3 Stock Market Lessons I Learned the HARD way

It’s been around 5 years since I started investing in stocks. I started out with basically zero to little knowledge about the stock market. All I knew back then after reading several blogs was that the stock market was an excellent way to grow your money in the long run and that you had to start as early as possible. I knew that there were risks involved and that you had to set aside money that you can afford to not touch for a few years.

I was set on investing for the long-term, so I never sold my paper losses. A paper loss happens when the price of the stock becomes lower than the price that you bought it. You don’t lose money unless you actually sell the stock at a loss. My portfolio has been negative since 2015 mainly because more than 50% of my portfolio was in TEL (PLDT), which had dropped significantly due to a decline in net earnings, coupled with increasing capital expenditures. Which brings me to my first lesson:

  1. Diversify. Diversify. Diversify. – I had heard the saying “Don’t put all your eggs in one basket” several times.  Divide your investments among several companies and industries.  However, TEL was the stock that gave me my biggest realized gain and is known for its high dividend yield. So I greedily bought more shares to the point that it was more than 50% of my portfolio. I fell in love with the stock. But the stock hasn’t reciprocated so far – which leads us to my next lesson
  2. Control your emotions – Since I don’t sell my stocks at a loss, my only option was to cost average by buying the stock at a lower price. I panicked when I saw the first significant drop of PLDT, so I bought more shares. Little did I know that it was going to drop further. When a stock declines significantly because of negative news or relatively weak fundamentals, the best thing to do is wait for the stock to form a base and show signs of a strong reversal.  Even if you are invested for the long-term, it is never good to buy out of pure emotion.  On the other hand, there were a few times where my other stocks would rise (Double Dragon and Golden Haven), and I would sell them out of excitement and fear, not knowing that it could have resulted in significant gains after a couple of weeks or months.  So much for long term thinking.
  3. At the end of the day, you are responsible for your success or failure – A lot of brokers and experts will provide their research and suggest buy below points and price targets of stocks. But ultimately, you are the one that is responsible for your money.  Excuses and blaming others will not make your money grow.  You need to invest or trade with conviction and stick to your plan.  Always remember your goal, time horizon, and risk appetite.

PLDT chart

The stock market is a very risky place to put your money in. I’m learning that through experience. But right now that risk is mitigated by the fact that time is on my side, the stocks still pay dividends, and I have 4 other stocks in my portfolio (the other 50%).  I consider my portfolio as part of my retirement fund.  So if PLDT never recovers, I may be working until I have great grandchildren.

2 Replies to “3 Stock Market Lessons I Learned the HARD way”

  1. I can relate very much with your sentiments regarding the stock marke investingt! Ako, i’ve been keeping the first ever stock i ever bought (kahit laki na ng lugi ko!) May be for sentimental value. 😉 Iniisip ko na lang, since retirement ko naman ito, all the reds i’m seeing are just paper losses.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s