This topic covers the way how we do long term investment in the stock market.

You must already know that to be able to grow our assets or money, it needs to be invested and one of the ways is through the stock market. We have a previous article where we try to understand why do we need to invest, you can check the link and find out why it is necessary especially during this pandemic period.

3 reasons why do we need to invest

1. We need to be financially prepared. For regular employees like us, we need to secure our future and be ready whenever the time comes that we are no longer able to support our family or ourselves. Being an employee will serve the purpose of our income source but due to uncertainties we could not rely on a single sour

2. Inflation cuts our spending power. Every year the price of commodities keep on increasing and this is know as inflation. In the Philippines inflation takes an average of 3-5%. This means that our spending power becomes less by this value as prices of basic needs go up.

Philippines is in the map region where we are always visited by typhoons. Every time it comes, the production rate of say for example agricultural products becomes affected so the supply becomes scarce due to flooding or too much rains exposures our farm lands could not bring the necessary amount of products.

As a result of fewer products in the market, with population always growing in numbers, demands become higher and causes price of products to shoot up.

3. Savings does not add value to our money. Money in itself does not produce more money. If you put it in a bank, it does earn interest but at values of less than 1% in a year and this would not help do much to beat the inflation effects.

So if we want to earn from money we need to put it in an investment, or as they say let our money work for us

Short Term or Long Term Investment in the Stock Market

There are different ways of doing investing in the market. You can do it in the short term or long term. Although there is an argument to which of these two will be more beneficial it will still depend on the individual skills.

Short term investors also known as traders will tend to speculate on the market movement in the short term. By analyzing price action movement, skilled traders can benefit in the short term especially those who have time to monitor the markets.

Short term investors however are more affected by market volatility and since they are more sensitive to news or activities on a certain company or stock, trading will often lead to more stressful way of investing in the market. As they say 95% of traders loose money while only the remaining 5% are earnings from trading.

As a long time short term trader of the market, I know personally that this is true. But there are perks to short term trading that you can not find in long term investment. For example, if you only have a limited capital to invest, then trading for small gains is the best option to do. Trading can be high rewarding but will definitely have risk. Traders have the advantage of easily going in and out of a certain stocks to ride only the market volatility. With the right discipline as well you can weather out the negativity on the market, for example if you are able to get out during the 2020 national lockdown, you can take advantage of the reversal that happen for that year. It can give good results if you are patient in the market

Long term investors in the long run will benefit from accumulation of shares of a company over time. As a certain company grows so its price value as well. But during this growth stage you can be certain that prices will fluctuate significantly above or below your average price. To eliminate the volatility risk, long term investors buy only shares of stocks on regular intervals.

I have listed below some of other reasons of being invested for the long term in the market.

6 Advantages of Long term Investment

1. The market moves up in the long term
2. You can sleep better at night
3. You will save on commission charges
4. Weather out the market volatility
5. It takes advantage on the effect of money compounding
6. You will maximize benefits from fundamentally good stocks like dividends

The market moves up in the long term. If you will try to look at the Philippine stock exchange index you will notice that it keeps going up year over year or as the time becomes longer, the value of the index is increasing. The the index going up it means that the share prices of stocks especially those that have been in the market in the long term have grown significantly already.

So there is a big chance that if you stay long enough, the overall market movement is always going up.

You can sleep better at night. This is true, short term traders tend to be more stressful because they spent too much time speculating whether the price of the stock will go up or down in the short term. If you widen your timeline, there is no need to hurry for the gains from you investments.

You will save on commission charges. Everytime you do transaction of buying or selling in the market, your stock broker is charging you 1.19%. Ten time buying or selling is equivalent to 11.9%, quite big right?The value maybe small but if repeated many times, it will tend to accumulate. Buying at different times with a longer time frame perspective will diminish the effect of your broker charges

Weather out the market volatility. If you look at day chart candles of Banco De Oro, you can notice that price seems to move always either upwards on downwards, but if you view it in the month timeframe, you will be able to see the macro view of the price movements.

Day chart

Monthly chart

It takes advantage on the effect of money compounding. As an example if you invested 10,000 at the start and keep it every month with a 6% annual interest for 6 years you will have later 851,000 in total amount. Very big effect of compounding.

You will maximize benefits from fundamentally good stocks like dividends. Stocks giving out regular dividends are good to keep because aside from the prize appreciation, you can receive extra money from the company. You can check our article, dividends in the stock market to learn more about how to do it

How to do the Long Term Investment?

So here we have an example of how to do a long term investment in the stock market. Take note of the reasons for buying and then why we keep on buying and doing it at regular intervals of time

Example of long term investment on an actual stock (ACEN, AC Energy Corporation)

Long term investing is what is also known popularly as Peso Cost Averaging method of investing in the market. It is a type of investing where you buy regularly in a good stock or company in definite intervals.

You can do this weekly, monthly or every quarter depending on your capital availability to meet regular timeframe of investing.

