With all the good things we hear about the Stock Market, are we to expect that more Pinoys are now investing there? Not really. Data from the Philippine Stock Exchange (PSE) reveals this –

In 2011, there were 505,054 accounts registered among all active trading participants, up by 1.3% from the previous year’s total of 498,838 accounts. Of the total 505,054 accounts, 478,362 or 94.7% were considered retail while 26,692 or 5.3% were classified as institutional accounts.

Here’s more –

Of the total accounts in 2011, 157,535 or 31.2% were considered active. Active accounts are defined as accounts that have traded at least once during the year. The number of active accounts in 2011 rose by 31.3% from the previous year’s total of 120,016 accounts.

What the numbers are saying is this – only a handful of Pinoys are invested in the PSE! 500 K out of over a 90 M population makes that a very small percentage – roughly 0.5% of the population. With all the gains of the market in the recent years, Pinoys could have taken advantage of improving their financial situation… but unfortunately, only a handful did. While I don’t expect a staggering percentage of Pinoys investing in the market because of its risk and complexity, 0.5% is just way too miniscule. By contrast, some countries have 30 to 50% (or more) of their population investing in their Stock Market directly or indirectly through funds.

There are reasons why people stay away from the Stock Market but the top two reasons I would like to believe is ignorance and fear.

Admittedly, the Stock Market requires some studying before anyone should enter it. I always remind people not to invest in anything you don’t understand; but the Stock Market isn’t also rocket science and I have faith that the average Pinoy would be able to understand equity investing – or at least 1/3 of our population can. Reading a starter book, researching over the internet or better yet attending a seminar will do wonders to enlighten Pinoys on what the Stock Market is all about. Basic understanding of how the Stock Market operates is a worthwhile endeavor for us Pinoys because we can really benefit by investing in it – at the same time help the country grow its capital market (a discussion for another blog). A healthy and robust stock market that is sizeable in volume is very good for the economy. Currently, the PSE is healthy and robust albeit with very little volume.

Fear is another issue amongst us Pinoy. It has been a noted fact the Filipinos are risk-averse in nature, meaning we tend to avoid risks especially in investing and business. Proof of which is our huge money in Savings account and Special Deposit Accounts. BSP numbers pegs bank accounts (Savings, Checking & Time Deposits) at about P 5 Trillion while Special Deposit Accounts (SDA) at approximately P 1.5 Trillion. A big chunk of the money of the Pinoys is not really being invested and definitely not earning properly. While Bank accounts and the SDA are really safe investments, their yields are almost certain to be below inflation rates which means that most of our money are really eroding in value.

My recommendation is this – let us all learn about investing because it is one of those things that will bring us financial freedom and it can empowers us. Let us also not be crippled by fear because if we risk nothing, we gain nothing and I don’t mean speculating or gambling our hard earned money away – we can learn to diversify and practice prudent investment planning. If individual investing in the Stock Market may be too much for us to bear, then I suggest we look at pooled equity funds like the UITFs or Mutual Funds as well. Regardless of investing directly or indirectly, I believe it’s time for Pinoys to learn and invest in the Philippine Stock Market.

My 2 cents.

Every time you watch a business channel or open up the business section of major newspaper, you will hear some news about the Stock Market. In today’s social media environment, you will also notice the proliferation of discussion with regard to the Stock Market. You will often read and hear reports on the Stock Market index going up or going down, rising or crashing. The Stock Market makes up an interesting news report or casual conversation among many it seems.

Why is the Stock Market creating such a buzz? Well, though a lot of people have lost money investing in the stock market, a lot of people also made money there too! There are many reasons why we should invest in the stock market even if it’s riskier than most other investment instruments and the biggest reason would be returns. Over a period, investing in the stock market has been proven to be a good hedge against inflation and figures can prove that the returns of investing in the Stock Market is worth the risk. Let’s look at some facts: If you invested in the Stock Market whether buying individual shares or through a pooled fund like a UITF or a Mutual Fund, you would have realized a return of about 30% per year. Had you invested 5 years ago, the yield will be lower at about 10% per year which is significant because all Stock Markets crashed in 2008 due to the Sub-Prime crisis. Even with one of the worst market crashes in history (2008) occurring, investors in the market would have still yielded good returns and those returns will outperform most other investment instruments like Bonds. As to whether the Stock Market will continue to rise in the next few years, only time will tell but the general contention of many is that the Philippine market will continue to surprise the world with its performance.

