If all the citizens of our country will answer these two questions, over 90% will answer the first one with a negative. And for the second one, they will most likely reply with any of the following:
“Wala akong perang pang invest!” (I don’t have money to invest.)
“Hindi ko yan naiintindihan.” (I don’t’ understand that.)
“Nalugi na ako sa stock market!” (I lost money in the stock market.)
“Yamot na yamot na ako, sampung taon na 6,000 plus pa rin ang index!” (I’m so impatient, it’s been 10 years and we’re still in the 6,000 plus index!)
Unfortunately, all four answers are valid reasons. A huge percentage of our population is just making both ends meet and stock investing is not even an option to think of. Most Filipinos may not understand how the market works. A lot who tried investing also got burned. Those who started 10 years ago are getting impatient with the sideways movements. Parang walang nangyayari! The PSEi closed at 6,302.71 on September 16, 2013 and on September 15, 2023, it closed at 6,126.34!
So, do we just throw in the towel and say, “Good bye stock market investing?” I say no, despite being impatient myself with the market, it is still a worthwhile endeavor. I recently had an interesting conversation with the head of BDO Securities Online Sales, Mike Raz. We discussed the whys and why nots of this topic. You can listen to or watch our conversation on our podcast and you tube channels. For the meantime, let me share with you why we still need to invest in the stock market.
1. Investing in the stock market is your chance to be in partnership with the country’s top business owners.
Oftentimes, the regular Juan and Juana are more confident getting into partnership with their neighbor, cousin, friend, etc. But who is the better business partner? That person or the owners of blue-chip companies listed in the stock market?
Once you’re no longer interested in your partnership with the taipans, you can easily sell your shares, no questions asked. Compare that to when you want to get out of your business partnership with your friend/cousin/neighbor. Tampuhan yan!
3. Passive Income
You can earn passive income from your stock investments. You do not have to play an active role in running the business but you can take part in the dividends and the capital appreciation of the stocks.
4. The stock market is still the asset class that gives the highest returns in the long-run.
Yup it still is. This is extensively documented by Wharton finance professor Jeremy Siegel in his book Stocks for the Long Run, using data for two centuries. After its initial publication in 1994, this milestone book has had at least six editions to cover important events that have occurred over the years such as crashes in the stock market and economy in general, the latest one covered the effect of Covid-19. The verdict is the same: Comparing periods of 10, 15, 20, 30 years and so on, equity investments provide the highest return in the long-run!
During my conversation with Mike Raz, he pointed out that despite the dismal performance of the stock market index from 2013 to 2023, we can also see several periods where the performances were stellar – e.g. from 2003 to 2013, it was a six-fold return!
5. Stock ownership represents ownership in something that grows.
Let’s discuss three asset classes to illustrate this advantage – stocks, gold, and real estate. An ounce of gold will always be an ounce of gold. The value of this asset will rise and fall depending on the supply and demand. If the supply is higher than the demand, its price will go down. If it’s the other way around, it will go up. But an ounce of gold a hundred years ago remains an ounce of gold today and into the future.
6. A parcel of land will always be a parcel of land. Yes, it can yield different crops if you till it, or give you a home or commercial property if you build on it. The price is also affected by the principles of supply and demand. It will remain the same, limited in its physical size. If it was 100 square meters 100 years ago, it is still 100 square meters today and in the future.
In stock investing, you own shares in a corporation, which is a going concern. It has the ability to grow. Take for instance Jollibee Food Corporation (JFC). On July 19, 1993 when it was listed in the Philippine Stock Exchange, its Initial Public Offering (IPO) price was PhP9.00 per share. Today the stock trades at around PhP230 per share! If you bought at IPO price, that’s more than 25 times its original value in 30 years, excluding the dividends earned. Here’s why. When it listed, JFC had only around a hundred stores in the Philippines. Today it has over three thousand stores including other brands such as Mang Inasal, Greenwich, Chowking, Red Ribbon, Coffee Bean & Tea Leaf, Highlands Coffee, Yonghe King, Hong Zhuang Yuan, Smash Burger, Burger King, Panda Express, TimHoWan, Yoshinoya, etc. all over the world, and still growing.
And this is why a share of JFC in 1993 is not the same as the share of JFC today. Unlike the other asset classes, it has the ability to grow, and it did quite impressively.
But here’s the thing about stocks. Yes, it has the ability to grow, but it also has the ability to “die,” or cease to exist. If you had picked to buy a listed company that went bankrupt, your story would have ended with zero.
Your course of action
How did you answer the first two questions at the beginning of this article? If you’re among the majority who replied no, it’s time to reconsider. Even if you got burned, or if you have low earnings, or just getting impatient with the returns, think again. Given all the above points discussed, any responsible person preparing for his retirement should have equity investments in his portfolio. Come join my conversation with BDO Securities Online’s Mike Raz to help you make this important investment decision.
Cheers to happy and informed investing!
1. Watch my funny and meaty conversation about money with Victor Anastacio on Intellectwalwal! Click the link here.
2. Watch this on FQ Mom Youtube Channel or FQ Mom podcast
3. Before you jump into stock market investing, check where you are in your FQ Journey, take the FQ Test. Click here.
4. To enhance your FQ, buy any of our FQ Books. Click here.