Why is Direct Stocks Level 3 Investing

People often ask me why I put Levels instead of investment options. Well, for me it is easier to understand if we label each investment options as Levels. For the past two weeks we have covered why Kaiser is Level 1 and Why Mutual Fund is Level 2.

I hope you read them both before you go through this one where I share why I consider investing in Stocks directly as Level 3 type of investing. 

You see, putting levels help us realize that we have to go through the levels properly so we build a Solid Financial Foundation and our Success Rate in investing is assured.I am not saying only invest in Level 1 only, the leveling simply tells us what to prioritize.

So are you ready to know why Investing in Stocks is Level 3? And what is my favorite (as recommended by Bro Bo) Direct and On-Line Broker for Stocks? What should we know about this 3rd Level Investing before we plunge into it?

Let me shock you first with this: 85% of people who goes into Stocks not knowing why and how to do it and without guidance lose their money! Or, they do not succeed in their investing. Why? Not only because Direct Stocks Investing is high risk (based on Risk Rate of Return Trade off I explained in previous blog)  but also because Direct Stocks Investing entails a lot of discipline. To better understand this, let me share with you what Direct Stocks Investing is. Direct means you are the one who select what companies to invest in and "directly" makes that decision including when, how much shares you will buy and what broker you will get in. So the responsibility lies on you and along with this responsibility is the need to be literate in the field of stocks investing. By literacy, it means that you need to find time to study what companies has the potential growth on a long term basis, and you have to have time and capability to check and monitor the movement of your stocks.

So the combination of Discipline and Literacy makes Direct Stocks investing Level 3 type of investing compared to Kaiser Level 1 and Mutual Fund Level 2. Because of this, I really like to recommend the COLFinancials or what was previously known as CitisecOnLine  as my favorite Direct Stocks Broker. Not just because it is convenient but also because, it really provides guidance on what we are getting into. But still, you need to have a coach to do it properly. Being a member of the TrulyRichClub of Bo Bo Sanchez will enable you (like us) to be guided on what stocks to buy and when to buy.

What else do we need to know about Direct Stocks Investing?  Of the three Levels I personally recommend we plunge into, it is in Level 3 where you get the most excitement. When I attended the Wealth Circle Meeting, Rex Mendoza now the President CEO of PhilAm Life compared investing in direct stocks and investing in mutual funds. It went like this: investing in direct stocks and investing in mutual funds are both investing in stocks equities. So it is both like eating your favorite cake. Investing in Mutual Funds is like buying your cake from an expert baker, while buying your Direct Stocks can be compared to buying the ingredients, and preparing the cake yourself. This is definitely more exciting and you can have maximized involvement in your decision making but is definitely risky if you do not have the competency...you might end up having a cake that flops... a stock you buy that you may flop too!

In Stock Investing, my favorites are (as I learned from a great mentor on stocks investment: Edward Lee) companies of Henry Sy, The Ayala's, and of Gokongwei. Personal Favorites are AC, BPI- Ayala, SMPH, BDO- (Sy), and JGS, RLC- Gokongwei.

In direct Stocks investing, you have many companies to opt to buy and many brokers to deal with. There are also many segments of industry to choose from. When you buy a stock from the company you become a part owner of that company, but your shares are insignificant, you are just a tiny drop versus what the "Big Boys" put in.. Unlike in Mutual Funds, your money gets pooled together and is invested together and you come into a company together with the "Big Boys".

In Direct Stocks Investing, your 1000Php can buy one company's stock shares, while same amount in Mutual Fund will buy 9 different company shares. Most direct stocks brokers would have their minimum investments peg at 5000 per buy.

So when you invest in Direct Stocks, there will be as many companies you will have to check to know whether your investments are earning or not.

Let me end this up with a Story to better appreciate the difference in the 3 levels of Investing: there were three friends who went to IMG . They were Juana who invested on Level 1 Kaiser, Juan who invested in Level 2- Mutual Funds, and Pedro who invested in Level 3- Direct Stocks. Pedro is really a rock (matigas ang ulo). All of them after hearing my talk about proper investing executed what they learn. All of them invested 2289Php but they did it in different levels. When they went out of IMG office they met an accident. The jeepney they rode met an accident and they all died. As you know the market had been down for 5 consecutive days. Guess who had the most gains in their investment? Is the 2289 of Juan and Pedro still 2289? Definitely lower and it is subject to Estate Tax. In the case of Juana, her 2289 is not just 2289 , not just doubled, not just 10X, but her family gets automatically 70K for the insurance portion and the whole 5 years of investing is considered paid.

So there you are. I hope this gives you the glimpse of why I call Direct Stocks Level 3. It is an exciting vehicle to ride and can really yield high earnings for the long term. We just have to make sure we study very well and get coached on how and when to get in or out. Better still, make sure you get into the first two levels first before you put your hands into this level.

Happy investing!

God bless!