Philippine Stock Market

Yesterday, I shared my Seven-Step Plan to online stock trading in the Philippine stock market. Very quickly, they are:
1. Have positive cashflow
2. Identify my investment period
3. Commit a monthly amount to invest via peso cost averaging
4. Identify fundamentally sound companies
5. Identify my target price
6. Make the order
7. Repeat steps 3-6 next month

Today, let’s discuss the first step: Have positive cashflow.

What does having positive cashflow have to do with online stock trading or investing in the Philippine stock market? Everything and here are the 3 biggest reasons why.

First, you could lose the money. Do not invest money that should go to basic needs like food, clothing and shelter. Do not invest money that is saved for tuition fees, house downpayment or  life insurance premiums. Do not invest your bonuses if you’re supposed to use it to pay off a loan or clear credit card debt. If you used money that is meant for any of the above and you lose it, you’re screwed to put it mildly. If you’re single then probably it won’t be as big a deal but if you were supposed to pay for a sibling’s tuition fee then you just sacrificed his education. If you’re married, good luck explaining to your wife. So have positive cashflow so you will have excess funds to invest in the stock market.

Second, you may not make money right away and you may need the money before you make money. If you’re living paycheck-to-paycheck and a sudden emergency requires money, guess where you’ll get it – from your investment account. I know, I’ve done that a couple of times. But if you are making more than you are spending every month, you can quickly grow an emergency fund, keeping your investment account safe and thus giving it time to grow.

Furthermore, if you use money that is meant to pay for something like tuition, you could be forced into bad trading decisions when the deadline approaches when you need that money. You could be forced to speed up your decisions and make wrong ones or miss out on better ones. So relieve yourself of the unnecessary pressure.

Third, you will grow your money faster by investing regularly and not withdrawing money out. In the beginning, your contributions will makeup a bigger chunk of the money that comes into your investment account. If you invest say Php10,000 a month, every month your total capital grows by at least a 100% every month! So grow your total capital first by setting aside a regular amount and you can only do this if you have positive cashflow.

I hope you can see now why this is very important. If you’re not yet cashflow positive yet, get yourself there as quickly as you can. Lower your expenses and increase you job’s income. Lower or eliminate debts altogether. Be frugal. Increase your salary. Get a part-time job. Do anything to get to positive cashflow and after that you can start investing.

Next up, step 2.