Are you a stockholder or a stocktrader? (Part I)

Hello readers. This will be a long series of commentaries I will make on the stock market, and the merits of investing therein...

Introduction

It's interesting to note that there are still a lot of people who say that the stock market is a dangerous place to be in. It is estimated that only 1% of the Philippine population invests in the stock market.

In this day and age, I'm amazed that some people still have negative, sometimes superstitious even, thoughts about the stock market. I hate to sound like a spurned lover, but in modern times, people need to be educated about their investment options. Oftentimes, people consider business and employment as the best and sometimes, their only investment.

People really, as a habit, have the tendency to reject things they don't understand. We craft our own stereotypes and beliefs based on the little facts that we have.

I'm here as a friend to help you, and possibly guide you into investing in the stock market. I'm not an expert in the stock market, just your average next door investor. I've seen two (2) heart attack-inducing events (i.e. Shanghaied on Feb 27 and the July 27 MeltDOWn, my own names for these events) and I think that I need to take a rest from the market and just share with people my thoughts about investing in the stock market.

When you think about it, is the stock market really a dangerous place to be in?

Consider the following:

1. You can buy and sell your goods (i.e. stocks) in the comforts of your home.

If you were to do that in the wet market, you'll likely be the victim of a hold up, accidental fire, or an irate market vendor. I tend to think that the last one is the worst catastrophe that could happen to you. True, the statistics here are exaggerated, but no one can deny that the home is still our most secure place.

2. Your shop doesn't have to be open every working day of the year, i.e. you don't have to trade everyday.

3. You do not have to keep an inventory of goods. And if you do, they appreciate over time and they do not expire.

In fact, I can go on and on and you'll realize that the stock market isn't a place that's just for the wealthy and privileged. The average Juan Dela Cruz can participate, and even make money from it.

So how do people go about investing in the stock market? Do you have to be a 'market wizard' to pick the best stocks in the local stock market? I don't believe nor think so.

The reason is simple, our local stock market is a very very small market compared to our Asian neighbors. Because of this I think that the size of our market is both a curse and a blessing. Moreover, of the listed companies in the local stock market, I can tell you that you can count by the fingers and toes the number of fundamentally sound companies. And it is in this act of choosing what companies or stocks to buy that separates the stockholder from the stocktrader.

The Misnomer of the Filipino Investor
(at this point, these are just commentaries, any help on statistical information would be appreciated)

Based on observation, the Filipino investor (I cringe at using the word) is only one of 3 types -

The Guaranteed Investor
The Greedy Investor
The Good Investor

Let's discuss more of these three types:

The Guaranteed Investor

The Good
* Wants a guaranteed yield
* Wants the principal to be protected
* Wants the ability to withdraw his money on any banking day
* Won't be tricked into investing in too good to be true investment scams

The Bad
* Doesn't take into account inflation
* Will likely to complain that he's not rich
* Money is tied up in savings, time deposits, and owned business interests

The Greedy Investor

The Good
* Will definitely beat inflation and the returns of all legitimate investment alternatives
* Have a very basic understanding that higher risks entail higher returns

The Bad
* Will likely lose 100% of his capital
* Will be in denial once media publishes a story about the 'investment', and realizing he's been
scammed

The Good Investor

The Good
* Evaluates his investment alternatives
* Seeks help when needed
* Has probably started investing in mutual funds and exploring other possibilities

The Bad
* Wealth will be created at a slower pace
* Might get impatient because the person can't feel the gains
* Has to cash in to realize his gains

I'll discuss more of the three types of investors in my next blog entry. Until then, please stay tuned!