.35%

September 2008 was the month when the whole world was shocked and gave a frightening attention to another financial crisis after the Great Depression. Locally, Ayala Corp (AC) price decreased to Php177/share from its original price of Php 620/share in Oct. 2007. Likewise, notice its value as it increased to Sept 2009 at Php 315/share. If you invested in AC stocks from Oct 2008, your capital gain is already around 78% as of this month.

While you see how exciting it is to get higher rewards of gains in the stock market, the next question is “Do you have enough understanding, patience, personal research, and time to start by yourself in this type of stock investment?”

There are however other options available in the market. Such are the birth of Mutual Funds, UITF and Variable Life Investments. These types of instruments have their own fund managers who will choose the stocks for you. Let me give you a snapshot of these instruments.

Mutual Funds are types of investment funds that raise money from shareholders to invest in a group of assets such as stocks, bonds, and money market funds. Mutual Funds often have a minimum investment amount and a series of fees associated with them. The Securities and Exchange Commission is the governing body which looks on Mutual Funds companies who sell these funds.

UITF or Unit Investment Trust Funds are also similar to mutual funds but are sold by the local commercial banks in the Philippines and are under the supervision of Central bank.

Variable Life Investments (or Unit Link Investments) are sold by Life Insurance Companies and are strictly mandated by the Insurance Commission. Variable life differs from mutual funds and UITF because it has a life insurance component in nature. Many investors choose Variable Life because of its insurance bundled, and can be used for estate planning and tax purposes. It has also charges similar to Mutual Funds and UITF.

Whether you go into direct stock trading using a personal broker or online broker, or invest in mutual fund or join Variable Life investments, your choice for sure must always be dependent on your financial objective and should match your attitude on any investment decisions.

For inquiries, comments and suggestions, you can email me at engrmac@grand-holdings.com or get a copy of Money Matters article by visiting my website at www.grand-holdings.com.