Hey, it’s Baku with a blog on one of our many experiences in the stock market.
And yes, you read that title right. We earned 600% from the stock market! We essentially gained 6 times the amount we invested, and we did it in only 3 years!
And while we do admit that luck was a factor in this success, the bigger contributor was applying the lessons we have learned about responsible investing, which we will talk about below.
Essentially, for this article we want to talk about:
- Our investing experience in earning 600% gain
- What lessons we applied to achieve it
- A couple of reminders at the end
(The lessons here can be applied to any stock market, even though the examples are specific to the Philippines. Also, stocks mentioned are for example purposes only, they are not recommendations.)
(Amounts are adjusted for share splits.)
Our Stock Market Experience
What Stock Was It And Why Did We Buy It?
When we started investing in the stock market years and years ago, we relied on our broker’s recommendations, like the one below, to pick our stock investments.
There is nothing wrong with this way of investing where you choose from the stocks recommended by your broker (which for us is colfinancial.com), and in fact it is what we recommend for most people.
However, our work is actually in accounting and finance, and we realized we have the skills and knowledge to make our own stock market analysis. So, we decided to analyze stocks and compute for stock values by ourselves, and no longer rely on our broker’s suggestions.
After our long analysis, there were a few stocks that seemed like good investments but what really stood out was San Miguel Food & Beverage (ticker: FB). (Also, this company was previously called San Miguel Purefoods).
For the most part, we just wanted a stock from a company that was doing well at selling their products. Besides that, the company stock price also had to be selling cheap, relative to how much it is earning (something we’ll talk more about later).
Anyway, we started buying SM Food & Beverage at P20 per share.
What Happened After We Bought The Stock
If you think the stock price just increased and increased as time went by and then we sold it for profit and lived happily ever after, then you are unfortunately mistaken…
After we bought the stock at P20 per share, it went down to P19 after a few days! Actually, over a span of one year, the stock just kept going down and down and down…
It went to P15, then went down again to P12. If I remember correctly, the Stock went to as low as P9! That’s a loss of more than 50% for our investments!
New investors will definitely panic when looking at their portfolio that’s showing a 50% loss, and might even sell this losing stock. But we did not do that. Instead, we bought even more stocks!
We believed in SM Food and Beverage and their ability to earn and grow in the future, so we had no reason to sell the stock even though the price is decreasing rapidly.
You see, as long as the company is doing well, the stock price will eventually increase in the future.
One basic strategy we apply is called the Buy Low, Sell High. So, now that the stock price dropped, we bought even more!
When the stock went down from P20 per share to P15, we bought more. Then it went lower to P12 and we bought even more! And we did the same as it dropped lower and lower!
The Waiting Game
After like almost a year or so of the stock going down and down (and us buying as it was going down), it slowly climbed back up again! It went back to P12, then P15, then finally back to P20!
You see, sometimes a stock goes down for no good or obvious reason, and as long as the business is doing well the stock will go back up, and probably even higher than its prior prices. This is what happened to our SM Food & Beverage stock, and we’ll talk more about it later.
At this point, we have bought a lot of shares of SM Food & Beverage. And since we bought it when the stock went down, we got our average stock price to about P16 per share.
Now that the stock price is back to the original P20 that we bought it for, we were kind of hesitant to buy more. It even kept increasing to P22 per share and more, and the higher it got, the more hesitant we were to buy more.
We were also hesitant because we have already invested soooo much money in this stock, and so we wanted to invest in other stocks as well. (We kind of regretted this just a little bit, to be honest. We should’ve bought more until it was like P40, but that’s another blog for another day!)
After like another year or so since it went back to P20 per share, the stock just kept increasing again and again to around P30 per share, then P40, and then to around P60!
At this time, we didn’t really do anything regarding this stock. We couldn’t buy more because the price is now too high, but we didn’t sell yet because from our analysis, it seems like the stock is worth more than this! (We computed that the stock has a value of P100 per share! So, we did nothing at this point regarding this stock, but of course we continued buying other stocks.)
And our investment portfolio is telling us that at this point we have almost a 300% gain! But again, we didn’t sell yet.
During this time, SM Food & Beverage reports show that they have been selling their products very well, and have indications that their products will sell just as good or even better in the future. This of course, is pleasant news to us. And this is also made us confident the stock will probably still increase.
Our Goal Was Finally Reached
Finally, around about 3 years since investing in the SM Food & Beverage stock, the price per stock reached P117 per share!
We actually didn’t check this stock that much, so we were pleasantly surprised when it, not only reached our computed value of P100 per share, but even went way over that goal when we finally checked on it!
When we saw this, we immediately sold the stock. Again, our average stock price when we purchased it is P16 per share, and we sold it at P117! This gave us a neat 630% gain, or a profit of over 6 times the amount we invested. Not bad indeed!
