Stock Trading Philippines: The Hidden Truth About Why You’re Still Not a Profitable Trader
Updated: Mar 30, 2018
For as long as I have been in the stock market, people have been made to believe that to make a lot of money in the stock market, they need to take on higher risk. While there is some truth to this, the hidden truth is that not all high risk trades generate higher returns. And more often than not, retail traders get suckered into taking on high risk trades that they don’t really know how to manage. Most, if not all, rely on sentiment in social media groups for buy and sell signals with disastrous results.
The other hidden truth about your stock investment is that you can actually make a lot of money if you trade Philippine stocks that have less risk (i.e. less volatility). And we’re not talking about blue chip stocks that on average can give you 25–35% return on a good year. We’re talking about non-index names, both large and mid-cap names, that can easily generate between 35%–75% return in a year minus the stress. We call this low volatility investing.
The approach is not new, it’s been around since the early 90s and was pioneered by Eric Falkenstein. Falkenstein argues that investors do not get compensated for the risk (excessive) they are taking. That, for whatever reason, investors have not been allocating capital efficiently. Majority of stock market investors focus too much on expected returns but not enough on attendant risks. Or to put it in another way, investors chase high risk trades for the promise of higher returns.
We’ve been working very hard to change people’s mindset about stock trading and investing in the Philippines. We completely disagree with the premise that you can only generate outsized returns by trading stocks with volatility in excess of 50% (some micro cap names are even known to have volatility in excess of 120%!).
While you can spot and position monster trades when they are still calm and setting up for a monster run, the correct mindset when volatility has exceeded 50% is to lighten up, not double down. We believe this is the reason why you’re still not a profitable trader.