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KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET
PHILIPPINE STOCK EXCHANGE FOREWORD
In its effort to educate and increase public awareness, the Philippine Stock Exchange has come up with a series of Investors Primers that will provide simplified answers to all inquiries related to the history, structure, components, operations and procedures of the Philippine securities industry. Investors Primer III: Investing in the Philippine Stock Market is the third of a series which hopes to guide readers on the basics of investing and participating in the Philippine stock market. We hope that the information provided herein will result to a better understanding of the Philippine securities market and, in turn, encourage local and foreign investors to take part in our stock market.
JOSE LUIS U. YULO JR. President and Chief Executive Officer Philippine Copyright 1999 by the Philippine Stock Exchange, Inc. First Edition Published by: PSE Training Institute and Research and Public Information Department Philippine Stock Exchange, Inc. Philippine Stock Exchange Centre Exchange Road, Ortigas Center 1605 Pasig City Tel Nos: 636-0122 to 41 locals 805,509, 510 http://www.pse.org.ph Printed in Manila, Philippines SBN 971-92134-2-6
HOW TO INVEST IN THE PHILIPPINE STOCK MARKET A Guide for Investors Investors Primer III: Investing in the Philippines Stock Market
Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. What are stocks and equities? What are stocks certificates? What type of stock can you buy or sell? What are warrants? Where can you buy and sell stocks? When can you buy or sell stocks? Who can buy or sell stocks? How can you buy or sell stocks? What is the minimum amount you can invest in the Stock market? What charges will you incur in buying and selling stocks? What are your rights as a stockholder? How can you make money in the stock market? How do you collect information about stocks? What do you need to do before you invest? What are some investment tips which can help you while investing? What are the risks involved in stock market investing?
fglinc.tripod.com/knowinvest.htm#1. What are stocks and equities?
Buying a share of common stock is in fact buying a share of a business. What are stocks and equities? A share of stock is evidence of a fractional ownership in a corporation. For example. The certificate indicates the investor’s name. preferred stock. Class A shares are reserved to Filipino investors. The number of underlying shares a warrant holder is entitled to buy or sell for every warrant he holds is known as the conversion ratio.000 ownership interest. stocks are also called equities or equity securities. and receive the same amount of dividends. The difference depends on the right and privileges which you receive as a stockholder. it is advisable to have them issued in street name since it will facilitate the quick transfer of ownership.000 shares of common stock in a corporation that has 100. Common shares can be classified into class A and class B shares. What type of stocks can you buy or sell? There are different types of stocks that you can buy or sell at the Philippine Stock Exchange (PSE): common stock. cumulative preferred stock and convertible preferred stock. to the extent declared by the company’s Board and if there are sufficient retained earnings. 2. say. a stated number of underlying shares of stock at a specified price during a specified period of time. while Class B shares are open to foreign investors as well as Filipinos. Underlying shares are the shares. its inventories and other assets. total number of shares purchased. Preferred stocks are another type of securities issued by corporations. The percentage or proportion of ownership depends on how many of the company’s share one owns.e. the par value and the name of the issuing corporation. he receives a stock certificate – a written evidence of ownership certified to the corporation. of a corporation which may subscribed to or purchased by the warrant holder upon the exercise of the right granted under the warrants. However. Issuers or warrants may be the issuer of the underlying shares or an entity other than the company underlying the fglinc. The conversion ratio specifies the number of shares the holder receives upon surrender while the conversion price is effective price paid for the common stock when conversion occurs.htm#1. Petron or PLDT has an ownership interest in that company and is called a stockholder or shareholder. Both classes have the same privileges and rights. before any dividends are paid to the holders of common stocks. a warrant is a security which grants the holder the right but not the obligation to buy (in the case of a call warrant) or sell (in the case of a put warrant). The difference is important to know since without notice form the investors all stock certificates will be issued in street name. What are stocks and equities? 2/9 . the certificate number. When shares are purchased. Only when the investor specifically asks for it will the stock certificates be issued in the investor’s name. (c) attached to bonds. Thus. hence. What are warrants? Warrants are another type of investment which you can buy or sell in the stock market.