The average annual return of the Philippine Stock Exchange Index (PSEi) in the last 10 years is at around 7%. And if you check its 20-year average annual return, it’s even at 9%. So why is it that most investors are getting burned?
The main reason why people are unable to earn the same average return as the PSEi is due to stock picking mistakes. Before we discuss that further, let’s take a look at what PSEi is first.
What is the PSEi?
Basically, when you talk about the Philippine Stock market, you are referring mostly to the PSEi which comprises the top 30 companies in the Philippine Stock Exchange in terms of market capitalization. These companies represent about 85% of the total market capitalization of the Philippine stock market.
The top 30 companies (as of publish date) are the following:
| Rank | Security Name | Ticker Symbol | Percentage |
| 1 | SM Investments Corporation | SM | 12.10% |
| 2 | SM Prime Holdings, Inc. | SMPH | 10.37% |
| 3 | BDO Unibank, Inc. | BDO | 7.62% |
| 4 | Bank of the Philippine Islands | BPI | 5.04% |
| 5 | Ayala Corporation | AC | 4.45% |
| 6 | International Container Terminal Services, Inc. | ICT | 4.41% |
| 7 | Ayala Land, Inc. | ALI | 4.24% |
| 8 | JG Summit Holdings, Inc. | JGS | 4.02% |
| 9 | Manila Electric Company | MER | 3.95% |
| 10 | Universal Robina Corporation | URC | 3.57% |
| 11 | Emperador Inc. | EMI | 3.51% |
| 12 | Aboitiz Equity Ventures, Inc. | AEV | 3.33% |
| 13 | Aboitiz Power Corporation | AP | 2.95% |
| 14 | PLDT Inc. | TEL | 2.85% |
| 15 | Metropolitan Bank & Trust Company | MBT | 2.84% |
| 16 | Jollibee Foods Corporation | JFC | 2.66% |
| 17 | Globe Telecom, Inc. | GLO | 2.63% |
| 18 | San Miguel Corporation | SMC | 2.62% |
| 19 | ACEN CORPORATION | ACEN | 2.54% |
| 20 | Union Bank of the Philippines | UBP | 2.01% |
| 21 | Monde Nissin Corporation | MONDE | 1.64% |
| 22 | Metro Pacific Investments Corporation | MPI | 1.36% |
| 23 | DMCI Holdings, Inc. | DMC | 1.36% |
| 24 | Alliance Global Group, Inc. | AGI | 1.30% |
| 25 | Semirara Mining and Power Corporation | SCC | 1.27% |
| 26 | LT Group, Inc. | LTG | 1.19% |
| 27 | Wilcon Depot, Inc. | WLCON | 1.16% |
| 28 | GT Capital Holdings, Inc. | GTCAP | 1.08% |
| 29 | Puregold Price Club, Inc. | PGOLD | 1.02% |
| 30 | Converge Information and Communications Technology Solutions, Inc. | CNVRG | 0.89% |
These companies have a great impact on the stock market performance.
Note: this list may change since the list of the top 30 companies is based on market capitalization. Refer to the PSE website for the updated list.
If the PSEi has an average annual return of 7-9%, why are people losing money in the stock market?
The main problem is individual stock picking.
To be precise, people are not buying the stocks that are listed on the PSEi. Most Filipinos tend to gamble on speculative and overly hyped stocks that are not included in the PSEi.
And when they do buy stocks listed in the PSEi, they are not allocating the correct percentage of those stocks in their portfolio.
In order for you to simulate the actual performance of the PSEi, you will need to purchase stocks from each of those top 30 companies. And you can’t just buy an equal distribution of stocks. You need to factor in the percentage of their market capitalization. For example, based on the list above, your portfolio should contain 12.1% of SM, 10.37% of SMPH, and so on.
That’s a tough one to do, right? It will require a lot of money to create a similar portfolio that will mirror the PSEi.
How can I simulate the performance of the PSEi without breaking the bank?
Aside from buying stocks from each of the top 30 companies in the PSEi and allotting a specific percentage to your portfolio for each of the companies, the other option is to invest in an ETF that tracks the performance of the PSEi.
Instead of buying multiple stocks, you can just invest in an ETF that buys those stocks. (For those who aren’t aware of what ETF is, read my other article.)
Alas, there’s only one ETF listed in the PSE that tracks the PSEi which is the First Metro Philippine Equity ETF (ticker symbol: FMETF).
Caution: I’m not currently investing in FMETF nor am I currently active in the Philippine Stock market. So if you consider investing in FMETF, please do your own due diligence.
By the way, there are also mutual funds that track the PSEi but this post is specifically for securities that are traded in the PSE, so I won’t be tackling them at this point.
Kuro-kuro ni Kuya Well
Investing in the stock market, whether it’s the PSEi or the US stock market, is something that everyone should consider. Yes, there are risks but the overall performance of the stock market outweighs the returns that you get if you just let your money sit in the bank. Investing in the stock market is also a hedge against inflation.
Yun nga lang, be careful with stock picking because even reputable fund managers can’t beat the stock market consistently. Now this advice is not just for investors in the PSE but also for those who are engaged in the US stock market.
Hindi ko sinasabing wag kayong bumili ng individual stocks na gusto nyo. What I’m trying to pinpoint is that you should be careful of the stocks you buy and make sure you diversify. Dito kasi tayo nadadale (me included). Kasi kung isa or dalawang stocks lang ang bibilhin nyo at biglang bumagsak yan, baka umiyak ka bigla. Lalo na kung ang binili mong stocks is “subaru” pa. Kaya wag magpadala sa hype, especially sa mga speculative stocks. *Kaway-kaway sa mga nag-gamble sa Dito stocks.
At the moment, I am focusing on the US stock market. My main reason for doing so is because of ETFs. Marami kang mapagpipilian na ETFs that track the performance of the US stock market. They also have other types of ETF like ones that track the performance of companies that provide dividends or ones that invest only in REITs.
Sa atin kasi, nag-iisa lang si FMETF na ETF na listed sa PSE. Mantakin mo yun, iisa lang ang ETF natin? And nalaman ko lang sya a month or 2 after ko mag-invest at pag-aralan (still a work in progress) ang US stock market.
My US stock portfolio is heavy on ETFs because I know I can’t beat the market. I’ve learned the lesson in PSE and by trading in cryptocurrency. In case you’re interested, you can check my previous post regarding my US stock portfolio.