One more thing about the Stock Market is that you don’t have to be a wealthy person to invest in the market. A few thousands here and there and you can buy your shares – or with as low as P5,000 to P10,000 you can  buy into a Stock Market Fund, also known as Equity Fund through Mutual Fund Companies or the Bank (for UITF). The Stock Market is a very good hedge against inflation and it’s something we should always be concerned about. The growth of our investments should always outperform inflation rates over a long time, lest the value of our money will erode in purchasing power. Money’s value is really based on what it can buy, not on its absolute amount. Stock Market investing is very good for long termed objectives like retirement, education and others because of its high returns over a long period is great, well at least in theory.

I’ve asked two of my friends who are experts in Stock Market investing as to why we should consider investing in equities. Incidentally, both of them are named Marvin.

According to Marvin Fausto, Chief Investment Officer of BDO we should be investing in the Stock Market because “the Philippines is entering a new phase in the economy where most of the variables are pointing to a growth momentum. Interest rates are low, inflation is stable, our currency is strong and business confidence is high. It is by investing in blue-chip companies in the Stock Market where Pinoys can ride this momentum of growth and benefit from its long term investment returns.”

Marvin Germo, a Stock Market investor and educator (popularly known as Mr. Stock Smarts) thinks Pinoys should really consider the Stock market because “it is a tool available for everyone to hit their financial goals and at the same time take part in the growth of the country.”

… Catch part 2

Question: With all the uncertainties in the world economy and markets, is it still wise to make investments in the stock market now?—Kris C. Lim, public relations practitioner

Answer: I have been taking note of all the developments worldwide particularly the economic woes of Europe and the United States.  Downgrading banks, debt default scares, increasing unemployment, recession and political instability are becoming so common that many are referring to our present situation as the “new normal.” Egad, it sure feels that all the business and economic developments we are experiencing will result in the rewriting of all the books as we know it. I don’t blame you for being skeptical in investing your money—I would be, too, and I actually am.

‘New normal’

With the United States and Europe so far from us, should we really be concerned? Definitely. Today’s borderless world economy has resulted in more economies being interdependent with each other. The United States, Europe and Japan are the largest of all markets and even if Asian countries have better fundamentals (and yes, the Philippines is definitely included), we will all feel the pinch as we are all covered by the laws of supply and demand.

To simplify, when people start to make less money because of a weakening economy, they will buy less of the goods and services we offer and that will not be good. A weakened economy will usually have a negative effect on profitability of corporations, and stock prices will likewise go down. When economies are not robust, people are also fearful of the future and investment markets react negatively.

Make a killing or be killed

Now back to your question. Should you invest now when we are under the ‘new normal’ environment? Well, the answer can be tricky. There are two scenarios that can happen. First, you can actually take advantage of the low prices of stocks and start bargain hunting. When you properly select blue-chip stocks that are profitable, well-managed and have a lot of good potentials, you can be sure that their prices will rebound when the market starts picking up.

Some prices are now at their lowest in months and buying them may be a good idea. On the other hand, buying stocks today might also be like catching a falling knife if the market continues to plummet. There is always that risk and buying a lot of stocks today with the current market condition is tantamount to speculating. When one speculates, he can make a killing or be killed—that’s just the rule of risk and return.

Personally, I would probably start looking for good-quality stocks that are now trading near their 52-week lows; just make sure that these companies have strong fundamentals and continue to be profitable despite the condition of the economy. However, it is unwise to have a high exposure or a big part of your portfolio invested at this conjecture as the market can continue to go south with no real recovery anytime soon.

Investment options

The whole European situation continues to make people fearful and that will be a cloud over our heads for an indefinite period of time.

You may also want to just invest through pooled funds like the UITF or Mutual Funds and leave all the trading, buying and timing to professionals who are focused solely on investing the funds. Experts actively managing funds can minimize losses during bearish environment and improve gains on bull runs.

If you chose to invest now in the stock market, or at any time for that matter, it is always prudent to look at this asset class as a long-term venture to weed out the volatility, or spread the risk over time. Further, do not be in a hurry to invest the bulk of your funds just yet because when the market does recover, it will not do so overnight and you will have time to re-enter the market when the trends are more evident.

Just a friendly reminder whenever you invest in the stock market or any other investment—consider your investment objective, time frame and risk tolerance first and foremost.

Be wise, stay prudent and be patient.

Originally posted at the Inquirer http://business.inquirer.net/25557/do-we-still-invest-in-times-like-these