Growing Your Money with Stock Market Investments

The stock market is one the vehicles that is available for an ordinary investor to grow his wealth. Investing in stocks is basically purchasing shares of publicly listed companies thereby giving the investor the right to participate in the earnings of the company as well as to affect the company’s operations by participating in the stockholders meeting.

There are two ways on how an investor grows his money through the stock market. One is by receiving interest in the form of dividends and the other one is through the appreciation in value of his shares of stocks.

Dividends are simply the distributed portion of a company’s earnings to its shareholders. It can be in the form of cash which is called cash dividends or it can be in the form of additional shares which is called stock dividends. Dividends unlike interest are not fixed. It is at the discretion of the Board of Directors of the company whether they will declare dividends or not.

Capital Appreciation, on the other hand, is the increase in the market value of the stock over time. This happens during good economic conditions coupled with the company making announcements on developments and strong corporate earnings. Appreciation in value also involves market demand on a stock. The higher the demand for a certain stock, the higher the price will be.

There are a number of reasons why stocks rise and fall in value. If a company is doing well, most probably the stock will rise however there are other factors that affect rise and fall of the markets. Economic factors certainly play a big role. If the overall economy is good, the stock market would probably in an uptrend and the opposite happens when the economy is not performing. On the other hand, disasters, wars and commodity prices also affect and influence the movement of the markets.

Stocks can be purchased in the National Stock Exchanges through local brokers. Stocks that are available to local investors are the ones that are listed in the secondary markets and on over-the-counter markets. The New York Stock Exchange and the American Stock Exchange are two of the major exchanges in America. The Securities and Exchange Commission (SEC) protects investors and oversees all the corporations listed in the local stock exchange.

Before investing in stocks, it is important to know the investment objective and the risk appetite of an investor. This will determine the type of stock that will suit his investment style. Income stocks are those that provide revenue to the stock holders in the form of dividends. This type of stock is suitable for an investor that needs recurring cash flows from his investment. On the other hand, Growth stocks are companies that reinvest profits instead of paying out dividends to help sustain growth and increase the size of the company. This type of stock is for younger investors looking for long term capital growth. Moreover, there are also speculative or penny stocks which are usually companies at their start-up phase or companies that are small but have good future prospects. Speculative stocks as the name implies are the most risky of all stock investments but these investments can also give the highest potential return. These category of stocks are for investors looking for high returns in exchange for higher risk.

The next step in investing is for an investor to decide where to put his investment capital and to choose his investment style. This is a decision that needs to be made by the investor after considering the above factors. A style that works for many investors is the buy and hold strategy. This consists of purchasing high grade stocks that have attractive valuations, reinvesting dividends and holding on the position for a long period of time.

Stocks offer the potential for higher returns specially if taken as a long term investment. Because of the volatility in the markets, stocks are not appropriate to be a vehicle for short term investments. A well managed portfolio of stocks can give a return of as high as 18% per annum on a compounded basis.

Having said that, choosing the right companies that will comprise an investors portfolio is a crucial part in order to make money in the stock market. That is why seeking professional advice can certainly help an investor in making sound investment decisions and thereby growing his wealth in the stock market.

The Simplest Financial Plan I Ever Learned pt.4

Spend 70%

Now, here is the last part of my 4 part financial plan. I sure hope you learned something from my past posts. Well today, I’ll be teaching you about spending. Hmm.. quite catchy huh? Because nobody needs to be taught on how to spend. But I believe that there is a right way to spend in order to survive with only 70% of your income and the first part of that is…

Mindset

Hmm. Mindset? Let me explain. Most people will tell me that it is impossible to live on 70% of their income because even with the 100% of their income they still need to borrow money, how much more with only 70%.

I believe that what we have is a problem with mindset. Ok, Suppose your earning P25,000 per month. Most probably you had a P25,000 lifestyle and of course you survive with P25,000 a month right? Of course you did or else you won’t be able to read this post. Now let’s put things in a different perspective. Let’s play with your mind. Why not think that you are only earning P17,500/month. That is actually 70% of P25,000. Would you survive? I bet you would. Even if you are only earning P5000 a month you would still manage to survive. Right? So what we need is just a shift in mindset. This will entail a lot of sacrifice but believe me, it’s worth it.

Wants and Needs

The other problem is the way we define our wants and needs. According to one of the books I have read, if you wanted something bad enough then it becomes a need. I believe that there is some truth to this and this is precisely the reason why most Filipinos are drowned on debt. We must learn to identify our wants against our needs. That’s the first step then you begin to think of ways on how you can earn more in order to augment your income so that you will be able to buy the things you want without compromising your 10% and 20% funds.

