Lesson 5: Education

As Warren Buffett said, “The best investment you can make, is an investment in yourself. The more you learn, the more you'll earn.”

Innovation and automation are ubiquitous in many industries around the world. It looked shocking, but some problems followed. More and more people were replaced by robots and had to be retrained or entered another field. In order for people to do these things, most people tend to choose to go back to school instead of considering other options. Although going back to school may help, you can always consider studying on your own. Perhaps that option was unrealistic a long time ago, but with high-quality information and other factors, it is now worth considering educating yourself.

What does self-study mean?

The meaning of educating yourself is to have a series of habits to promote how to educate yourself. Go into the finer details. These habits are part of the system and can help you stay up to date with related topics that you are passionate about. As I mentioned before, this method has only merged as an effective option in recent years. The reason for this is that the information is not available. Decades ago, our information came from newspapers, radio and television.

But now, every day, thousands of people create information through blog posts run by professionals or large companies. Due to the Internet and its greater expansion, the quality and quantity of information has increased. Indeed, the meaning of self-education lies in the use of information on the Internet.

1. Keep Up With Finance and Investment Industry News

Not only news from your industry, but also from other areas of your interest. As I said, the industry is changing because something will always happen. One way of self-education is to understand what is happening in the industry. Like in my case I always update myself with the current prices of local stocks through https://www.pse.com.ph/ Philippine Stock Exchange or through my broker website. The only thing you need to remember is that there are many ways to keep up you can have your own search say not only stocks but currencies, and commodities too. You don’t need to pay to subscribe to multiple brokers to keep up. Go to social media and search for related hashtags or keywords, or sign up for a media distribution list. There are many free options.

2. Enroll In Online Courses

The information is very rich, there are all kinds of courses. Today, online learning is also a very effective way to learn. You can turn to sites like Udemy or Skillshare, which offer thousands of courses particularly trading and investment. There's also education that you get from your online brokers and banks.

3. Find Mentors

One good thing with Finance and Investing industry has technical talents who are willing to teach others. With years of experience in this field, they can impart valuable experience that other classrooms cannot teach you. This is another reliable method, because the instructor is likely to stay ahead. Your years of experience and knowledge of the industry can lead to more specific suggestions. After all, traditional colleges and universities tend to focus on general information rather than the information you really need to know. Mentors are another way to get a personalized experience.

4. Develop These Learning Habits

4.1 Have A Learning Environment.

You don't have a classroom, so it's best to turn the place you often go to a study place. It can be a library, a room at home, or a coffee shop. In any case, there must be a place where you can study and study with determination.

4.2 Highlight Information.

If you like to buy books or e-books, use a stabilo pen. You can also consider other note-taking apps where you can store specific bits of information. Applications like Evernote or Google Keep are perfect for this.

4.3 Learn From Various Media.

We can use different learning methods, although we like one or two of these methods best. Find out which ones you like and challenge yourself to learn in different ways.

4.4 Set Goals.

To learn as a way of life, it is important to maintain this habit. The goal is a great way to keep up with the habits you want to have. Consider tutoring. Not only can you get paid by tutoring others, but you can also consolidate what you have learned. Guidance is also a way to verify and ensure that what you have learned is also with you.

Final thoughts

Self-study is about various methods of how to educate yourself. Although going to webinars, on-line classes, or joining a Facebook finance and investing group is still an effective option, the vast amount of information available allows anyone to learn about any subject. Therefore, you can save a lot of time, money, and consider the waste of these habits. Over time, these habits will pay off.

Lesson 4: Don't Understand The Risk

 

Lesson 4: Don't Understand The Risk

Risk is one of the most important factors to consider when trading. Everyone has a different tolerance for risk. If you are a long-term trader and the market has fallen by 20%, can you calm down and survive the plunge? If not, you may wish to diversify to add bonds to your investment.

Are you investing in more than one pair of stocks? If you do not properly diversify your investment, you will take a lot of risk and should be spread across many different stocks, not just a few stocks.

