Investing Successfully In The Stock Market Even During The Crisis

No long entry this time. What I would like to share with you is the strategy my mentor has taught me which is called the Peso Cost Averaging Strategy when investing in the stock market.

You must have heard about the Great Rotation during the months of February, March and April 2011 when the Philippine Stock Market sunk by as much as 20% as majority of the foreign funds shifted from emerging markets to developed markets on account of an improving US economic data.

How about the earthquake and tsunami in Japan last year?

How about the downgrading of US credit rating from AAA to AA by S&P sometime in September that resulted to a fall of world market indices including the Philippine Stock Market Index (PSEI) by 15% in one day.

Then the political crisis in the Middle East erupted, the credit contagion in the Euro-zone and the rising Chinese inflation.

All of these crisis resulted to massive sell-offs in the market that battered the Philippine Stock Market. I knew a lot of people who have lost a lot of money simply because they had followed the herd thinking that a double dip recession will occur. Infact, I was also jittery as I saw my portfolio sinking by as much as 40%. Thank God I surrounded myself with mentors who have told me that to be successful in the stock market, all you have to do is to manage two things - greed and fear. Then I recalled Warren Buffet when he said, “be greedy when everybody is fearful and be fearful when everybody is greedy”.

Another mentor of mine introduced me to the concept called Peso Cost Averaging. In layman’s term, investing equal amount buying shares of stocks every month. That is if I want to invest for example in Metrobank, all that I have to do is invest a certain amount every month for the next 12 months or so even when there is a crisis. Below is an illustration of what I actually did. I kept on buying Metrobank shares every month whether the price went up or down. 8 out of 12 months, I was buying while there was a crisis. 

 

Date	Price per share	Monthly Investment	Shares bought	Remarks
4-Feb-11	63.45	10,000	158	Great rotation worst period
3-Mar-11	59.00	10,000	169	Japanese disasters
4-Apr-11	68.45	10,000	146	Middle East political unrest
3-May-11	69.00	10,000	145	Middle East political unrest
1-Jun-11	70.00	10,000	143
1-Jul-11	71.10	10,000	141
3-Aug-11	77.20	10,000	130
5-Sep-11	74.00	10,000	135
4-Oct-11	62.60	10,000	160	US credit downgrade
3-Nov-11	69.10	10,000	145	Euro-zone credit default crisis
1-Dec-11	66.50	10,000	150	Euro-zone credit default crisis
2-Jan-12	68.45	10,000	146	Euro-zone credit default crisis
Latest closing price	81
Total capital	120,000
Total shares	1,767
Current value	142,261
Profit / loss	22,261
Growth in %	18.55

As a result, after 12 months of consistent investing, my investment grew by 18.55% per year. Definitely, not a bad return in a year that was  full of economic and political uncertainties.

Next time that there is crisis, do not immediately lose hope that life is not going to get any better.

During the crisis, I was able to earn through my investments buying Metrobank shares and so can you.

Since I have used Metrobank as an example here, I have to say that I am not connected with Metrobank nor I am encouraging you to invest in it. I must admit however, that it is one of my favorite companies the reason why I used it as an example to illustrate the benefits of peso cost averaging strategy here.

Note that investing in the stock market has certain level of risk which is unique to an individual’s investing strategies and objectives. My advise is for you to do your own due diligence first, seek the help of a financial strategist or an expert in the field.

Be blessed!

Anselm Reyes

For your questions about the stock market or any topic related to investing and financial planning, you may email me at anselmreyes@yahoo.com or alternatively, you may subscribe here to receive my free updates.