50% return in a year

By Randell Tiongson on May 16th, 2010

The whole nation is busy with watching and discussing about politics these past few months. The election was really something that us Pinoys love to spend our time with, campaigning for our candidates and all that – a cycle we go through every 3 years (during elections). Had we been in the U.S. or some other developed nation, people will be busy talking about what’s happening at the stock market.

So what is happening to the stock market? People have discounted the market as a place to invest money into partly because of the recent world-wide financial turmoil, but largely because of financial ignorance. Here’s what you miss… in the last 12 months, our local stock market index or the Phisix has steadily been increasing. A year ago, the index was at about 2200 points. As of yesterday, the market is hovering at about 3200 points. Simply put, had you invested P 1,000.00 in May 2009, your money would have grown to about P1,500 today – a whopping 50% annual rate of return.

Our local market has been performing positively and to the few who took a risk of investing a year ago, they are smiling today. I know of a lot of people who purposely stayed away from the market because they say that during an election year, one should stay off investing.  I don’t why we torture ourselves of doom and gloom scenarios every time we elect our leaders anyway. For those who were paralyzed with our periodic doom and gloom fantasies, you missed making your portfolio grow by a enormous 50% return!

Does this mean that you should go and empty your bank and head on to your stock broker? Wooah! Hold your horses. The stock market, though it gave a very good performance in the last 12 months, is still not for everyone. One should go through a process before making any investments regardless if it’s buying stocks, bonds, mutual funds, uitf, real estate or any other form of investment. Remember to be clear about a few things first: your investment objective, your risk tolerance, your time frame and your risk tolerance.  If investing in the stock market will help you achieve your financial goal, you can take the volatility of market, you are willing to leave your money for a while and you have rudimentary understanding of how the stock market works – then go! However, if you will lose a lot of sleep (and sanity) whenever the stock market moves south, don’t go there even if you can see surges in the market like 50% in a year.  Remember, an investment that can give you a 50% hike in a year can also make you lose as much in the same period. Returns will always be determined by the risks you take – always has, always will! I can’t believe there are still detestable beings preying on the innocent (or the ignorant) making them believe that what they offer is high yield but low risk. Whenever someone offers you an investment that will make your money grow with very minimal risk, he is either misrepresenting or he is scamming you.

Will the market continue on an upward trend like the last 12 months? I have no idea. All I know is that what goes up must come down at some point. However, if you are willing to be patient and will not mind the gyration of the Phisix, then go ahead and allocate part of your money but always be prudent and sensible. Do not put all your eggs in one basket and diversify. If you are not comfortable with letting go of your money, always remember that the money you do not invest will be safe but it does not mean that it will not lose value. Inflation is constant and an invisible risk we are all exposed to. Here’s a very sensible tip that I got from my good friend Efren Cruz: “Invest early, invest wisely and invest regularly”.

“After a long time the master of those servants returned and settled accounts with them.  The man who had received the five talents brought the other five. ‘Master,’ he said, ‘you entrusted me with five talents. See, I have gained five more.'”His master replied, ‘Well done, good and faithful servant! You have been faithful with a few things; I will put you in charge of many things. Come and share your master’s happiness!’”

-– Matthew 29:19-21, NIV

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7 thoughts on “50% return in a year”

  • timing is everything!USUALLY when you see reports like this, that means its not time to invest already because of high prices=)right bro?

  • Not necessarily… the market can go both ways still. Personally, investing in the stock market is not so much about timing but rather about time.

  • Hi Randell!

    This is a very nice article. Fortunately, about the same time last year, I invested in Aboitiz Power. That time, the index was at 2,200-2,300 level. It earned me 200% in just a year.

    People should indeed take advantage of the dips and low levels when the opportunity presents itself again.

    =)

  • @ Noel, depends on many things that you are looking for. I recommend you read a lot about stock investing and consult a reputable financial consultant/planner.

  • Hi Randell, I agree with your statement that people tend to be cautious in investing during the election period. In reality, you cannot blame the human instinct, esp when there’s a presidential candidate/s who is capable of ruining the current economy. One financial concept I like (other than compounding) is cost averaging.. Invest even when the market is low/bad. regular investing will make sure you capture the potential gain when the market is recovering. Just like what Kendrick has pointed out, he invested in a power company when times are not yet favorable. Then when the need for power arose (during this el nino and hot summer season), there goes your 200% profit! But this is not just a walk in the park decision. Technical & fundamental analysis is also a key factor in the decision making.

    @Noel – If you’re not ready to pick your own stocks and do those strenuous computational analysis, you could always go for the mutual funds/UITFs. Let the professional fund managers do all the hard work for you. =)

  • Excellent article, Randell. I would also like to add that the PROPERTY SECTORAL INDEX of the PSEi returned significantly more:

    100% to 400%+ in the past 12 months.

    I agree with Sherwin. People were overly cautious especially one year prior to election. However, when investing in the market, always keep in mind PESO COST AVERAGING (PCA).

    When the market is at a normal pace, invest “x” amount. When the market is high, invest the same “x” amount. When the market is really low, invest the same “x” amount (and preferably more).

    By doing so, the end result is that the value and number of shares will be greater. But I believe that the more important lesson with PCA is how the Filipino investor develops a habit of investing regardless of market conditions. PCA good habits over time will outperform any day-trader and market timer!

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50% return in a year