A lot of you might have already borrowed money from banks, from credit cards, from family, friends, and even with your employer.
There could be lots of reasons why you ended up borrowing money. It could be that you needed money for your parents hospitalization, your son or daughter’s tuition, or it could be for your must-have dream Ipad. At work you could use your SSS Loan,PAG-IBIG Loan, and at a small interest your employer which automatically deduct to your payroll.Borrowing money quickly solves your cashflow problem in times of need and in times of want. But how about for your stock investing?
If you remember one of the top stories that is related to stock investing was the story of Roberto Ongpin. My college classmate in Abu Dhabi once told me that some of his co-workers who are investment bankers praise Ongpin for his great strategy in earning big with his Philex Mining Corporation holdings which he sold to First Pacific Holdings of Manny Pangilinan. As per the story I read in national papers, Ongpin accumulated Philex shares by borrowing money from Development Bank of the Philippines(DBP) of which he use to buy the Philex shares the same bank is holding and sold it to Pangilinan’s First Pacific giving him a profit of about half a billion pesos.
Some new investors who ask me through Facebook group or via email often ask if borrowing money to be invested in the Philippine stock would be a wise move.In my personal opinion I would not suggest such.
Do you remember one of the Golden Rules of Stock Investing? Always and only put free cash to your stock investment. Again I would like to re-iterate that the stock market is a volatile place to put one’s hard-earned money.You don’t know when will it go up or down. Thus investing only totally free money is the wisest action when entering the stock market. You can say this free money is your excess money which you have no use for the moment thus you are able to place it in an investment vehicle with higher risk than placing such money in a bank deposit.
But let’s set that aside. Let’s say you have free money to invest but the opportunity is so great that it is tempting to borrow money to fund such stock acquisition like what Ongpin did? Well always be aware that your action is yours alone. Make sure that when you decide to borrow for your stock investment the likelihood of getting a good return is possible. With that being said I mean you have done due diligence, you have thought of all the possibilities, and you have timed it and the percentage of you making money is at least 85%. Again if that is you really got free money.
At times we could have made big profits but we only have small capital to put in the table. Borrowing itself for good reasons is good. Borrowing to expand an existing profitable business is good. Borrowing to enhance your services to satisfy customers and command a higher price is good. Always weigh in your cost-benefit when borrowing money. You don’t borrow when you face emergency because you have your emergency fund, if you have not yet set aside money for emergencies you better start now even before you dive into stock investing or running your own business.
So is borrowing good for you particularly for your stock investing?
My answer is this:if you are just starting don’t borrow money to fund your stock investing. Investing using your free money will make you wiser because you are disciplining yourself from your spending. Your “start saving and setting aside money for emergencies and stock investment activity” is like an exercise that strengthens your financial IQ. Once you surpass that stage and have established your self do your math first if such plan is a great leverage for you.