If you are a trader, do you limit your capital exposure by using stop losses and sufficient risk for each transaction? As far as the risk of each transaction is concerned, many traders determine their maximum risk, and will not assume more than that maximum risk for any stock. For example, the risk of many traders in a single transaction does not exceed 1% of their total investment portfolio capital. This means that you will add a stop loss and sell any positions that fall by more than 1% of your total portfolio (1% risk per transaction). For example, if your account balance is P 100,000, you will not risk losing more than P1,000 in any transaction. If you buy P 100,000 of Jollibee stock and the price of your position drops to P95,000, you will sell your position to avoid an additional loss of more than 1% of your capital.

By limiting the percentage of portfolio loss for a transaction, you can avoid huge losses in any transaction. Proper risk management can determine the success or failure of the stock market.

Lesson 3: No Strategy

Whether you are a long-term investor or a trader, developing a strategy is the key to your success. Investors and traders have different strategies. Here are a few important strategies to remember.

Long-term Investor Strategy

Pesos Average Cost

Pesos average cost is the process of investing a certain amount of capital each month regardless of market changes. The average cost of pesos helps investors obtain higher returns during a bear market and reduces the volatility of overall returns. In the table above, if you have the average cost of pesos in 2015, your return will be greater than 3.26%. We'll talk about it later in our succeeding series of this blog about averaging and different types of strategies in which averaging is one of them.

Diversification

Diversification is the process of buying multiple shares instead of buying a single share. Building a diversified equity portfolio is important because the stock market is unpredictable. If you buy a stock, the company goes bankrupt or performs poorly, you may lose a lot of money. Conversely, if you buy ten stocks and one of them fails or performs poorly, you have nine or more stocks to rely on. Diversification to diversify your investment risks.

Trader Strategies

Develop a Trading Plan

Your trading method will depend on your risk tolerance, your personality, the amount of money you can invest, and so on. Because every operator is different, it is important to develop a business plan that you will stick to. The trading plan should include everything from the maximum allocation of your investment portfolio and the risk of each transaction to your preferred risk/reward ratio.

Win Rate

As mentioned above, a healthy win rate is an important strategy for traders. Of course, it is difficult to increase your profit margin, but if you plan your trading strategy and the technical indicators you follow, you can maintain a constant profit margin through a suitable strategy. All other things being equal, traders who profit from 25% of trades will do better than traders who profit from 50% of trades but have a lot of losing trades.

Risk/Reward Ratio

The risk/reward ratio is closely related to the winning ratio. If you can create a healthy profit margin and a healthy risk/reward ratio, it can help you become a successful trader. For high risk/reward ratios, you can pair trades with high-profit potential with suitable stop losses. By limiting the amount you can lose while increasing the amount you can earn, you can make huge profits through trading. Combine a high rate of profit with a high rate of risk-return, and you can become a trader.

Lesson 2 Unrealistic Expectation

 

Children are often burdened by unrealistic academic expectations throughout their lives. However, parents, teachers and mentors must teach them that there is more life beyond the scorecard. All the work is worthwhile if they grow up and become kind, considerate, and helpful people to those in need. Because life is more than just numbers. What matters is the journey and the quality of the journey.

Similarly, when making an investment, return is not the only thing you need to consider. I hope something big is a good thing, but achieving financial goals based on unrealistic assumptions can make it go downhill.

In the past, many stocks may have performed very well. However, remember that your future performance does not depend on your historical temperament. Consider the following points to fully understand the investment situation with the following:

The trade-off between risk and return. In the past, sometimes you were attracted by investment products provided by account managers and investment agents only by considering the rate of return provided. However, as an investor, you should also evaluate many other factors. One of the most important factors is risk. You will see that everything has a price, including your return on investment. In order to obtain greater profits, you must have sufficient risk tolerance. In other words, the high return on your investment is the premium you get for taking high risks. This is the so-called risk-benefit trade-off. Almost all investment products face various risks, but at different levels. Therefore, before investing your hard-earned money, it is important to understand the risk-return tradeoffs of each asset class and the investment path in it to assess whether it is appropriate for your risk profile. It is not advisable to rely solely on rewards.

