People have a lot of misconceptions about stock-market investing. Most of the time, because of these misconceptions, they end up not investing in the stock market at all, thereby missing a great opportunity to take advantage of probably the greatest money machine man has ever invented.
Myth #1: You need lots of money to invest in stocks
This is probably the No. 1 reason people don’t invest in stocks. They think it requires lots of money. This, of course, is not true. Of course, the bigger the amount you have, the better the return will be since you invested a larger amount in your account and you can buy more and take advantage of opportunities. But to start investing, a big amount is not required. The actual amount for investing in stocks will vary depending on the price. Also, there is a required minimum of shares one can purchase. This is known as the “board lot.” To know the minimum amount required to purchase a certain stock, simply multiply the board lot by the current price per share. As to the board lot of each stock, you can get this information from the Philippine Stock Exchange web site. So what is the estimated minimum required to purchase stocks? Well, one can start purchasing even if one has only P5,000! (As this is the minimum initial investment required by some online brokers). To give you an example, the board lot for Jollibee Foods Corp. (JFC) is 10. The current market price is around P230. So 10 X 230 = P2,300. (Plus transaction fees, etc., but these are minimal). As you can see, you do not need lots of money to start investing in stocks.
Myth #2: Investing in stocks is complicated
Not really. But I have to admit it requires some work, although not that complicated. People get the impression that stock-market investing is complicated because they see market participants reading seemingly complicated charts, discuss esoteric theories and principles, and speak in a language ordinary people cannot understand. But there’s good news for you! You don’t need to learn all the complicated stuff just to invest in stocks. Now, don’t get me wrong. Some high-sounding words, principles and theories in stock-market investing were developed by brilliant people and have been used in the fields of finance, economics and mathematics. Some of the theories and principles are good for investing and some are not. However, take note that the stock market is just too volatile and too sentiment-driven to be guided by solid scientific principles. As Isaac Newton once lamented when he lost a fortune in the South Sea Bubble, “I can predict the motion of heavenly bodies, but not the madness of crowds.” What I want to emphasize is that you don’t need to learn all of that to start investing in the stock market. What you need is a basic understanding of financial statements, some business sense and some down to earth common sense. You will need to learn to read a financial statement although you don’t need to go through the entire gamut of accounting principles and theories.
Myth #3: Stock-market investing will make you an overnight millionaire
The best way to approach the stock market is to approach it from a business perspective. After all, buying a stock is buying a business, since a stock represents a portion of a business.
If you take this view, then you understand that stock-market investing does not make you an overnight millionaire. You can’t expect to start a business today and sell it for a million pesos tomorrow or next week. Businesses need time to grow in value. Similarly, to get constant solid returns from the stock market, you need to wait for your portfolio to grow in value. The stock market may be the greatest moneymaking machine invented by man, but it’s a machine that takes time to work. If you want to be an overnight millionaire, then the stock market is not for you. Better pack your bags and head to Vegas, where if you are lucky, you will be an overnight millionaire if you do not end up losing your shirt like the thousands of other people who are also still recovering from a hangover.
To be continued
Zigfred Diaz is a registered financial planner of RFP Philippines from Cebu City. To learn more about stock-market analysis and value investing, attend the eighth Accredited Financial Analyst (AFA) Program from August 6 to September 10. To register, e-mail email@example.com or text <name><e-mail> <AFA> at 0917-9689774.