Long term investing is also for those who does not have time to actively monitor the market especially those who have work during the trading periods. Take note that when you do investing in the market, make sure that the money you are using is not for emergency use. You must keep invested to weather out volatility of the market. The length of time depends on individual goals, it could be few years to a decade. The long it is the better if the stock price keep on appreciating.

This is also most suitable for those who are just starting out to test the markets. Trading in the short term as mention involves high volatility and risk exposure especially if you are doing it in companies that are not sound fundamental.

From the attachment above, we have an example of Banco De Oro. If you started investing on this stock from January of a certain date period to December of the same year a 5,000 pesos investment at the start will have been able to have accumulated a total of 60,000 pesos. But since the price appreciated during that time frame of accumulation, the total amount actually gotten from it would be 77,204.72.

Every month we could accumulate different amount of shares as the price keep on moving. For example at January my 5k pesos can buy 44 shares while in February only 43 shares. There are times the price move up significantly like in August to December so the number of shares we can buy will be lower.

In the end we accumulated 472 shares by December, if the share price is 163.54 during this time and you decided to sell, just multiply shares total by the price that you will sell it, for this case total is 472 shares x 163.54=77,204.72

There are times however that you cannot maintain the 5000 pesos per month, its ok just keep invested any amount because in the end, the more shares you accumulated and if the share price goes up so is your gain in the market.

The two blue arrows on the graph represents the time frame January to December for our example. But looking back at history of Banco De oro, if we could have only started it sooner, the share price of 60pesos/share (green arrow) we have already increased to 160/share or a total percentage of 167%.

2 Main Criteria for staying Long term in a Stock

• Consider only stocks that below to the Blue chips index. These stocks have been carefully selected by the Philippine stock exchange so they are the the best of the crop. The list is updated at least once a year so be sure to research them well. As of this time the blue chip list link is here so you can check it out. Blue chip stocks offers liquidity and this is where majority of investors are also invested. Also since it has large base of capital and already proven track record, the chance that it will go bust is very small as compared to penny or low cost stocks.

• The stock should be in uptrend direction. In Philippine stock market setting, we can only have profits with our investments if the overall stock movement is in uptrend direction.

Watch our Video Explanation here

Related Articles:

Blue Chip Stock Picks

How Do you Earn From the Stock Market by Price Appreciation

How to Earn from Dividend Stocks, List of PSE Stock Dividends for September 2022

Why We Need to Diversify Our Investments

One of the tools needed by a trader to successfully monitor trading results is by journaling or recording all trades that you are executing.

There are different journal nowadays that are available in software format. You just need to encode your stock name and entry and exit levels and you can have the software analyze it. We will cover later also the automatic recording of trades on these software but for now and for my case I am still inclined to do the manual recording of trades as I want to have full understanding of what is happening.

For this article you will learn the 6 basic requirements of a trading journal and how to interpret the results so you can have an assessment of your trading performance

Why do you need to make a Trading Journal

By knowing how your trades were performed and recording it down on a file so you can easily visualize what was going on for these trades ,it can help you improve your trading skills. Trading is all about skills experience and psychology. Either the trading is successful or a failure, be sure to understand your psychology or behavior so you can prevent great mistakes again later or replicate good trades for consistency.

I have made a lot of mistakes during my trading journey and recording it was included as I don’t really record it for my at least 2 years of doing my trading journey, and of course results showed I don’t know how I was trading the market so most of my recorded data when I finally decided to study why I kept on losing to the market and backtrack my transactions, its clearly visible what I was doing was wrong.

Let us discuss a sample of a journal format I am using for my trades. I have listed here basic items to be included when you are deciding to make your own format. At the end of our discussion, I will put a video link explaining the journal and a downloadable link for excel file so you can just customize it later. I am not a good excel programmer so you can just check the formulas I put on it. In some case to get the accurate data, you need drag the rectangular range of formulas to include more data if you have more trades than the sample I am uploading.

If you are not used to excel, you can try other means like notebooks or notepads as long as you can record your trades and do the necessary calculation.

This article will guide you through the requirements. I know that most of my viewers or readers are beginners or are trying to improve their performance so I’ll make as simple as I can.

Parts of My Trading Journal

1. Number of Trades (# of trades)

There is a need to record how many trades you are executing either for a month or for a year of your transactions.

You might not see this during initial days of trading but the more you trade the market, the more you lose from it. Besides on the commission charges that will entail a lot of cost (at least 1.19%, for every transaction) when you trade more, there is a big chance that you can catch a big losing trade even if your entry signals are not flagging out any risk, this is when the market conditions like now that we have pandemic, the market can suddenly turn to downside direction without a notice.

You can see from the attachment above that this is the first column I put on my journal

So these record number of days will tell you whether you are overtrading the market. For my case more than 20 stock trades per month is already considered as overtrading.

2. Capital

A record of how much you are investing will let you know in the journal whether your investment is being successful or not. Is your capital loosing to fast, maybe you need to act now to cut your losses or are you gaining to fast on a trade so it might be prudent to take profits now.