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET 1. therefore the omitted cumulative preferred dividends must be paid before the common stock dividends can be paid. What are stock certificates? Ownership of a business is represented by stock certificates. The majority of securities traded in the PSE are common stocks. 1. Cumulative preferred stock has prior rights to dividends over common stock. or (d) as stand alone. warrants are used as “sweeteners” to enhance marketability of the issuances. the process would be lengthier since it is the investor who needs to endorse it at the back of the certificate. This means you have one percent (1%) ownership interest I the company’s plant. the stock certificates will be issued either in street name or in the investor’s name. Warrants can be issued in a number of ways: (a) as part of an initial public offering. Common stocks are usually purchased for participation in the profits and control of ownership and the management of the company – they have voting rights. 3. The exercise price is the stipulated stock price at which the holder can buy or sell the underlying. The exercise period specifies the life of a warrant while the expiration date is the date at which the warrant expires. i. 4. In the case of debt or equity offerings. the street certificate simply be endorsed by the stockbroker. An individual who owns shares in. unissued or issued as the case may be. If it were in the investor’s name. When an individual becomes a stockholder of any corporation. By definition. Under the SEC Rules Governing Warrants. its building. they have the last claim on dividends and are the last to collect in case of liquidation. When the investor decides to sell his shares. Holders of the preferred stocks are entitled to receive a fixed minimum amount of dividends (expressed either in pesos or as percentage of the stock’s par value). In this way. Its name is derived from the preference given to the holders of this stock over holders of common stocks. When shares are bought and sold frequently.com/knowinvest. in the name of the brokerage firm. (b) attached to a rights issue. Convertible preferred stocks are preferred stocks which are exchangeable into common stocks at the option of the holder under specified terms and conditions. Filipinos can own both classes while foreigners can only avail of Class B shares. the brokerage firm – and NOT the investor – will be the holder of the stock certificates.000/100. Stock certificates that are in the street name facilitate the transactions by brokers. This ownership is also referred to as having equity in a company. Cumulative preferred stocks are special preferred stocks that accumulate unpaid dividends for future payment.000 outstanding shares represent 1.tripod. Common stock holders are entitled to an equal pro rata division of profits without preference or advantage over another stockholder.
in which to raise money to purchase more shares (the underlying stock). Opening a brokerage account is relatively easy to accomplish and takes not longer than opening a bank account. 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. minimum or maximum value of trades (trading limit). the client’s signature. On the other hand. All transactions are handled confidentially and the broker will not reveal to any person the details of any purchases or sales done for his client. using lesser amounts of money and the advantage of having more time. This account allows the client to perform stock transactions (buy and sell shares) any time – similar to bank account which enables you to deposit. on time delivery of important documents – such as confirmation receipts – and other trading-related activities that the client may require. What are stocks and equities? 3/9 . you must also see to it that the broker (person or corporation) is a member of good standing at the Philippine Stock Exchange. i. Frequently. fglinc.m. the investor is protected from the downside risk of the underlying stock’s price depreciation since the exposure of their money is limited to only the price of the warrants. Instead.e. containing the: name. Also. a brokerage account has to be opened. there are eight (8) warrants listed at the PSE. An individual or corporation is considered a PSE Member once they have acquired a “membership seat” and have met all the set requirements for membership. the PSE is not directly involved in the buying and selling of securities. In choosing a broker.com/knowinvest.tripod. and most importantly. All trade orders entered by brokers in behalf of their clients are matched with the best bid/best offer (BBO) regardless of which floor orders originate. Once the investor has chosen his brokerage firm.