This is a great question that I get every single day in some form or another. I’m tempted to answer with a negative tone and a laundry list of reasons why stock picking might not work for a new investor, but I instead try to speak to what lies beneath the asker’s question.
I recognize that what they’re really saying is, paraphrased, “I have a little bit of money, I want to make more money, and I am ready to assume some risk to do it!”
It’s not their fault that they don’t know how to take their first steps in the market as a response to that feeling. There’s so much information on investing thrown at each of us every day whether we want it or not, especially during bull runs or crazy crypto pumps, lionizing the lone wolf trader who consumes cold data and ruthlessly bags win after win. The truth is, that’s not how it works.
For the vast majority of investors, stock picking (deciding on your own what to invest in) will underperform the market. Underperformance can come from a number of factors, like overtrading (racking up excessive commissions), poor market timing (missing pumps or eating dumps), and behavioral biases (overconfidence, confirmation bias, etc). Despite all that, though, the new trader still comes to the market with an authentic desire to do what we all try to do here: make more money with the money they have.
In the past, I’ve always started a discussion like this with a disclaimer that I’m not a financial advisor and that each investor needs to do their own research and come to their own conclusions that work within their sphere of knowledge, time availability, and risk tolerance. That’s still true today. But my goal this year is to try to find something else to say after that. I’ve sometimes recommended buying FMETF [FMETF 102.90, up 0.4%; 69% avgVol], the PSE’s only exchange-traded fund, which tracks the overall market under the basic premise that (for new investors) “time in the market beats timing the market”, but my goal this year is to find something better than that.
MB bottom-line: I can appreciate how overwhelming it must be to try and take those first few steps with the little pool of money that the prospective investor has diligently saved. I can also appreciate how frustrating it must be to see so many others who seem to “know the way” with the market, and how pressing it must feel to join in on the action. I can also appreciate how unfulfilling it must be to hear my standard DYOR (do your own research) response, and how flat the FMETF refrain must sound by now. I think that I can do better, but part of that journey is going to require following along on this short personal finance journey. We’re just about to end the expense-tracking portion at the end of January, and we’ll be able to do some very interesting things with that data that could lead us (as new investors) to make some financial decisions soon. If you are new to the market and you’re unsure of where to start, maybe consider joining me on this bit of the journey first. You aren’t going to lose out on any opportunities that won’t also be there when you’re ready.
Merkado Barkada is a free daily newsletter on the PSE, investing and business in the Philippines. You can subscribe to the newsletter or follow on Twitter to receive the full daily updates.