“Money without financial intelligence is money soon gone.”
– Robert Kiyosaki
In this entry, I’ll be discussing the basics of the STOCK MARKET as I understand it. I will skip the topic of why you need to invest and become financial free. I’ll be dedicating a post just for that but first, let’s do STOCK MARKET 101.
Just a reminder, It is best to put this in mind before you dive in to the world of stock market.
Stocks – just something you add on your current lifestyle…
what the stock market is just 4 things:
(1) It is a place where (2) you can buy and sell (3) shares of stock of (4) publicly listed companies
What are STOCKS?
Stocks are shares of ownership in a company. When you buy stocks of a publicly listed company, you become part owner of that company. As a part owner, you participate in the company’s growth and future profits. Conversely, you may also lose if the company suffers a loss or performs below market expectations.
Historical data has shown that investing in stocks over the long-term provides superior returns. Stocks offer potentially higher yields compared with fixed income instruments such as time deposits, government securities and bonds.
An investor would need at least the minimum amount of investment to open a trading account which is Php 5,000.00.
*** If stocks are a far thing from your mind, what would you do with your 5,000? Buy a watch? shoes? bag? and everything that goes off fast?… Yes, It may be feel and look good at first because its new… but If you think in long term? They all lose their worth. But If you will invest that 5,000… Long term, It’ll grow and will worth more than that amount!
How do I choose a stockbroker?
There are over 100 licensed stockbrokers accredited by the PSE. Your choice of stockbroker should depend on the type of service you will require and who will best suit your needs. The types of stockbrokers can be classified into:
a. Traditional – those who assign a licensed salesman that take orders through written instructions or phone calls
b. Online – those whose main interface with the customer is via the Internet
You can get a complete list of accredited stockbrokers by visiting the PSE website, www.pse.com.ph, or contacting the PSE at (632) 688-7600 or (632) 819-4100.
I recommend: COL Financial www.colfinancial.com
Investing through an online stockbroker is like being your own stock broker. On your own, you will be able to buy and sell stocks as long as you have a computer with access to the internet. Since everything is do-it-yourself, you will be paying the lowest commission rate possible (0.25%).
How do I open an account?
Similar to the process in opening a bank account, you will be required to fill out a form called Customer Account Information Form (CAIF), and submit the following documents, namely:
a. Two (2) valid IDs;
b. Specimen signature cards; and
c. Proof of billing (although some brokers do not require this).
Depending on your stockbroker, you may be also asked to provide additional pertinent documents and an initial cash deposit in order to begin investing in stocks.
Set-up an account: Setting up an account with a stock brokerage house is just like opening a bank account with at least P 5,000 initial deposit. Your broker will help you set-up an account. Fill out a customer information sheet, submit two valid IDs with picture, sign on a specimen signature card, and you are a bonafide stock market investor.
What companies should I buy?
This is a very important message, that you do the homework in choosing a company to buy.
If a company has weathered the past market crashes, chances are it will again in the future. (That’s why it’s of utmost importance that you pick an industry giant – rather than an unknown company.)
Choose stocks of companies with proven records of profitability with at least some earning in each of the past ten years.
- Buy companies that have little to no competition. Airlines, Retail Stores and Auto Manufacturers are generally considered bad long-term investments because they are in fiercely competitive industries, which is reflected by low profit margins in their income statements. In general, stay away from seasonal or trendy industries like retail and regulated industries like utilities and airlines, unless they have shown consistent earnings and revenue growth over a long period of time. Few have.
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.
Invest regularly and systematically.
Do I need to have physical evidence of my stock ownership?
The PSE through its central depository, the Philippine Depository Trust Corp. (PDTC) uses the computerized book-entry system (BES) to transfer ownership of securities from one account to another, thus eliminating the need for physical exchange of scrip between buyer and seller. This system is called scripless trading. However, you may still request for an upliftment of your shareholdings to get a physical certificate.
After buying that company, you need a plan…
There are two types of people in the market:
In this post, I am teaching you to be a FUNDAMENTAL INVESTOR.
The point to all this is to find what works for you. Make a buy/ sell plan. You don’t have to make big bucks overnight. Take the long-term approach, with a plan.
A wise investor always keep track, on a regular basis, of the sock price and the company’s performance. This way, an investor is able to foresee possible consistent poor performance and low profits as well as consequently low stock prices. One of the most important factors influencing the amount of success achieved by an investor is the quality of information used to make investment decisions.
Having placed an initial amount in stocks, the next step is to keep track of the stock price and to follow closely the developments of the company. It would not be wise to put your stock certificates in a safe and have them locked away for years. There have been too many cases of companies that performed badly for years, or even worse – got bankrupt. It would be too bad for an investor to discover after years that the shares have little or no value anymore.
Hold for the long term, at least 5-10 years, preferably forever. Avoid the temptation to sell when the market has a bad day or month or even year. On the other hand, avoid the temptation to take profit even if your stocks have gone up 50 percent, 100 percent, 200 percent, or more. As long as the fundamentals are still sound, do not sell. Just be sure to invest with money you don’t need for five or more years.
Investors should therefore spend some time and effort in studying their investment
Never stop learning, and continue to read as many books and articles as possible written by experts who have successfully invested in the types of markets in which you have an interest.
Nothing will happen without your commitment!
Credits to these following blogs, sites that gives me the inspiration and learnings that I need with the topic at hand:
and so this concludes my stock market entry… I hope you get an idea or two about it and the better If you’d thought of taking action and joining the market…
Invest now, time is of the essence here, the earlier, the wealthier you’ll be. Stop dumping your money on non-sense investments, putting money in the bank isn’t that practical these days as they give few percentage… Think and act now and save your future.
Let’s end the poverty. Let’s spread financial literacy.