Let me start with this statement: Stocks are by far the most risky of financial instruments, but also the most profitable. It is not for the faint of heart. But it sure warrants the average Pinoy's attention.
Here's what you should know about stock investing in the Philippines according to the PSE.
What are stocks?
A share of stock is evidence of a fractional ownership in a corporation. Buying a share of common stock is in fact buying a share of a business. An individual who owns shares in, say, Petron or PLDT has an ownership interest in that company and is called a stockholder or shareholder. This ownership is also referred to as having equity in a company, hence, stocks are also called equities or equity securities. The percentage or proportion of ownership depends on how many of the company’s share one owns.
Where can you buy or sell stocks?
The stock market is the place where shares of stock are traded while the stock exchange is the organization that provides the facilities for the buying and selling of securities. The trading floor is the place where member-brokers trade daily. The Philippine Stock Exchange (PSE) is the only operating stock exchange in the Philippines and has two trading floors located at the PSE Centre in Pasig City and at the PSE Plaza in Makati City.
When can you buy or sell stocks?
Trading at the PSE is from 9:30 a.m. to 12:00 noon in a continuous session daily, except Saturdays and Sundays, legal holidays and days when the Banko Sentral ng Pilipinas (BSP) Clearing Office is closed.
Who can buy or sell stocks?
As the organization that facilitates stock trading, the PSE is not directly involved in the buying and selling of securities. It is the Members (also known as member-broker or member-firms) who can buy or sell stocks for the investors since they are authorized and licensed by the Securities and Exchange Commission (SEC) to transact business as a broker and/or dealer or securities.
A stockbroker acts as an agent or middleman between the investor and other buyers/sellers. As an intermediary, the stockbroker executes orders for clients, purchasing or selling the stocks on the stock exchange. On the other hand, a dealer acts as the principal rather than an agent – buying and selling for his/her own account.
How can you buy or sell stocks?
a) Choose a stockbroker.
b) Open a brokerage account.
c) Place your order with your broker.
What is the minimum amount you can invest in the stock market?
The minimum amount of money needed to invest in the stock market depends on the minimum amount of shares to be traded for the stock. This minimum amount will be determined by the prevailing market price of a particular stock. For each stock the minimum amount of shares to be traded is fixed and depends on the price range of the stock
How can you make money in the stock market?
As owner of a corporation’s share of stock or stockholder, your return can come from either dividends or capital gains.
Dividends are periodic payments made by the company to its shareholders from its current and past profits. It is paid in either of two ways. The first and most common method is cash; the second method is known as stock dividend.
Cash dividend This income is computed by multiplying the number of shares held by the cash dividend rate declared. For example, if a company declares a P0.25 per share cash dividend to tits shareholders, a stockholder with 10,000 shares of stock will receive a cash dividend income of P2,500 (P0.25 x 10,000).
Stock dividend This dividend is given to shareholders in the form of additional stocks, instead of cash. For example, a company with one million outstanding shares declares a 25% stock dividend. A stockholder who owns 10,000 shares will receive an additional 2,500 shares (355% of 10,000) for free as a stock dividend. This stockholder now owns 12,500 shares.
Dividend payments are not automatic. All dividends must be declared by the company’s Board of Directors, but it is the decision of the company whether to declare dividends or not, the amount and when it will be paid. Usually, the higher the company’s profit, the higher the dividends paid to the stockholders. But if the Board decides not to declare a dividend, the common stockholders receive nothing. Common stockholders cannot demand dividend payments even if the company is profitable.
Capital gains. This results form capital appreciation, or an increase in the market value of the stock you own. For example, an investor buys 10,000 shares of stock at P2.00 per share. After several weeks, the market price of the stock increases to P3.00. If the investor decides to sell all his shares, he will be getting a total value of P30, 000 which represents a 50% capital gain form his purchasing value of P20, 000. Thus, capital gains are profit made due to an increase in the market price of a stock form the purchase price.
What do you need to do before you invest?
Before making any investment, you must first evaluate your current and potential means, and determine the goal or purpose of making the investment. Every investor should ask himself the following questions before making the first purchase:
“How much money do I have to invest and can I afford to invest without adversely affecting my life-style?”
“What is the purpose of my investment?”
“How much return would you accept as reasonable for your investment?”
“How much risk am I willing to accept?”
Ultimately, useful tips include:
Investigate before investing:
It is not advisable to put your money into any stock without first looking at the corporation. Issues that have to be looked into are: market share and sectoral importance, the financial performance of the company as shown in the annual and other financial reports, the management, development plans, growth opportunities, etc. Please ask your broker for assistance in selecting the stocks.
Diversify your portfolio.
Diversification is the opposite of “putting all your eggs in one basket,” a practice that is as risky as putting all your funds in one stock. Although temptation of putting everything into one stock might be very great, especially when the price is moving upward, it should be avoided. It is one of the basic rules in stock market investing. Diversification, on the other hand, is the investment strategy of investing in different industry sectors and if possible, different stocks from different reduce your risk considerably.
Don’t rely on rumors.
Frequently, rumors circulate in the stock market, especially when there is heavy trading. At such times, people launch rumors as to where the stock price will go, often to make money out of it. Rumors and hearsay should be carefully checked and verified by the investor. Consider the source and the motive behind the launching of the information and never act on the basis of a rumor that cannot be verified.
Monitor your investments.
So there. Information is key!
Happy investing!