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET warrants and may be in the form of: a) Subscription Warrant – a warrant which grants the right to subscribe to the new or unissued shares of stock of the Issuer. the Issuer normally adopts hedging strategies to provide for its obligations during the life of the Non-collateralized Warrant. c) Non-collateralized Warrant – a warrant issued by a party other than the Issuer of the underlying shares and whose performance of obligation is not secured by a deposit of the underlying shares. which uses the single-order-book system where all the orders are posted and matched in one computer. the client may buy or sell immediately according to the trading instructions between the investor and broker.htm#1. to 12:00 noon in a continuous session daily. When can you buy or sell stocks? Trading at the PSE is from 9:30 a. The trading floor is the place where member-brokers trade daily. b) Covered Warrant – a warrant which is issued by a party other than the Issuer of the underlying shares and whose performance of obligation is secured by the deposit of the underlying shares for the Covered Warrant with an independent Trustee which is a reputable commercial bank. It is important that you trust your broker and that you are satisfied – with the services it is giving you. exercise period. A stockbroker acts as an agent or middleman between the investor and other buyers/sellers. Trading at the two trading floors or PSE is electronically linked by a computerized trading system. advice regarding stock selection and timing of purchases and sales. Each Member is entitled to one seat which can be bought from an existing Member or from the Exchange. 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. purchasing or selling the stocks on the stock exchange. it has gained some popularity. the MakTrade System. The warrant holder has the chance to have the same exposure in the market. the stockbroker executes orders for clients. 5. as with buying the stock itself. A specimen signature card needs to be filled out. transfer and withdraw money. 6. trade executions. 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. address (professional and private). a dealer acts as the principal rather than an agent – buying and selling for his/her own account. As an intermediary. A complete listing of the PSE member-brokers can be found in various publications or from the PSE Membership Department. How can you buy or sell stocks? a) Choose a stockbroker. Broker services include market reports. telephone number(s). 7. Even if the trading of warrants is relatively new in the Philippine stock market. legal holidays and days when the Banko Sentral ng Pilipinas (BSP) Clearing Office is closed. etc. bank and professional references have to be submitted. Who can buy or sell stocks? As the organization that facilitates stock trading. Currently. Trading instruction can vary depending on the investors’ objective – whether it is short-term or long-term. except Saturdays and Sundays. Once an account has been opened. b) Open a brokerage account. 8.
Currently the PSE settles trades on T+4. the minimum number of shares to be bought at a regular transaction is 100 shares.000 shares). the number of shares to buy or sell.00 (P0. looks for the price range in the table below reads the minimum amount of shares in the same row.26 0. 000.00.10 10.00 For example.000.001 x 1.e.0024) a minimum of P1. most likely by telephone (unless arrangements are made).00 (100 shares x P100. 000.00 upward 1. without the stock certificates and cash being handed over physically.000. Therefore.50 505.000 10. which stock to buy or sell.50 101.000 shares have be bought. 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. d) Settle your transaction. Inc.000 1. when placing an order to buy or sell. payments and/or securities must be delivered to your broker on or before 1:00 p. The bookentry system clearly advantages over the paper-based system. Be sure to always verify the settlement deadline with your broker for future developments. stock certificates are simply immobilized and kept in a safe place – the Philippine Central Depository. you have to call your trader and give the details of your order.51 1.000. now in place. The account is credited when buying shares.00 share price) exclusive of other charges for buying stocks. Table 1 Board Lot Table Minimum Amount of Shares to to to to to to to to to to to to to to to to to and 0.005 0.10 0.0525 0.50 to P100. the investor takes the market price of the wanted stock.50 5. of the fourth trading day following the sale. This price is in the P50.026 0. Instead.tripod.000.00 price range.55 5.00 250.000 100. an investor wishes to buy a stock whose market price is P100.00 100. consequently. What are stocks and equities? 4/9 . the minimum capital outlay is P1. and preferably also the bid price (when buying) or asked price (when selling). four (4) days after the transaction date. For shares in the lowest range (from P0. A trader is a licensed salesman who is authorized to buy and sell securities at the PSE. 000.02 2. To determine the minimum amount of shares. The paperless or scripless trading. In this case.htm#1.50 50.50 1.0026 0. i. It has dramatically reduced paper work.