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Easy Investment Program (EIP)... Is it Easy?

aldenjao · 62 · 21392

aldenjao

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I recently went to a free seminar sponsored by CitisecOnLine (COL) who claims to be the number one online stock brokerage company in the country. The speaker was promoting their Easy Investment Program. I found the seminar to be quite educational. I saw nothing dubious about the program. But of course, I still am a bit ignorant on this subject. They're promoting a formula called Peso Cost Averaging against active trading in which you invest a lump sum of money on shares of stock while market price is low and sell them later when market price becomes high. Its quite a good option for us, yuppies, to acquire hands-on education in stock investing. BTW, I posted this not to convince you to patronize COL. I want to pool ideas, advice, and reactions from you who, I think, are more knowledgeable. Thanks a lot!

http://patnubay2.wordpress.com/2010/11/23/easy-investment-program-eip-is-it-easy/
« Last Edit: Apr 29, 2012, 03:25 PM by aldenjao »


dinaren

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Reply #1 on: Nov 25, 2010, 02:32 AM
Its easy if you have the discipline and funds to come on a regular basis. What im doing now is value averaging which IMO is more powerful than cost averaging.

As regards COL pala minsan pumapalpak sila on taking buy orders. There have been complaints from some ofw friends of mine that they change the prices of your buy orders withour your approval. My friends cant lodge formal complaints since they are working abroad. So be extra careful in dealing with COL.


mlangseth

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Reply #2 on: Nov 25, 2010, 04:58 AM
The problem with the so called investment program is that they will only promoite their own..i mean what they have in their system.

I had an investment with Citibank at one time, in the USA.
Cost averaging..simply means you buy stocks/bonds/MF every month..lucky if the price is down. sorry na lang if the price is up, nonetheless, the batting average will still be good.

The dividends/interests are being reinvested also.
Think of a rolling ball of snow..it becomes bigger everytime it rolls...just my simple analogy.

This type of investment is for the long haul. The more you move your funds the more losses you will have.
Remember--  it costs money to move money.

You can be aggressive if you are young..try to seek the help of the professionals for a better assessment of your finances...that is if you have a lot to invest, otherwise, do your own due diligence.

Nobody should be more interested in your finances than you.
« Last Edit: Nov 25, 2010, 05:00 AM by mlangseth »


TSO

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Reply #3 on: Nov 25, 2010, 05:36 AM
Tell me which is better:
1. Buying the company intermittently, whether the price is high or low
2. Buying the company intermittently, only when the price is "right".

'Easy Investment Programs', i.e. "Cost Averaging", is easy in the sense you don't need to give a damn about it since in the long run, your cost basis will average at some level. Statistics will then assert that 68.28% of the time, your price will be 1 standard deviation higher or lower than your cost basis.

This can harm you because you're not exerting the effort to buy the company at the right price. Let's take URC for example. Precluding its craptastic credit standing, would you buy 12000 shares of it at 2010-start's P17/sh? Or buy 1000 sh a month until Dec 2010, considering its November price is currently around 40+?

Cost Averaging will set your cost basis far higher than P17/sh, probably around 30, +/- 5 I suppose.



pulubing_palaboy

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Reply #4 on: Nov 25, 2010, 06:04 AM
^^^ question is, did you have P200,000++, or less than P20,000 at the start of the year?

and if you only have P20,000 at the start of the year and every month thereafter, would you save and wait to make a one time investment after you've accumulated say P200,000. whereas you can actually start investing and making money every month a little at a time?


TSO

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Reply #5 on: Nov 25, 2010, 06:14 AM
and if you only have P20,000 at the start of the year and every month thereafter, would you save and wait to make a one time investment after you've accumulated say P200,000. whereas you can actually start investing and making money every month a little at a time?

Nope, I wouldn't. So long as URC was below a certain price (maybe 20/sh), I will buy it to maintain low cost basis. On the months following it, I will start looking at other opportunities in the market. That's what I'd do.


pulubing_palaboy

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Reply #6 on: Nov 25, 2010, 06:23 AM
precisely!
and even if you only bought for 4 or 5 instances at or below P20/sh, that's cost averaging. 


dinaren

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Reply #7 on: Nov 25, 2010, 06:53 AM
Nope, I wouldn't. So long as URC was below a certain price (maybe 20/sh), I will buy it to maintain low cost basis. On the months following it, I will start looking at other opportunities in the market. That's what I'd do.
but what if URC doesnt go back to P20/share anymore. how long will you wait? What if fundamentally wise you really like the company and you cant wait to ride on it or you might miss the bus. now there goes the dilemma.


back to the topic of cost averaging:
i believe cost averaging will only work for companies with above average fundamentals and good long term outlook.


TSO

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Reply #8 on: Nov 25, 2010, 07:36 AM
precisely!
and even if you only bought for 4 or 5 instances at or below P20/sh, that's cost averaging. 

I would suppose it falls under the same term... though I still think it's not "cost averaging" under the common connotations since I'm not buying the stock when it's expensive.

Quote
but what if URC doesnt go back to P20/share anymore. how long will you wait? What if fundamentally wise you really like the company and you cant wait to ride on it or you might miss the bus. now there goes the dilemma.

