Updated: December 16, 2013
Let’s do a round of Reader Mail today because I’m sure many of you have these questions in your mind.
We’ll focus on stock investing and trading inquiries, which I’ve received over the past few weeks.
Actually, a good number of them came this week, as the Philippine stock market continues to be dominated by the bears.
Anyway, I hope that these answers about the stock market can help you in your investing or trading activities.
So without further ado, here are the three most asked questions to me about the stock market in the past several days.
The market is going down, should I sell my shares?
Why did you put your money in the stock market? Your answer will dictate what you should do.
If your goal was to trade shares for quick gains, then look at the support level of the companies that you own. If price has already broken down, then you might as well sell your shares and cut your losses.
If you bought fundamentally stable companies, then your other option is to hold on to your shares until you get out of the red territory. This could take a few years.
Now, if you were value investing in shares because you’re in it for the long-term, then you should definitely hold on to your stocks.
I’m saying that you should hold because I’m assuming you bought blue-chip stocks, or companies that show the GEMSS criteria.
What’s a good stock market trading strategy?
I haven’t traded stocks for a while, so I can’t really say. Back then, my strategy was to buy companies when they rally beyond a significant resistance level on the daily chart. It’s a simple strategy that worked for me back then.
But from experience, success in trading is not just from having a good strategy, but also in having the discipline to follow it.
I’ve seen many traders who succumb to emotions when trading and break their own rules, and thus making it harder for them to validate their strategies if it’s effective or not.
Also, you shouldn’t use just one trading strategy, but have many, which you apply depending on the behavior of the price, the company fundamentals, the chart patterns and time frame that you’re trading.
Lastly, you should try to find the trading strategies that work for you, that complements your personality – don’t be content in just copying what others are buying and selling because you will not grow as a trader this way.
If you were to pick five companies in the stock market, which would you choose?
I’d choose Ayala Land (ALI), Banco De Oro (BDO), Jollibee (JFC), Meralco (MER) and SM Investments Corp (SM).
Why? Because they’re fundamentally stable companies from different industry sectors. I actually have shares of all these companies.
Again, just because I have these companies doesn’t mean you should buy them too. I chose these stocks because I believe they can help me achieve my investing goals.
Your investing goals are different from mine, which means there might be other companies that could be a better choice for you.
So how do you choose which companies to buy?
First, define your target value and your time horizon, then know how much money you can afford to invest and see if the company’s historical growth can help you reach your target.
This is not a “sure-win” method, but at least you’ll be doing a good guesstimate. Remember that investing in the stock market is high-risk, so be sure your risk tolerance is appropriate.
Disclaimer: All information is provided for educational purposes only and should not be taken as professional advice.