Money Management

I believe that this is as important as the other two as I believe in money management myself. Others call this budgeting but I prefer to call it as money management. Because I believe that the cause of lack and poverty is not because there is not enough resources but because of mismanaged money.

So how do you start your managing your money. First, is by writing down all your expenses each month. I believe that this is a vital part of financial planning because you have a good view on where each centavo goes. Next is plan on how you will spend your 70% to the last centavo of course. Well if you can spend less than your 70% then congratulations. It means you can increase your savings or you can use that money for anything you want (By the way, don’t forget to include your wants budget in planning for your expenses. We all need that).

Last Note: I would like to clear out something before I end. I am not writing all of these stuff to give you a hard life. Maybe your thinking  that what I’m suggesting will lead to a life that is full of sacrifices. No, that’s not it. That is why I want to leave you with something encouraging. I got this slogan from Millionaires Act. A popular blog on personal finance as well. It says Earn More, Desire Less. I believe that this is the key to prosperity and to financial freedom.

It has been my habit that if I want something bad enough then I would look for other ways to earn money without hurting my budget so that I can buy the stuff I want and still continue living within my financial plan.

That is something we should all strive for. To learn how to earn more and to desire less and with that I end my simple financial plan. I hope you learn something from me. I hope you can also share your thoughts by commenting below. J

How to Find Opportunity in a Bad Financial Market

Global Markets have been experiencing volatile movements in the past few months sparked by concerns in the Greek economic debt and the European economy. A lot of investors are now pulling money out from the markets on fears that another economic recession might occur. However, according to market experts, investing in the stock market presents a rare investment opportunity during times of recession and market volatility.

Ironically, this time of market uncertainty is generally the best time for an investor to be buying stocks. In fact, it is during the time of recession when some of the greatest investment opportunity presented itself to some of the world’s wealthiest investors. If an investor is smart enough to take advantage of the situation when they can buy stocks for less than what they are really worth then they will be handsomely rewarded once the market started to bounce back.

Remember that poor economic conditions can affect the market as a whole however as long as there is nothing wrong with the company where an investor puts his money i.e. the company has recurring earnings, strong balance sheet, great management team and huge growth potential then an investor can be confident and assured that the value of his investments will surely bounce back to its fair market value once the economy recovers.

It is perfectly normal for the economy as well as the markets to experience booms and busts along with the economic cycle. But as we all know, America is resilient and we know that America will keep growing over time which can be proved historically. Therefore, the economy will rebound and continue to reach new highs and those who took advantage of the great opportunities during tough times will end up with enormous wealth. 

 

Having said that, here are some tips an investor can use in picking stocks during times of economic turmoil and market volatility to take advantage of the rare investment opportunity present:

Look for companies that have double or triple digit growth.  In spite of other drawbacks, a company with massive growth will not be too much affected by the slowdown in economy.

Pick stocks that are undervalued relative to the company’s intrinsic value. Companies with low debt, steady growth and strong earnings are the ones to look out for. This can be seen through the company’s assets, liabilities and cash flow position.

Select companies that have economic independence and those that are not vulnerable to the swings of the U.S. economy. Examples are companies that derive most of their revenues from overseas.

Opt for defensive stocks that focus on food, healthcare and utilities. These companies thrive no matter how the economy is doing and these companies provide the necessaries that even in economic downturn will continue to earn revenues and make profits.

Choose companies that offer a high dividend yield. These companies will be like shelter in a storm and will provide income even in difficult times.

Another tip an investor can do during times of market volatility is to break up his purchasing throughout the year instead of investing money to buy as many shares possible all at once. Using this technique, an investor can buy more shares with his money rather than if he purchased them all at once. Many of the world’s wealthiest individuals made their money using this technique of buying bargained stocks and holding on to them until the markets recovered. 

  

Lastly, value investors are the ones that looks at the intrinsic value of a stock and buys a company that is significantly undervalued and those that are selling at a huge discount. They are the ones who start accumulating shares when everyone is selling and they believe that a fortune can be created when they take advantage of the buying opportunities present during times of market volatility and economic downturns.

The Simplest Financial Plan I Ever Learned pt.3

Invest 20%

Ok, today let’s talk about investing.. but before that I would like to talk about the concept of “PAYING YOURSELF FIRST” Maybe most of you had heard this statement quite a few times but let me ask you, are you practicing this habit?

So what is paying yourself first by the way? Simple. It simply means that you have to set aside some money for yourself first the moment you receive your paycheck or any income for that matter.

The next question is, by how much? Now, here’s where our topic focuses on. I say at least 20%, financial planners say at least 20% and the Bible says 20%. Huh? How did the scriptures get in here. I thought this is blog post is about investing? Well, you see, the Bible is one of the best sources  of financial planning. Really? Yes. And the concept of investing or saving 20% came from the story of Joseph the Dreamer. Do you still remember that story? I hope you do well if you don’t then let me summarize that for you.