Treat stock trading or investing as a business and not use it to treat it like you are gambling. If you trade or invest with a strategy and you do what you can to maintain your capital is a business. If you are losing its either your skill is not good enough or market conditions are not good at this time.

Capital is everything especially on trading as this is your lifeline for your future gains, so you must protect it at all cost, either you take a loss now or take short profits rather than taking big losses. The Capital has compounding effect if you trading performance is good and the opposite is true it can lead to significant losses if you are not careful with your trades

For the journal on capital, I have put in here 3 columns, Capital, capital remain and Buying amount for each stock.

In the journal this is calculated immediately. You can check the formula later from the downloadable excel file. Capital is your entire portfolio amount, capital remain is the result of deducting the buying amount from your capital

Base on your record you can see also if you are over allocating on one trade. You will need to learn how you diversify your stocks later and check if you have proper allocation for each trade.

Your record therefore on the trading journal is very insightful once you use it properly to manage your investments.

3. Stocks You buy

This is the section where we record the stock code or name of the stock we are trading so you can trace the chart patterns later of the stocks where you have entered the trade.

It is important to know later when backtracking your records whether you have the tendency to buy a penny stock or fundamentally good stocks. They have different treatments or rules considerations when trading each type. For example, blue chip stocks move very slowly and an up move of 5% in a day is already significant entailing a bullish signal. Penny stocks on the other hand at the right timing can have gains of over 20% in a day, but of course the trading risk is higher and the opposite can occur as well.

So be sure to note whether you are taking too much risk on speculative stocks.

4. Price in, out and Traded Date in, out

This part of the journal will include the amount you buy or sell the stock, and the dates when you took the trades.

These are included so you can later calculate how much gain/loss occurred when you entered or exit the trade. The price when you enter and exit the trade will tell a lot of story.

Did you buy at the right time or not? Questions like this can have an answer when you look back at the charts when these trading occurred.

When you completed a trade, it is now time to reflect whether one complete transaction was executed properly or not. This is your feedback mechanism, which I was mentioning at the start of our discussions.

The results of calculations for the gain/loss is reflected on the next columns

%Gain/loss – how much you earn or loss on this trade

Gain- is the calculated amount, parentheses is default for loss

Remain-Buy amount minus Gain/loss, you will be able to know what is the outcome of your capital

5. Win/Loss count

This part of the journal is to just count how many wins or loss you encountered for your trades. There will be some calculations later to summarize your trading performance and this is very important.

Of course our goal is to win as much as we can, but inevitably every trader (no exemption) will encounter a loss as we could not 100% predict where the market is headed, but keeping in mind that we need to win more than we loss is important.

6. Remarks

For this section you can add or customize what other data you want to record so that later when you review your journal it will have some significant contribution or effect on your performance. Here I have put the different methods trades are using to enter a trade.

This is just an example so later on as you progress as a trader, you can have varied techniques you can use.

Trend follow- this is when a trader uses a strategy that follows the overall chart move

Breakout- is when the prices move above a consolidation level

Bottom fishing-picking the stocks when the price is at the bottom

Ok so now we have all the basic requirements of a trading journal, we will now discuss the interpretation of the 6 basic parts of the journal.

At the bottom of our journal is the summary of the results once you encoded all the necessary requirements of the trading journal.

Total gain refers to the % gain/loss you have for all your trades. This tells us whether we are being profitable as a market trader or investor. Of course our main goal is to have a positive number so that the time we invested will not go to waste.

Win and Loss are the count or number of wins and trades you executed. From this data we can calculate the Winning rate and losing rate.

Base from our sample above you can see that to have a gain for our overall portfolio you need to have a higher winning rate that your losing rate.

Average loss or Average win is the averages of your loss and wins. Once you download the excel file you can check how I manually search the fields need to included those that are losing together or those that have gains together.

Base on this. The trades I have has an average loss of -7% and a winning average of 9%. So as long as I can maintain my cut loss below 7% there is a chance I could be profitable on my future trades. Assuming of course that I have a strict discipline on this matter.

Average reward risk is simply the ration of average win to average losses. A value greater than 1 is always preferred.

Now you remember that the remarks section  I put strategies from my trades and it turns out I excel at doing Trend following. So in the future if I follow the same direction there is a chance I could be profitable.

Now you have seen how powerful a trading journal is to a trader or investor in the market. You can see your overall performance and have a prediction on which direction you should go to succeed on this type of business. Its what I used to learn the curves and risks of the market.

I hope you have learned a lot on this article.

If you think I can still help you to become better, you can check my membership section. I do train people who want to learn more on the market or those who are struggling to learn how to invest or trade in the market properly. You can check it out.

Download the excel Trading Journal Here

Watch our Video on Trading Journal

You might Also want to Read:

Stock Market Cycles

Stock Trend Directions

Blue Chip Stock Picks

Range Trade in SM Investments : 12,572Php Gain