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET c) Place your order with your broker .011 0.000 1. facilitated the trading and eliminated the loss or forgery of shares.000 100.001. Buying and selling transactions are settled by book-entry. The trader need to know the following specifications: buy or sell order. fglinc.000 1.25 0.25 25. This means the ownership of shares and cash is transferred electronically to the brokerage account. He/she will receive your order.001 to P0.000 10. Thus. and debited in the case of selling shares.000 100..001 0. which may take more then 3 to 4 weeks.00 2. a trader will be assigned to the investor. and will execute the order through the trading terminal connected to the main system of the Exchange. If the share price is P0. The assigned trader will be your contact person for all the transactions. The system replaced the scrip-based system where stock certificates are handed over for transfer for the next owner. the minimum amount of the investor needs is just about P10. After opening the account. This minimum amount will be determined by the prevailing market price of a particular stock.00 500.000 10.105 0. has eliminated the physical handover of stock certificates when buying or selling.m.0024 0.05 0.com/knowinvest.00 10.01 0. For each stock the minimum amount of shares to be traded is fixed and depends on the price range of the stock.025 0.00 252.000 100 100 100 10 10 10 Price ranges 0. 9.0055 0.00 25.00 50.000 1.000 1. as shown in the table below (otherwise known as the Board Lot Table).
When you sell shares.5%) 10% VAT on brokers' commission Transfer fee 10% VAT on transfer fee PCD fee (10. buying and selling transactions are subject to an ad valorem rate of 0. the brokerage firm always acts as an agent between you. The transfer agent maintains the ledgers for each issuer the company showing the details about each registered stockholder. the number of shares multiplies by the price) plus 10% value added tax (VAT). It should be noted that these tares are subject to changes. the brokerage firm adds the commission to the value of the shares bought. The maximum fee is 1. Illustration 1: Buying securities If we assume that an investor buys 2.00 x 0.00 0. the computation is as follows: Sale proceeds (500 shares x P20. Sales transaction and/or direct transfers are subject to a cancellation fee of P20. Stock transaction tax.65% (1.00) x P1. 762. 000.5% of the gross value of the transaction (i.000.00 0.00 15.50] 200 Total cost of the transaction P10. the computation for the total cost of the transaction is as follows: Investment cost (2.00 150. the buyers and sellers.5% + 10%).5%) 10% VAT on brokers' commission Stock transaction tax (10.92 15.00 x 0. the commission is deducted from the proceeds that you receive.08 fglinc.000.com/knowinvest.00 x 1.00) Less: Brokers' commission (10. in lieu of transfer fee and cancellation fee.00009174 (inclusive of VAT).00 50. When buying and selling listed securities.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET 10.e.00 x 1.00 upliftment/withdrawal fee per request and transfer fee.92 P9.000 shares x P5.00 15. The stock transaction tax is charged to the seller for every sale of stocks listed and traded on the Exchange at the rate or ½ of 1% of the value of transaction. Documentary stamp tax.00 per share with a par value of P1.00 per share. 000.000. without any maximum or minimum amount. a P25. Also. It also has the responsibility to cancel the old certificates and change the name when the shares have been sold. Transfer fee.50 for every P200.00 150. 290.00009174) Documentary stamp tax [(2.00 2.00 100.000. For the services rendered. he must pay the PCD ad valorem charge. What charges will you incur in buying and selling stocks? Brokerage commission.tripod. in lieu of the capital gains tax.92 P10.000 shares x P1. This means that 10% is added to the brokerage commission to be paid with a maximum of 1.00 par value of the stock being transferred or a fraction thereof. Philippine Central Depository (PCD) fees.. Please ask your brokerage firm for the current tax rates and charges. What are stocks and equities? 5/9 . For the book-entry-settlement system. A transfer fee of P100. the brokerage firm charges its clients a commission.00 per bearer certificate plus 10% VAT. If the client buys a PCD-eligible issue and still wants a stock certificate issued to his name.00 10.htm#1.005) Cancellation fee 10% VAT on the cancellation fee PCD Fee (10.00 plus 10% VAT is charged to the buyer by the transfer agent for every security traded.00 This computation will be reflected on the Confirmation of Purchase which contains the details of the buying transaction and which will be delivered by the broker to his client.000.00. Illustration 2: Selling securities For an investor who sells 500 shares at a market price of P20.00) Add: Brokers' commission (10. he is charged with the PCD ad valorem rate and a cancellation fee. Cancellation fee.00 x 0. His function is to execute the client’s order and to give advice when required.00009174) P10.00 20. The documentary stamp tax is charged to the buyer on every purchase transaction at the rate of P1.000 shares of stock at a market price of P5. When you buy stock. if a client sells a PCD-eligible issue and still has the stock certificate for delivery to the broker.