Ok, here it goes “The King of Egypt had a peculiar dream that no one among his counselors could explain. Until God told Joseph to explain to the king what his dream meant. Joseph did explain to the king and told him that his dream foretells a 7 year of bountiful harvest to be followed by 7 years of famine that will strike upon Egypt. So what did he tell the king to do? Save 1/5 of the harvest during the season of abundance and they can survive the famine.”

Wow, 1/5 or 20%, isn’t that amazing that even the Bible taught us about investing. So now your asking, what happens next when I invest 20% of my income. Here’s what.

Do you know…

That if you will invest P5000/month(Well that means your earning at least P25,000 a month) in an investment vehicle that will yield at least 12% per month compounded then you’ll end up with…

P1,150,193 in 10 years

P4,946,277 in 20 years

P17,474,821 in 30 years

P56,667,739 in 40 years

Hmm.. not bad huh? Even if you consider inflation and the devaluation of the peso I bet you can still buy a lot of things with P56 million. Right? And I think you can already have a comfortable retirement with this amount.

Am I making this up? No, I don’t and if you’re skeptic with the figures then you can consult your financial advisor if you have one. By the way to add credibility to this you might want to check my older posts specially the one entitled Investments and Compounding Interest: Do they really work?

 

So that’s it for now, I sure do hope that you learned something from this and you will start practicing the habit of paying yourself first. Well I must say that it’s quite hard at first specially that you have to make some sacrifices and lifestyle adjustments. But every good thing in life entails some sacrifice right. So let me leave you with this question.

 

“Sacrifice now, enjoy later or Enjoy now then sacrifice later? Your Choice”

How to Retire in 3 Years or Less pt.2

Ok, I know you’ve been quite anxious waiting for this blog post so as promised here it is. Hmm… so how should I start telling you his secret. Well, as I mentioned in my previous post he only did three things. Let me explain each in detail.

            He used geometric progression and took a massive risk.

            He invested at the right time and at the right place.

           He was patient enough to wait for his investments to grow immensely. 

Before I expound on these things further let me give you some trivia on my friend. First is that he does not have any stock market experience or whatsoever. According to him, he is just the luckiest person alive and I can attest to that. Second, he does not even know and use technical analysis (by the way, technical analysis is the use of charts and patterns in trading markets) to time his trades. He just buy them on speculation and it always works for him. Lastly, he started investing with P3,000,000 and according to him that was his lifetime savings. Great story huh? And one thing I admire from him is that he didn’t change his lifestyle after making a lot of money.

Having said that let’s go over the things he did in order to make millions in the stock market.

First, he used geometric progression. What is geometric progression again, it means that after he doubles his money in a stock, he pulls it all out and then places it in another stock and doubles it again. That is geometric progression, in other words what he did was invested the P3M made it P6M pulled it out, invested it again and until it doubled to P12M then pull it out again and invested it again until it became P24M and eventually to P44M or “$1,ooo,ooo”.

Next, he invested in the right time at the right place. Well its quiet simple, he invested in October 2008 near the bottom of the recession and guess what? He was  able to get prices at a bargain. Well, you might be thinking how cheap stocks were at that time. Let’s just say that he was able to invest in JGS when it was a P1.00 a piece and where is JGS today… P25/share. WOW… just imagine if you invested P1M back then. It’ll be valued at P25M today…after two years, not bad for an investment huh?

Lastly, He was patient enough to wait for his investments to grow immensely. Well I know many investors who made money in the global economic recession back in 2008 but the problem is most of them reaped their gains early on. But that was not the case with my friend, he was able to hold on to his investments through the ups and downs of the market and eventually he was able to reap great rewards.

After hearing his story, I realized that there is really some truth behind the investing values of the legendary Warren Buffett and that is…

“Be fearful when others are greedy and be greedy when others are fearful”

It worked for my friend… maybe it will work for me and us too…in the future J

The Simplest Financial Plan I Ever Learned pt.2

Give 10%

I put this first because I believe that giving back to the source of all our blessings is the most important of all. This is more commonly known as tithing. I, myself had not been practicing this for many years but when I became a member of Light of Jesus Community and under Bro.Bo Sanchez’s teachings I learned to tithe. At first it was hard. Of course it was, that was 10%. Imagine if you have a P10,000 that means you have to give P1000. No excuse. But more importantly you must give from the heart. 

Now I can here you saying, “So what do I get when I give?” 

Honestly, nothing. 

But I believe in the miracles of tithing or so to say that I have experienced it myself. We can never out give our creator. If we give we open ourselves to the abundant blessings available in the universe. It’s a law by the way… That whatever you give you shall receive. What you sow, you shall reap. 

