Saturday, November 25, 2017

Challenges Millennials Face in the Stock Market

Image by Samantha Gonzales / Business World 

I came across this article by Fehl Dungo of DailyPik encouraging millennials to invest in the stock market. The Philippine population is now dominantly young—with an average age of 22, it puts our country in a sweet spot that allows it to grow in the next 30 years. Which means that young people have a lot of time ahead of them to let their money grow. 

There is also ease of access. Stock trading and investing used to mean having money enough to fund a broker, whom you call to buy and sell stocks for you. But with a number of online platforms, all you need is a minimum of Php25,000 (perhaps even less) to get started. Once online, you can now personally choose which stocks you want to trade, in real time, as long as you have access to good internet. 

Now this is where things get interesting. Yes, I agree with most of the article: a young population, coupled with a long time horizon and ease of access to trading—all of these favor the young. And perhaps the challenge would be combatting the nature of youth as well. 

Hello, FOMO and ADHD. 

Once online, not everyone is educated enough to know which stocks to pick and how long to hold on to it. Look at trade forums and Facebook groups, and you always get that newbie question: “Hi, I have ___ thousand pesos. What stock is good to invest in?” Then other members would jump in with “recos” of their favorite stock. It’s very tempting to jump on the loud, popular, trendy stocks. It’s so easy to fall for “hyped” stocks if you don’t know what you’re getting into. Most of the time, newbies then buy those “hyped” stocks. You see the price going up and then you chase it all the way to the top. Then cry and complain online when the price of the stock they just bought start correcting. It’s succumbing to the fear of missing out, or FOMO. 

When the price falls, you switch to another stock which starts to move fast, hoping to recover your losses. Do it again and again and your capital might just be wiped out by bad, ADHD trades. 

This could be easily avoided by studying the market first, then the stocks and the companies behind them. One also needs to be patient. A stock you buy now might climb high and then correct, so be prepared for that. Don’t panic and dump it all to transfer to another stock. 

In a way, I’ve been one of those ADHD/FOMO traders. Had maybe 5-6 stocks on a less than Php50k portfolio. The gains and the losses basically just cancelling each other out and leaving me with minimal negligible gains. Jumped on a stock that seemed like a good idea and then it started to drop and drop. Cut my losses, only to see that stock climb up again. 

I learned from it and started pruning my portfolio. Sold all the losing positions and placed my money on an undervalued stock. After 4-6 months, it went to its all time high. But I didn’t know how to lock in gains, or place a stop loss. I saw a stock with 70-85% in gains wither down and melt to a negative port. But I held on through those rough, red months. Waited for the stock dividends, saw it climb up, go down, sold some. Yet all told, after holding the stocks for around 16 months, the stock has gained over 115%. 

Of course, there are still a few coulda, woulda, shouldas. Shouldn’t have sold when the price was going down. Should have added on that sharp drop. These are hard lessons to learn, and I’m still learning. 

The Philippines has a population of over 100M, and depends on the data you look at, only less than 1% invest in the stock market. We also have a low financial literacy late, and a large part of the population that’s unbanked.

Another interesting development is that the profile of investors has changed and has “skewed towards the lower income bracket.” Those with less than Php500k income per year are now 40% of online investor accounts. We are expanding, but we still have a long way to go. 

So, yes, we should invest in the stock market—not just millennials. Heck, even the Titos and Titas of Manila need to learn more about how money works and how saving and not spending it all on #travelgoals will help us in the long run. It’s not about #FOMO-ing on the trendy, hot stock. We need to be patient and diligent, in order to be truly #blessed.


Jillsabs said...

After selling a huge chunk of my stocks, I'm leaving my portfolio alone for now and concentrating on debt payment and building up my emergency fund.

I have a lot of regret over how I managed my stocks but with regret also comes a lot of learning, so I'd like to believe my dumb moves made me wiser :p

Great blog you have here!

Sera Que said...

There's definitely a steep learning curve for stocks. I started around 3 years ago. The first 2 years were a wash--gains and losses cancelled each other out. It's only in this last year that I've gained a decent amount, and it's only after learning to sit still. But yes, here's to learning from our mistakes! Thanks for dropping by. :)