THE next time you want to buy a book on stock-market investing, immediately look and see how much of it is devoted to selling, not buying. If at least half of the book is not about selling, do not waste your money on it.
All the experts devote chapter after chapter about their brilliant ways to pick stocks that are going to go higher. They show you formulas, graphs and strategies that are guaranteed to make you wealthier. Some of them might even work. But here is an easier way: Take the stock-price section of the BusinessMirror and tape it on a wall, get five darts and throw them at the page, and go out and buy equal amounts of those issues.
If that method is not scientific enough for you, here’s one that requires a formula: Pick your favorite number, between one and 10. Take the alphabetical list of the 30 issues in the Philippine Stock Exchange Composite Index (PSEi), count down by your favorite number and buy equal amounts of five issues. I like seven, because a numerologist once said it is what my name adds up to in the great cosmic code.
Picking the number seven and buying those five issues would have seen your portfolio up by 17 percent this year.
I guess I should warn you that not all favorite numbers are going to equal the same results. Maybe you should ask for your stockbroker’s favorite number so you can have someone to share the blame.
Now that you are invested in five stocks, what do you do next? Go back to the stock-market book and look for instructions on when to sell them.
Often, but not always, you will be told that you need to sell when a stock price gives you a certain percentage profit. Twenty percent sounds good. But one particular PSEi issue of my picks is up 50 percent this year.
Another is up 100 percent in 2014. Your peso profit with a 20-percent gain would have been less than half of the potential profit.
Maybe selling is more complicated and difficult than buying, and that is why the experts do not say much about selling in their books. But selling is the only part of stock-market investing that matters. Until you sell, you do not have a profit (or loss). It is only the score at the end of the game that counts, as De La Salle University recently found in its game with Far Eastern University.
Here is an idea on when to sell for a profit. The best rule is to sell when the price stops going up. That does not require a formula and is probably too simple for the experts to include in their books, but it works. Also, it does not require a chapter to explain, and that is probably why I am not rich and famous like all the others. My book of stock-market advice would be more like a pamphlet, or maybe like a flyer for a new massage place that somebody puts under your windshield wiper.
Sell when the price stops going up. If the price starts to go higher again, buy back into the stock. Almost all the issues my lucky number seven picked went up, then went down for a couple of weeks, and then went up again.
In the last 43 weeks, the Philippine Long Distance Telephone Co. (PLDT) has triggered four simple sell signals by going down for two weeks or more. Had you sold at the end of the second down week, you would have profited from the time you bought. Furthermore, if you had waited for a two-week move higher (a buy signal) to buy back, you would have continued to profit from PLDT’s 23- percent gain from January to the last sell signal at P3,330.
And speaking of books, if you like to have a signed copy of my book Outside the Box, you may order directly through my website.
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E-mail me at mangun@gmail.com. Visit my website at www.mangunonmarkets.com. Follow me on Twitter at @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.