So honored and blessed to be featuring a guest blogger whom I respect and admire so much. Efren and I have been friends for quite some time now and he remains to be a role model to me and many ways. More than a colleague, Efren is a great mentor. More than an investment expert, Efren is a genuine advocate who practices more than what he preaches.

In this installment, Efren puts some wisdom on stock market investing. With so much attention and curiosity in stock investing, Efren’s wisdom is so timely and his balanced view is something that he is really known for — I take his insights and advise very seriously. 

Efren will be featured in iCon 2013: The No Nonsense Investments Conference this June 22, 2013 at the SMX. He will tackle the very important topic of investment planning. Check out the conference HERE

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Some Commandments in Stock Investing

by Efren Ll. Cruz, RFP

Question:Are there any rulesthat I should strictly follow in stock investing?– via email

Answer:To be sure, there are many rules to follow.  But here are some that immediately come to mind.

1) Do not make money a graven image.  Money has always been and will always be just one of the tools to achieve the more important things in life. The same goes for stock investing. Don’t get me wrong though. Money and stock investing are important tools. Just don’t let your life revolve around them as if they were the reasons for being. And when you make money, don’t forget to whom the glory belongs.

2) Forget about buying at the bottom and selling at the peak. Your chances of buying at the lowest point and selling at the highest level is as slim as winning the 6/55 lotto (about one in nearly 29 million). Why? Because you will only know that a particular price is either the lowest or the highest after the fact. Worse, you may not have even placed your order before then.

3) You beta watch out, you beta not cry. Stock prices tend to move together.  It’s just that some move faster than others.  A way to measure this relative movement is to measure a stock’s beta.  Usually, a stock’s beta is measured against a broad market indicator like the Philippine Stock Exchange Composite Index or PSEi. Operationally, if a stock’s beta is 1.5, and the PSEi made a 2% return, that stock should make a 3% (i.e. 1.5 x 2%) return.

A higher beta would mean a stock with a more volatile and, therefore more risky behavior vis-à-vis the PSEi. This is not to say that stocks with high betas should be totally avoided.  You just need to match your risk tolerance with that of the stock you are buying. In other words, buy with eyes wide open. You don’t need to perform the computations for deriving beta as you can simply ask for them from your stock broker.

4) Investment decisions have manufactured and best before dates. Do not cry over spilled milk as they say.  If you are truly diligent in studying your options before investing, you would always make the best decisions given the information available to you at the time.  However, the only thing that is constant in life is change itself. Your investment decisions will have a shelf life as many factors can change with the underlying companies you bought.  So make it a habit to review your investments periodically.  Once a quarter should be good enough.

5) Do not covet your neighbor’s allocation. Even if someone comes up to you to brag about the tons of money he made from a certain investment allocation,that is his allocation and not yours.  You will need to come up with your own according to your own return objectives and risk preference.  How else will you be able to tell your own story?

6) Do not get too excited with breaking news. Stock investing is manic-depressive.  Keep your cool when you come across exciting news. In the first place, if it wereexciting news about a certain stock, it would already be a time to sell that stock and not to buy it. You are supposed to buy before the news breaks. More importantly, it is the long-term earnings and growth prospects of the underlying companies you boughtthat you should focus on.

There are much more stock investing commandments to write about.  But the foregoing should give you enough to chew on for a while.

Thanks to Randell for allowing me to post this guest blog.  More power to you my dear friend.

Efren Ll. Cruz is a Registered Financial Planner of RFP Philippines, personal finance coach, seasoned investment adviser and bestselling author. Questions about the article may be sent by SMS to 0917-505-0709 or emailed to [email protected].

Copyright 2013 Efren Ll. Cruz, RFP.  All rights reserved. This material should not be published, broadcast, rewritten or redistributed without the express written of the author. 

I am honored to have a guest post by my good friend Edmund Lao. Edmund is a Registered Financial Planner and a columnist for Business Mirror. He is also in the forefront of financial literacy for Filipinos.

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The Right Education by Edmund Lao

Education  is the formal process by which society deliberately transmits its accumulated knowledge, skills, customs, and values  from one generation to another. Whatever knowledge we acquired from experiences, experiments and discoveries of the past generations became the basis of our education today. Without formal education nowadays, one is surely bound to be bracketed in lower caste. Such importance is given to education that the status of a person depends on what school school he or she graduated from. Taking a look at the present , it cannot be denied that education has become a luxury already. In the early 80s, tuition fees cost only around Php 50 per unit. Tasking a full load will mean only around a thousand per semester. Nowadays, the fees range from Php 30,000 to Php 200,000 per semester. Worse, the quality of education is not even at par with that of our Asian counterparts.

Just imagine the hardship all the parents have to endure just to have their children finish schooling. Then when the graduate finds a job, unless he comes from an exclusive school, the compensation he will receive pales in comparison to the expense incurred to finish his course.

Then the new graduate will be in the rat race, taking the same road traveled by The Tired, The Retired, and The Re-Tired. This is because our current educational system gave too much emphasis on the technical aspect. Our system gave little importance to teaching the basics and the values to our generation. Ever wonder why we have corrupt people in the government and in the workplace? The only culprit is the lack of right education. The more information and knowledge we have now, the more ignorant we become. The more ignorant we are financially, the more risk we make in handling our finances. Just observe. If really we are more educated especially in this high technology age, why are there more people who cannot make both ends meet despite the fact that they are earning good income? The painful truth is that more and more people are having low emotional and financial intelligence quotient.

To a certain extent, Robert Kiyosaki was right in saying that our current education system is designed to make us employees rather than entrepreneurs.  His biological dad had an excellent education and great job, yet constantly struggled for wealth. His “poor dad” followed all the rules, yet died penniless. His best friend’s dad, on the other hand, dropped out of school but always asked himself how he could make more money. The “rich dad” was a savvy businessman and investor, however, and become very prosperous. We have also our version of Rich Dad in the persons of Henry Sy, John Gokongwei, Lucio Tan, etc. They never finished schooling but they knew the basics of creating wealth. I am not emphasizing that our youths drop out of school and become wealthy. What I am driving at is that

unless schools modify their curriculum, definitely there will be more future “poor dads”. Their experiences and the basic principles of finance can be shared to inspire the students to emulate them in terms of growing wealth the righteous way… Doesn’t it the progress of a country depends on the citizens comprise it? If majority of the people belong to the poor bracket, no matter how good the economy of a country is, it will still belong to the so-called Third World countries. Just take a look at our more progressive neighboring countries and see the difference. Most of these countries have a savings ratio of more than 30% while we are at around 15%. The only way for a country to upgrade its current status is to help educate its citizens be financially aware.

There are two viable solutions:

First is to teach children at home and create the mindset and habit of saving money. I,  for one, teach my kids by example. It is very important to practice what you want to teach. I have my own piggy bank to show them I save and now they have their own piggy banks. Whenever I give them coins, they automatically put it into their piggy banks.  What RFP Randell Tiongson said is true, that personal finance is 80% behavior and 20% knowledge.

Second is to include personal finance as a curriculum starting from elementary up to college as a continuation and strengthening of what was learned at home.. To some, personal finance is boring but it depends on the professor. In fact, having heard RFPs like Randell Tiongson, Efren Cruz,  Alvin Tabanag speak, I can say that they help create interest and excitement in the minds of the audiences. Schools have been including minor subjects which have no bearing on the course.  Why not include personal finance subject which can create positive impact on their lives later. If the government wants to create a progressive Philippines, then make financial education an investment that will give the country an unlimited return.