Chapter
4
Own a
Great Company
When I was 8 years old,
I learned that my parents invested
in the stock market. I
overheard them say that they owned shares
of San Miguel.
(My father worked for San Miguel Corporation for
most of his life.)
I asked my father,
“What do you mean by stocks, Dad?”
He said, “If I bought a
few shares of stock of San Miguel,
that means I own a tiny
part of San Miguel.”
“Wow,” I gushed, “if
you own a part of San Miguel, does
that mean they’ll give
us free Magnolia ice cream and Coke?” (At
that time, San
Miguel also owned both companies.)
Dad shook his head.
“No. It means if San Miguel earns
money, they’ll give me
a tiny part of their profits. They call
them dividends.”
“Oh, I see.”
Actually, it was as
clear as mud to me.
Dad looked at my face
and knew I was lost.
So he gave me an
example.
“Let’s say your mother
puts up a small candy store in
front of our house…”
“But Dad, Mommy doesn’t
like candies. She loves
chocolates.”
Dad rolled up his eyes.
“This is just an example!”
“Then make it
realistic. Let her open a chocolate store.”
“Okay! Mommy needs P50
to buy the chocolates and
another P50 to buy a
small table for the store. So she needs a
total of P100. But
let’s say she doesn’t have P100. Let’s say she
only has P90. So she
walks up to you and asks, “Bo, can you
give me P10? In return,
you’ll own 10% of my candy store…”
“Chocolate store,” I
frowned.
“Okay, chocolate store.
So you give Mommy your P10. At
the end of the year,
the chocolate store earns a nice profit of P10.
So Mommy decides to
share with you P1, since you own 10% of
the store. That P1 is
what you call your dividend.”
“That’s great. So you’re
earning dividends from San
Miguel, Dad?”
“Yes, but that’s just
one way of earning. The other way is
through capital
appreciation.”
“Capital what?”
The Company Gets
Bigger
“Let’s go back to
Mommy’s chocolate store. Do you
remember how much was
the store worth?”
“No.”
“How much did she need
to buy all the stuff?”
“P100.”
“Yes. That’s how much
Mommy spent to buy the
chocolates and the
table. But after a year, business was so good
that she decided to
sell biscuits too. From the profits of the
business, she bought an
entire pack of biscuits worth P50. She
also bought a second
table for another P50. So Bo, how much is
the store now?”
“P200.”
“And how much percent
do you own?”
“I own 10% of the
store.”
“That’s right. One day,
your sister says, ‘Bo, I want to buy
your ownership of
Mommy’s chocolate store.’ What will you say?”
I crossed my arms and
pouted. “I’ll tell her it’s not for sale.”
“But if you wanted to
sell it, how much should she pay
you?”
“10% of P200 is P20?” I
flashed a smile, “Hey, I earned
P10…”
“That’s capital
appreciation. You pick up fast. But that’s
not all…”
The Company Has More
Potential
“You know how your
sisters like to buy the same shoes
and clothes? Let’s say
your other 4 sisters want to also be a
part-owner of Mommy’s
chocolate store. Because they believe
that the chocolate
store will spread to 100 branches all over the
world. They foresee Mom
opening stores in Paris, New York,
Moscow, Tokyo… So they
go to you and beg you to sell them
your 10% share. What
will you do?”
“I don’t know.”
“Think.”
“I guess they’ll gang
up on me, twist my arm, pinch my
ear, and whoever causes
the most pain wins.”
Dad rolled up his eyes
to the ceiling again. “Bo, imagine if
all your sisters are
kneeling down in front of you, asking, ‘C’mon
Bo, sell me your 10%
ownership! Please! Pleeeeeeaaaaase!’”
That was my lightbulb
moment. I got it.
“Hey, I won’t sell it
for P20,” I said, “since they’re fighting
over it, I’ll sell it
for P30. Or P40. Or even P50! I’ll sell it for P100.
Plus, whoever buys it
from me must be my slave for the next 5
years.”
Dad chuckled. “So you
realize that the price of the stock
is determined by two
things: Real Value and Perceived Value.
Real value means the
cost of the store—how much are the
chocolates and tables. Perceived
value means how much are
people willing to buy
it. Perceived value is based on potential.
Perceived value is
based on demand.”
What I Do Today
Fast forward 30+ years
later.
I now invest in the
stock market.
And I teach others to
invest too.
Note: I didn’t say
“Trade” the Stock Market.
Because there’s a giant
difference.
Let me explain in the
next chapter.
Chapter
5
How to
Retire a Millionaire
“The stock market is
dangerous!”
Have you heard that
before?
I have. Many times.
And you know what? I
agree.
After all, statistics
say that 85% of stock market players lose
their money. Believe
me, billions have been lost.
But whenever people
say, “The stock market is dangerous!”
they’re referring to
trading in the stock market. Not investing in
the stock market.
There’s a big
difference.
In this little book,
I’d like to teach you how to invest in the
stock market, not
trade. If you want to trade in the stock market,
this book isn’t for
you. Please look elsewhere.
Here’s the basic
difference:
Trading is buying
stocks and selling them within a day or
a few days.
Investing is buying
stocks and selling them in six months
or never!
Warren Buffet, the
richest man the stock market has ever
made, said, “Only buy
something that you’d be perfectly happy
to hold if the market
shut down for ten years.”
Here’s why I believe
you should be investors: I don’t
believe ordinary people
should be trading. I repeat, 80% of
people lose their money
in the stock market. My belief is that
most of those 80% are
traders.