Properly allocation of assets. Pay attention to asset allocation. Define your asset allocation based on age, income and expenses, assets and liabilities, risk appetite, investment goals, investment scope and financial goals. Asset allocation refers to the allocation of investable surplus among asset classes (such as stocks, debt, gold, real estate or even holding cash). Therefore, when allocating assets, you are actually adopting an investment strategy that can balance the risks and returns of your portfolio, taking into account your risk profile, financial goals and investment time frame. As mentioned above, every asset has a certain degree of risk and expected return.

Investment time frame. Asset allocation varies with the time frame available before the financial goal occurs. For those who have a short-term investment period of less than 3 years, it is recommended to allocate them to fixed-income securities, and to avoid assigning them to asset classes such as stocks and gold due to their variable rate of return, so the risk is higher. Due to the short investment time. For the medium-term investment period like 5 years, you can allocate a portion of the investable surplus to stocks and gold to take advantage of the higher risk-return ratios provided by these categories, but you will not be enthusiastic.

For longer investment periods like 10 years above, you can allocate a larger proportion of the funds to higher-risk asset classes in order to use the power of compounding over a longer time frame. That is to say, maintain some (if not too high) exposure to bonds and gold so that the risk can be mitigated to some extent. For investors, it is crucial to recognize the risk-return trade-offs of any asset class, and to be realistic in the expected returns, and to wisely evaluate the performance of their investment portfolios.

"Time to market" instead of "timed market". Everyone wants to enter when the market is low and exit when the market reaches its peak. However, regardless of market research and analysis, it is impossible to always accurately predict the direction of market development. Take 2010 as an example Philippine Stock Exchange (PSE). When valuations were really cheap, many investors missed the stock market's reversal and missed buying opportunities. On the other hand, in 2011, when the market was in trouble, many retail investors left the market. I believes that you should focus on long-term financial goals and commit to a fund that continues to invest in order to optimize the level of risk return. Achieving your life goals requires a disciplined investment method and perseverance to ignore market momentum. Trading is meaningless, because it may endanger your wealth and health. Remember, traders are good commodities only before the last transaction. The bottom line to achieve your financial goals, first assesses your risk appetite. Once is determined, stable investment will begin. In addition, diversify your investment in all asset classes and monitor your investment portfolio every six months.

Lesson 1 Learn To Understand Trading and Investing

 

In life, we all make mistakes. When investing in, some beginners will take huge risks and learn difficult methods. Some people will take a thoughtful approach and learn simple methods. Although errors can help you learn as an investor, they can also jeopardize the future of your investment. It is important to know what not to do when you start investing. In order to make you a successful novice investor, please avoid the following five common investment mistakes.

Learn From The Mistakes of Newbies Investors

I Don't Understand Trading and Investing

Many new investors don't decide their investment strategy in advance. Beginning investors can be divided into two main categories: traders or investors. Although both trading in stocks and investing in stocks are common forms of investment in the stock market, their execution methods are different. Trader is an active investor, quickly buying and selling stock positions for profit. One way for traders to be successful is to earn a higher profit rate.

A trader who makes a profit on 60% of the trades does a better job than a trader who makes a profit on 30% of the trades. For traders, another important factor is the risk-reward ratio. If traders buy and sell positions with high potential gains and low potential losses, they can get higher returns on average. Long-term investors use different strategies than traders. First, investors cannot buy and sell stocks quickly. It is the long-term purchase and holding of shares, long-term investors will use more of the company's financial information to determine whether it is a good action. This includes looking for companies that increase profits over time and sell them at a favorable share price. Long-term investors will purchase a diversified portfolio of company stocks and seek to expand that portfolio in the coming years.

If you start investing without defining yourself as a long-term investor or trader, it is difficult to use established strategies to be successful. If you decide to trade stocks and make long-term investments at the same time, you can divide your funds into two categories and manage each part according to your strategy. Next we will be discussing Lesson No. 2. To be continued...