Marginal Investor Swings with the Stock Price

The Starter Investor Learns Swing Trading

Effective from our update on April 5, 2023, we have rebranded from Marginal Investor to The Starter Investor. For additional details, please visit our About Us page.

BECOMING A GENUINE INVESTOR in common stock is our ultimate goal. You may read that the previous two posts are parts of a series that will show how Marginal Investor understood and applied the principles and techniques described in the book The Intelligent Investor by Benjamin Graham in the context of a beginning investor who is a Filipino, residing in the Philippines and with a shoestring budget to begin with.

Investment Money

You may also find in Awakening of the Marginal Investor or Speculator that I suggested using the speculative method of stock trading and taking advantage of quick price changes until one has the amount of over 50,000 pesos. Of course, one may invest in common stocks through the Philippine Stock Exchange with funds under 50,000 pesos. But this would be insufficient to create the suggested diversified portfolio of common stocks giving one the expected 4% to 8% average annual return. For this reason, I would put on hold the series about the Intelligent Investor until that time when we have complied with Marginal Investor's proposed fund requirements.

Investors and Stock Traders

Nevertheless, Chapter Two of The Intelligent Investor is so much related to the stock trading game that I would still venture to include some portions of it here. Entitled The Investor and Stock-Market Fluctuations, this chapter offered some description of the proper attitude that investors should take in the matter of price fluctuations in common stocks. Since, for the time being, we shall play the role of stock traders with speculative tendencies at that, we shall note the warnings and pick up suggestions as they apply to us.

Buy Low, Sell High

In discussing Market Fluctuations in Individual Stocks, it mentioned that the principle of buy-low-sell-high can be applied more satisfactorily with primary reference to individual stocks and with comparatively little regard for the level of the general market. The maxim is: "Buy during periods of of pessimism and low prices; sell during periods of optimism and high prices." This is just exactly what we need to understand because we are focusing only on one issue: Ayala Corporation. And we shall use the facilities of BPI Trade for our online stock trading.

Swing Trading

Furthermore, while we were digressing from our main focus of investing towards stock trading, we will be maintaining a clear view of our overall goal at all times. Talking about stock trading, stock traders typically gravitate around any one of the major styles of equity trading and stick only to that style. For our stopover, this Starter Investor decided to play the role of a swing trader.

Playing the role of a swing trader, we shall hold our Ayala Corporation shares for a period of time, generally a few days or two or three weeks, and we will trade this stock on the basis of its intra-week or intra-month oscillations between optimism and pessimism, following our maxim.

Stock Trading Operating Cycle

In the introduction to my previous post, I explained how I completed my first stock trading operating cycle, from 4,050 pesos cash to buy 20 shares of stock to generating receivables, then collecting the receivables and converting it back to cash and picking up 350 pesos appreciation of my principal in the process. Here is what the operating cycle looks like:

Waiting for the Swing

In the first week of April, we started a new roundtrip by using 4,080 pesos of our cash to buy 20 shares of Ayala Corporation at 204 pesos per share. Since our goal is to generate a minimum return of 6% for our total available cash position every roundtrip - which at this time is 4,400 pesos - then we need to obtain net capital gains of 265 pesos.

Transaction Cost

Transaction costs for selling our stock inventory are about 1% to 2% of gross sales. For this cycle, we should consider selling only when the price is over by a minimum of 8% based on our total purchase cost of 4,080 pesos, which means an offer price of 221 pesos per share. What we need to do now is simply wait for the stock price to swing from 204 pesos to 221 pesos per share.


Next Post: BPITrade Updated Fee Structure and Stock Cost-Proceeds Computation