Pre-emptive right This is the right given to existing stockholders to purchase additional shares before they are offered in the general public. 11. 000 which represents a 50% capital gain form his purchasing value of P20.25 x 10. What are stocks and equities? 6/9 . A stockholder who owns 10. such as suppliers. This stockholder now owns 12. Rights to receive dividends When dividends are declared by the company’s Board of Directors. but in proportion to the number of shares held. Limited liability and last claim to the company’s assets liquidation If the company in which you own stocks goes bankrupt your total loss as a stockholder is limited to the amount that you paid for the security. fglinc. An individual who owns shares of stocks of the company and sells his 100 shares after receiving the cash dividend. a company with one million outstanding shares declares a 25% stock dividend. your is the last behind all other creditors. Thus. your return can come from either dividends or capital gains.000 shares of stock will receive a cash dividend income of P2. last but not the least. What are your rights as a stockholder? As part owner of the corporation. For every 2 shares owned. Cash dividend This income is computed by multiplying the number of shares held by the cash dividend rate declared. the amount and when it will be paid. You have the claim against the company’s remaining assets. the common stockholders receive nothing. Dividends are periodic payments made by the company to its shareholders from its current and past profits.000 shares will receive an additional 2. Stock dividend This dividend is given to shareholders in the form of additional stocks. a corporation decides to issue additional shares to the public and gives the right to all of its stockholders to subscribe to the new shares at the ratio of 1:2. capital gains are profit made due to an increase in the market price of a stock form the purchase price. The first and most common method is cash. usually at a lower price. present shareholders have the option to buy one additional share. however. After several weeks. instead of cash. the market price of the stock increases to P3.000. The biggest risk you face is the loss of capital that you have invested because the company’s stock becomes worthless. In the meantime. the stock price reaches P30. an investor buys 10. 000. The combination of the dividend income and the capital appreciation made constitutes the total return. Common stockholders cannot demand dividend payments even if the company is profitable.500 shares. How can you make money in the stock market? As owner of a corporation’s share of stock or stockholder.500 (P0.00 per share.htm#1. Usually. or an increase in the market value of the stock you own. issuance of new stock and.00 a year ago. shareholders are entitled to these dividends.00 annually. the higher the company’s profit. the higher the dividends paid to the stockholders.500 shares (355% of 10. It is paid in either of two ways.00. but it is the decision of the company whether to declare dividends or not. For example.000) for free as a stock dividend.00 form a purchase price of P20. For example. the second method is known as stock dividend.000 shares of stock at P2.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET Net amount to be received This computation will be reflected on the Confirmation of Sale which contains the details of the selling transaction and which will be delivered by the broker to his client. employees and bondholders. the banks from which it borrowed money. The total rate of return would be 75% or P1. mergers. Capital gains This results form capital appreciation. if a company declares a P0. If the investor decides to sell all his shares. Neither the corporation.tripod.000).g. The nominal rate of return is calculated by assign up the cash dividend income and the capital gains (pr losses) and dividing the sum by the purchase price.500 divided by the purchase value of P2. All dividends must be declared by the company’s Board of Directors. However. reorganizations. if they so desire. But if the Board decides not to declare a dividend. For example. capital appreciation + dividend income -------------------------------------------------------purchase price of the stocks nominal rate of return = (in %) For example. stockholders are granted several rights. nor the bondholders to which it owes money have any claims on your personal assets. 12. a stockholder with 10.500 (P5 x 100 +P10 x 100). the election of the company’s Board of Directors at the stockholders’ meetings.25 per share cash dividend to tits shareholders. a company declares a cash dividend of P5. Voting rights The common stockholders have the right to vote and to decide on a broad range of corporate issues. has a total return of P1. Dividend payments are not automatic.com/knowinvest. he will be getting a total value of P30. shareholders cannot claim dividends when the company decides not to declare any. For example. e.