I know it can be hard at first but here’s my suggestion for you. Why don’t you try it and experience the miracles yourself. Start by giving a smaller amount and increase it over time until it reaches 10%. Oh, by the way 10% is not the highest amount you can give, it’s just a good way to start. If you can afford to give more than 10% of your income in the future then that’s better. 

Maybe your asking “Why tithe if I can just give the money to my favorite charity?” That is also a good idea but you see, giving to a charity is alms giving. It is not tithing. Tithing is the act of giving first to God and acknowledging that everything we have belongs to him. 

Ok, enough about tithing lessons for now. Maybe this will convince you better to give. According to my mentor, Mr. Rex Mendoza: “If you cannot give P1000 or 10% of P10,000 to God, then definitely you cannot give P100,000 or 10% of P1,000,000 to Him. Both are 10% and I assure you, you’ll never have a million pesos.”   

Steve Jobs Speech – Three Stories from my Life pt.3

This is the third part of the speech of Steve Jobs for the graduating class of Stanford University. This part talks about living your life to the fullest each day. Hope you will be inspired. 

My third story is about death.

When I was 17, I read a quote that went something like: "If you live each day as if it was your last, someday you'll most certainly be right." It made an impression on me, and since then, for the past 33 years, I have looked in the mirror every morning and asked myself: "If today were the last day of my life, would I want to do what I am about to do today?" And whenever the answer has been "No" for too many days in a row, I know I need to change something.

Remembering that I'll be dead soon is the most important tool I've ever encountered to help me make the big choices in life. Because almost everything — all external expectations, all pride, all fear of embarrassment or failure - these things just fall away in the face of death, leaving only what is truly important. Remembering that you are going to die is the best way I know to avoid the trap of thinking you have something to lose. You are already naked. There is no reason not to follow your heart.

About a year ago I was diagnosed with cancer. I had a scan at 7:30 in the morning, and it clearly showed a tumor on my pancreas. I didn't even know what a pancreas was. The doctors told me this was almost certainly a type of cancer that is incurable, and that I should expect to live no longer than three to six months. My doctor advised me to go home and get my affairs in order, which is doctor's code for prepare to die. It means to try to tell your kids everything you thought you'd have the next 10 years to tell them in just a few months. It means to make sure everything is buttoned up so that it will be as easy as possible for your family. It means to say your goodbyes.

I lived with that diagnosis all day. Later that evening I had a biopsy, where they stuck an endoscope down my throat, through my stomach and into my intestines, put a needle into my pancreas and got a few cells from the tumor. I was sedated, but my wife, who was there, told me that when they viewed the cells under a microscope the doctors started crying because it turned out to be a very rare form of pancreatic cancer that is curable with surgery. I had the surgery and I'm fine now.

This was the closest I've been to facing death, and I hope its the closest I get for a few more decades. Having lived through it, I can now say this to you with a bit more certainty than when death was a useful but purely intellectual concept:

No one wants to die. Even people who want to go to heaven don't want to die to get there. And yet death is the destination we all share. No one has ever escaped it. And that is as it should be, because Death is very likely the single best invention of Life. It is Life's change agent. It clears out the old to make way for the new. Right now the new is you, but someday not too long from now, you will gradually become the old and be cleared away. Sorry to be so dramatic, but it is quite true.

Your time is limited, so don't waste it living someone else's life. Don't be trapped by dogma — which is living with the results of other people's thinking. Don't let the noise of others' opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.

When I was young, there was an amazing publication called The Whole Earth Catalog, which was one of the bibles of my generation. It was created by a fellow named Stewart Brand not far from here in Menlo Park, and he brought it to life with his poetic touch. This was in the late 1960's, before personal computers and desktop publishing, so it was all made with typewriters, scissors, and polaroid cameras. It was sort of like Google in paperback form, 35 years before Google came along: it was idealistic, and overflowing with neat tools and great notions.

Stewart and his team put out several issues of The Whole Earth Catalog, and then when it had run its course, they put out a final issue. It was the mid-1970s, and I was your age. On the back cover of their final issue was a photograph of an early morning country road, the kind you might find yourself hitchhiking on if you were so adventurous. Beneath it were the words: "Stay Hungry. Stay Foolish." It was their farewell message as they signed off. Stay Hungry. Stay Foolish. And I have always wished that for myself. And now, as you graduate to begin anew, I wish that for you.

Stay Hungry. Stay Foolish.

Indeed we must learn to stay hungry and to stay foolish everyday. Stay hungry for new opportunities and  new beginnings. Stay foolish so that we may always be ready to learn and to grow.  I hope that you have learned much from this speech as much as I did. Until then. Stay Hungry. Stay Foolish.