Is there a golden rule in stock market investing?

With inflation rate not yet showing signs of slowing down, is there a golden rule that stock market investors should follow to keep their investments at bay?

According to BDO Securities, there is no single golden rule for stock market investing. But to have an effective stock market investing strategy, stock market enthusiasts must observe the following:

  • Do your assignment. Conduct a background check on your stock selections and do it carefully. Make sure that the companies you will invest in have good fundamentals and prospects.
  • Plan and time your entry and exit levels. Before buying a stock, make sure that you have already planned where you will sell your position based on these scenarios: if your stock rallied higher or if the market went against your expectations.
  • Manage your risks. Regularly reevaluate your current stock holdings and assess whether your portfolio is still viable to market conditions. Check whether you have to re-balance and rotate to sectors that could potentially exhibit strength in the coming weeks or months. Make sure that your exposure on the stock or sector is also ideal based on the reward-to-risk ratio of your trades.

The state of the economy significantly sways stock market movements. When inflation is high, it puts a dent on consumer spending and companies will inevitably feel the pinch on their profits, which may cause stock prices to dip.

“The ongoing geopolitical tensions, supply chain issues, and US Dollar strength may keep inflation elevated. Nonetheless, we will keep watch of signs of easing inflation (i.e. sustained drop in key commodity prices like oil) as it is positive for stocks and may induce a market rally,” said BDO Securities, a brokerage firm which is a wholly-owned subsidiary of BDO Unibank’s investment banking arm BDO Capital & Investment Corporation.

In 2023, BDO Securities forecasts inflation to gradually ease to 5.0% from an average of 5.7% this year.

When it comes to appropriate asset allocation for investors with different risk profiles, BDO Securities suggests that the more conservative an investor is, he/she should have more exposure on fixed income assets. Meanwhile, the more aggressive the investor’s risk profile is, his/her portfolio mix should have more exposure on riskier assets such as equities.