So why does long term investing is a good idea than a short term trading.
Let me sight you a historical graph of PSE. As you notice there are uncontrollable events happens on the economy every time.
There are People power, Ramos Power Crisis, Global Financial Crisis and etc name it.
But notice that the trend of market are still upward.
Well the past performance will not guarantee future performance but somehow it does gives you an idea where the market goes.
So if you are new to investing and you're thinking of trading whenever you marked a certain profit in your portfolio you also be missing a very profitable strategy of cost averaging.
So whats cost averaging strategy?
Basically it a style of trading where you invest money in regular period it maybe monthly or quarterly it depends on you. You invest it no matter where the price are but it must be better you invest on time of red market when the price of stock are on bargain so that you can able to buy more shares.
When you do this strategy you'll be minimizing the risk on market fluctuation.
For example. If you bought expensive share today by 100 share at 10 peso price per share and suddenly it get to 7 peso per share better buy again at that price to lower the original 10 peso price per share that you both initially. Your current price should be now at 8.5 plus tax. It works now when that share hits 11 up for example. Because it maximizes the number of your share and giving you more profit.
It's pretty difficult when the price of your stock keep on appreciating because it decreases your ability to buy more. When it gets to expensive enough your ability to buy more share will be limited so that why in times of fluctuation it's better to buy that time. And also when the market is bullish and you started investing in, your price of stock will be high that when a sudden movement down could drag some of your profit.
Another kind of investing is Lump sum investing or Investing ones then hold it long term..
Let say you have P100,000 and you invested it one time. Chances are yeah you will get profit in long term but the difference is when you invest that for example on 2,000 amount on a monthly basis it lower the risk of market fluctuation when sudden deep on market happened. If you have whole bunch of shares on the date before a market crash it will really hammers your portfolio then losing some value on just number of shares.
Plus the number of share between 100,000 lump sum and 2,000 on monthly basis also has a big difference in long term because when market is down you could buy more share compare the time you invested once.
Study the 2 Tables below
SIDE WINDING TREND or UP and DOWN MARKET IN AN UPWARD TREND
Note: If market behaves like side winding trend it's a good idea to do cost average.
Note: In an upward trend lump sum investing is a good idea as we compare the number of share from January to December. Lump sum investment purchased a fair amount of share. This graph only show 1 year so before you decide to do lump sum investing, research the company carefully and be on the long haul.
Now when you ask me what is better PCA (Peso Cost Average) or Lump Sum?
The two has their own advantage it only depends on what company you chose. If a particular blue chip company has a good tract record either of the two is a good idea. But if the trend is down ward of course it's a bad day for investor.
It just depends on the timing when you do lump sum investment, well if you did lump sum investing after a market crash, chances are most of the stock price are so cheap you could buy more share on a single investment then wait and watch how the market goes up again.
See the illustration here. This is a company called (DMCI) a holding company that consolidate all construction business, construction component companies and power plant projects. As you can see a 24,000 peso investment back in 2003 to 2012 would have grown into 10,560,000 peso. Looks unbelievable but possible. The point is, you look companies that has potential growth in the future.
Regardless of the style on investing principle, you do think long term, thinking about 5 to 10 yrs or forever even you made some bad investing on bad market time. In the long term you will still able to have a number of gains and this is of course still depends on the fundamental of the company. Don't also forget to invest on company that pays dividend so whether what share price of your stocks goes down, it always pays you.
I hope this could help and enlighten you on investing on stock.
See next Article to read:
1. How to Invest In Stock Market
2. Importance of Saving Today and Investing
3. Things To Consider In Stock Market
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