At this point, SM Food & Beverage reports are still showing that they are still able to sell their products really well currently and, in the future, which means maybe the stock will increase further. But we didn’t want to be greedy, and since we reached the goal of P100 per stock anyway, we were okay with selling it.
And that was pretty much the end of the story of our stock market experience with SM Food and Beverage.
What Stock Investing Lessons Did We Apply?
Now that you know the story of how we got that 600% gain, let’s talk about the lessons and strategies that we applied to earn that much.
We personally think applying these lessons are very easy as long as you keep your emotions (particularly greed and fear) out.
Lesson #1: Invest Only In Well Performing Companies
It should be common sense to only invest in businesses that actually do well. But how do you know a business is actually doing well? There are a couple of ways, but generally:
- They produce a product that fulfills a need (Ex: SM Food & Beverage sells food and drinks that are needs, in one way or another)
- They have a recognized brand (Ex: SM F&B has the brands San Miguel, Purefoods, Magnolia, San Mig, SPAM and a few more which are all well-known)
- Strong sales and income (SM F&B’s financial reports show they do have good levels of sales and income)
- Low level debt (Also in SM F&B’s financial reports)
- Management is competent (As far as we know, this is true for SM F&B management! For those we can’t search for, we just give them the benefit of the doubt.)
- They have been in business in a long time (They’ve been here since the mid-1900s!)
So, as you can see, SM Food & Beverage definitely hits the main criteria of what a “well performing company” is. There are other companies that do the same, you just have to look for them.
Of course, just because it’s a good business, doesn’t make it an immediate buy, because you still need the lesson below called Buy Low, Sell High.
Lesson #2: Buy Low, Sell High
This should also be obvious, but you’ll want to buy at a low price, and sell it at a high price. Easy right? Well, not really.
I’ve seen SOOOO many investors buy stocks when the price is increasing because they get greedy and feel like they will be left behind if they don’t invest as the price increases. I also see investors that sell when the stock prices are going down because they are afraid of looking at losses. These are, of course, incorrect as you should be buying low, and selling high.
Don’t be afraid when your stocks are at a loss because you bought during the times that the market is going down. As long as you buy a stock from a well performing company (as discussed above), it will rise up and give you profits eventually.
Remember when we bought SM F&B for P20 per share, and it just kept going down and down giving us a loss? But instead of panicking and selling the stock, we bought even more!
Buying low is buying the stock at a price that is lower than how much it is valued. This is something your broker can help you with. If you want to learn more about how to buy low, or just generally buy better stocks, we have a good guide here: How To Pick Stocks Like A Pro Analyst.
However, waiting for the stock to go really high in price where you can sell it for good profit might take time, which we’ll talk more on Lesson #3.
Lesson #3: Be A Long-Term Investor (And Treat Your Stocks as Businesses)
Being a long-term investor means that you treat your stock purchases as business purchases. And no business owner ever says “I’ll start a business today and stop it after one year!”. As business owners and stock owners, you’ll want to be an owner for a long time.
This is a great mentality, because by holding the stock, you get dividends (or your share of the company profits). You’ll also participate in the increase of price of the stock as the result of the business growing bigger and earning more.
Also, historical data has shown that after about a decade or so, all stocks tend to have higher prices than they did 10 years ago. Meaning that profits from stock market investments are almost guaranteed, as long as you invest long-term and the stock is from a well-performing company.
For our SM F&B example, we actually held it for only around 3 years and it hit our goal, so we sold it. But we were very much prepared to hold it for a decade or two if needed!
Patience is difficult, but those who can practice it are usually rewarded greatly.
There are a couple of final thoughts we want to remind you of:
- You probably won’t get 600% gain in first three years like we did, maybe. Maybe you’ll get more, but the higher probability is you’ll get less than that. Maybe you won’t even have gains at that time, but remember that investing is for the long-term and large gains are mostly expected only after around a decade. The wait is long, but trust us, it is worth it.
- This is really more of a blog about our investment and not a complete guide. Make sure to read our other blogs to get a better picture of the overall stock market investing. You can Start Here to learn more.
- There are other investment techniques that we didn’t mention as it is not specific to this experience. But you should definitely look into doing dollar-cost-averaging and diversification. You can read here for a more complete info on investment techniques.
So, that’s our experience with a stock with a really high gain. And yes, essentially, all we did was follow the basic concepts of buying stocks from good companies and waiting for a long time.
Our other stocks are at a gain now, but not much. But, of course, we’re willing to wait a long time since we believe in the businesses behind these stocks!
It was very easy to apply the basic techniques, as long as we kept our emotions (particularly greed and fear) out of our decision making.
So, for a low-risk method and stress-free investing, make sure to follow the time-tested concepts we presented in this article.
Comment your questions below. Good luck and we hope you learned something!
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