It depends. What if the company's fair value is higher than its prevailing prices? I'd still buy the company's shares, unless I find an opportunity that gives me a better margin of safety. I would only sell URC stock when I need some liquidity to finance this opportunity (thus locking in the big gains made) or it reaches 90% of the computed fair value...


aldenjao

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Reply #9 on: Nov 25, 2010, 09:05 AM
Cost averaging..simply means you buy stocks/bonds/MF every month..lucky if the price is down. sorry na lang if the price is up, nonetheless, the batting average will still be good.

The dividends/interests are being reinvested also.
Think of a rolling ball of snow..it becomes bigger everytime it rolls...just my simple analogy.

You can be aggressive if you are young..try to seek the help of the professionals for a better assessment of your finances...that is if you have a lot to invest, otherwise, do your own due diligence.

Nobody should be more interested in your finances than you.

COL says you may SKIP periods when you buy stock in your pre-set schedule. That seems favorable... BTW, it could also be quarterly, so you may have more time to raise money to invest.

Nice analogy... Seems to be win-win situation...

Great advice for newbie investors!


Post Merge: Nov 25, 2010, 09:12 AM

value averaging which IMO is more powerful than cost averaging.

Could you educate us on this?  :help:

 :thankyou: for the caution...

Post Merge: Nov 25, 2010, 10:00 AM
'Easy Investment Programs', i.e. "Cost Averaging", is easy in the sense you don't need to give a damn about it since in the long run, your cost basis will average at some level. Statistics will then assert that 68.28% of the time, your price will be 1 standard deviation higher or lower than your cost basis.

The way I understand it, you're asserting that the chance to earn money in cost averaging is 50:50 (I am guessing  :grin1:).

Graphically, the price of one's shares may fall anywhere in the middle of the normal distribution.




Post Merge: Nov 25, 2010, 10:08 AM
Nope, I wouldn't. So long as URC was below a certain price (maybe 20/sh), I will buy it to maintain low cost basis. On the months following it, I will start looking at other opportunities in the market. That's what I'd do.

You might have been in the game for quite a while... Newcomers, I think, may need more education to play like this...
« Last Edit: Nov 25, 2010, 10:08 AM by aldenjao »


TSO

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Reply #10 on: Nov 25, 2010, 10:47 AM
See, you posted a normal distribution. Given a certain average, 68.26% of the time, the market price will fall within one standard deviation of it. The thing is, you DON'T want to lose money, so you need to ascertain the probabilities of you losing capital.

And btw, I've only "been in the game" for 1.43-years. That's not very long compared to bauer or thriftypinoy.

Post Merge: Nov 25, 2010, 10:53 AM
Oh! Almost forgot, but what dinaren calls "value averaging" is, I think, the act of just buying the company at the right price.

To add to my response to dinaren: If it's expensive but you are too anxious to just buy the stock and start buying it, then those are your emotions talking and you should kill them because emotions don't have a place in investing.

The purchase decision should be driven by cold, hard facts. Of course, for speculations' sake, one can simply buy one lot/block of the company's stock and leave it be while you investigate the company's investment worthiness further. That is precisely what I did to the company I am currently analyzing. ^^
« Last Edit: Nov 25, 2010, 10:53 AM by TSO »


dinaren

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Reply #11 on: Nov 25, 2010, 11:21 AM


Post Merge: Nov 25, 2010, 09:12 AM

Could you educate us on this?  :help:

ok let me try.  lets say you have a portfolio with an initial value of P1000 and your goal is to add P100 pesos monthly to your portfolio so that next month your portfolio is suppose to grow to P1,100 and so forth.  Then for example the value of your portfolio drops to P980, all you have to do is make your contribution more so that it will become P1,100. So in that case gawin mong P120 contribution mo para maging P1,100 pa rin sya.

Conversely, kapag tumaas naman value ng portfolio mo lets say naging P1,020 na, all you have to do is add only P80 to make it P1,100. In this case you spend less.

Downside is sometimes you are obliged to go to the odd lots. Medyo matrabaho nga lang pero you'll get lesser cost for your returns and will give your investment an extra "kick". And also you have to do it yourself so it will require time for you to make some computations etc.


bauer

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Reply #12 on: Nov 25, 2010, 01:00 PM
TSO,

Option 2 WINS hands down! Buy when the price is right.

Aldenjao,

Forget about citiseconline claims that they are no.1 broker.  CLSA is the biggest trading broker in our country.  CLSA controls more than 1/3 of all trade volume.  think about it, there are more than 200 brokerages and 1 firm controlling more than a third of all trades.  whose number 1?
« Last Edit: Nov 26, 2010, 11:53 PM by bauer »


TSO

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Reply #13 on: Nov 25, 2010, 01:15 PM
^ what's CLSA?


aldenjao

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Reply #14 on: Nov 25, 2010, 01:34 PM
Oh! Quite overwhelmed by your different views... I like it  :cool2:
It seems that's how the stock market works...

Yuhp, nobody wants to lose money... Hence, I'll take some time to hone my stock analysis skills, so I can choose the right strategy hehe...

I'm gonna read all your posts...

Thanks a lot dinaren, TSO, mlangseth, pulubing_palaboy, bauer, etc...


 


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