Another word for
trading is “speculating.”
As Mark Twain said,
“October is one of the peculiarly
dangerous months to
speculate in stocks. The others are July,
January, September,
April, November, May, March, June,
December, August and
February.”
In trading or
speculating, you don’t look at how strong
the company is. Any
company is game—even what they call
“penny” stocks. These
are companies whose stocks are worth
centavos. Because
they’re considered very risky.
So leave the trading to
full-time traders—the people who
do this full-time,
studying about it 8 hours a day.
Investors invest only
on the great companies. Because
we’re in for the long
haul.
And instead of trading,
you should focus on your business
or job. Focus on your
core competency. Stick to your game plan.
Everything that I’m
teaching you here at the TrulyRichClub.
Through your business
or job, you create the money
necessary to invest in
the stock market.
One of the Greatest
Inventions:
Money Cost Averaging
If you want to invest
in the stock market, there’s only
one choice: Money
Cost Averaging. That’s just a fancy name for
buying stocks of great
companies, little by little, each month.
Perhaps P5000 a month.
Or P10,000 a month.
Or whatever fixed
amount you’re can set aside from your
monthly earnings.
Can’t afford P5000 a
month? No problem.
My maids can only
afford to save P2000 a month. So every
third month, they
invest P6000 into the stock market.
The important thing is
to do it regularly.
Discipline yourself.
The moment you get your
salary, divide it according to
the 5 “envelopes” I
mentioned in Chapter 1.
steadily year after
year.
What About
Recessions?
Now here’s a powerful
point I want you to read carefully:
When you adapt this
Money Cost Averaging strategy, you’ll be
buying without much
thought to the bouncing of the market
prices.
You’ll hear a lot of
talk like this…
“Is Ayala Land
cheap today?”
“Do you think
Jollibee will go up tomorrow?”
“Is BPI’s price
expensive today?”
“Perhaps PLDT
will be lower tomorrow?
Here’s a nice way of
answering all these questions: Who
cares?
Because in 10 years—they
don’t matter.
An oil crisis explodes
all over the world.
Buy your stocks anyway.
A political crisis
erupts in the country.
Buy your stocks anyway.
A world economic
recession happens again.
Buy your stocks anyway.
Keep buying those great
companies.
This is the secret of
the wealthiest people in the world.
Do You Want to Become
Rich?
Do What the Rich Do.
One of the richest men
in the world, Warren Buffet, has a
rule on investing in
the stock market: “Be fearful when others
are greedy, be greedy
when others are fearful.”
When the economic
recession happened last year, Buffet
was like a little kid
in a giant candy store that has declared an
“All-Items-Must-Go”
Sale.
Great companies were
selling their stocks marked down
at half-price.
Some of the best
imported chocolates were at 60% off!
Little boy Warren
couldn’t believe his eyes. Even with his
vast amounts of money,
there was so much good stuff to buy.
So Buffet went on a
buying spree—picking up stocks of
solid companies left
and right. While people were fearful, he
was brave.
Remember this when
you’re doing your Money Cost
Averaging.
Are you ready?
Let’s enter the Candy
store.
Here’s a nice way of
answering all these questions: Who
cares?
Because in 10 years—they
don’t matter.
An oil crisis explodes
all over the world.
Buy your stocks anyway.
A political crisis
erupts in the country.
Buy your stocks anyway.
A world economic
recession happens again.
Buy your stocks anyway.
Keep buying those great
companies.
This is the secret of
the wealthiest people in the world.
Do You Want to Become
Rich?
Do What the Rich Do.
One of the richest men
in the world, Warren Buffet, has a
rule on investing in
the stock market: “Be fearful when others
are greedy, be greedy
when others are fearful.”
When the economic
recession happened last year, Buffet
was like a little kid
in a giant candy store that has declared an
“All-Items-Must-Go”
Sale.
Great companies were
selling their stocks marked down
at half-price.
Some of the best
imported chocolates were at 60% off!
Little boy Warren
couldn’t believe his eyes. Even with his
vast amounts of money,
there was so much good stuff to buy.
So Buffet went on a
buying spree—picking up stocks of
solid companies left
and right. While people were fearful, he
was brave.
Remember this when
you’re doing your Money Cost
Averaging.
Are you ready?
Let’s enter the Candy
store.
Here’s a nice way of
answering all these questions: Who
cares?
Because in 10 years—they
don’t matter.
An oil crisis explodes
all over the world.
Buy your stocks anyway.
A political crisis
erupts in the country.
Buy your stocks anyway.
A world economic
recession happens again.
Buy your stocks anyway.
Keep buying those great
companies.
This is the secret of
the wealthiest people in the world.
Do You Want to Become
Rich?
Do What the Rich Do.
One of the richest men
in the world, Warren Buffet, has a
rule on investing in
the stock market: “Be fearful when others
are greedy, be greedy
when others are fearful.”
When the economic
recession happened last year, Buffet
was like a little kid
in a giant candy store that has declared an
“All-Items-Must-Go”
Sale.
Great companies were
selling their stocks marked down
at half-price.
Some of the best
imported chocolates were at 60% off!
Little boy Warren
couldn’t believe his eyes. Even with his
vast amounts of money,
there was so much good stuff to buy.
So Buffet went on a
buying spree—picking up stocks of
solid companies left
and right. While people were fearful, he
was brave.
Remember this when
you’re doing your Money Cost
Averaging.
Are you ready?
Let’s enter the Candy
store.
To be continued..........
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