of the sock price and the company’s performance. except Saturdays. the prospectus must mention how the raised funds will be used and attributed. Stock price information can likewise be obtained from the Philippine Stock Exchange. The financial performance. Sundays. the PSE Research and Public Information Department issues statistical Weekly and Monthly reports and Fact Book in a regular basis. There have been too many cases of companies that performed badly for years. to 5:00 p. the industry and the economy. Philippine Stock Exchange. Bloomberg. 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. Those who have a computer can access the World Wide Web for the latest stock market information. semi-annual and quarterly reports have to be submitted to the PSE on a regular basis by every listed company. volume and value traded. Also. the achievements and developments. How do you collect information about stocks? Having placed an initial amount in stocks. investors can turn to TV programs which gives updates about the company.m.ph. These contain among others. These publications are available at the PSE Library. media (newspapers. The following sources of information can be consulted for company analysis: Corporate annual reports. The most valuable information contained in these reports are the financial statements.e. A wise investor always keep track. trading statistics. an investor is able to foresee possible consistent poor performance and low profits as well as consequently low stock prices. bid and asked prices. The Library is open daily form 8:00 a. Investors should therefore spend some time and effort in studying their investment and keeping up-to-date with the developments in the company. Particularly. the next step is to keep track of the stock price and to follow closely the developments of the company. and legal holidays. development plans – in short.) Daily quotation of stock prices can be obtained from your stockbroker. or even worse – got bankrupt.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET 13. What are stocks and equities? 7/9 . It would not be wise to put your stock certificates in a safe and have them locked away for years. on a regular basis. Annual. Another source of information are company reports prepared by brokers’ research staff. dividend declarations. The annual reports of a corporation are probably the best source for facts about a company. and traded volumes. the management of the company. This way. A copy of the annual report and the prospectus can be obtained from the issuing corporation or from the underwriter. hold or sell. Investors can call their broker any time to inquire about the status of the stock market which includes stock process.. This report is generally detailed and contains accurate information since it has to be approved by the Securities and Exchange Commission before the company is allowed to issue the shares. It would be too bad for an investor to discover after years that the shares have little or no value anymore.m. When a corporation wants to issue new shares to the public. future outlook. these publications are on sale at he Public Information and Assistance Center in Pasig City.tripod. the investor should likewise monitor closely the companies he/she invested in. Usually brokers can also provide you with reports on the company and industry analyses which give you an in-depth look into the performance of a particular corporation. Reuters. anything that could affect stock process – should be looked into.pse. You can visit the PSE at http://www. In addition. Full-service brokers regularly analyze listed companies and consolidate their findings in a report which is usually available to their clients. It also keeps a copy if all corporate statements that have to be disclosed to the public and the PSE as part of its disclosure requirements.. For more in-depth news about the stock market. it must prepare a complete report about he company’s activities and development plans. corporate developments. called a prospectus. and future prospects. 14.htm#1. television and radio). Prospectus. the composite index and sectoral indices. And give background information about the stock market along with the market recommendations.com/knowinvest. Stock market information For price and other stock market information. the various industries and particular companies while stock price information is shown simultaneously. Technistock. Copies are also available at the PSE Library or form your broker. industry or sector that will lead to an advice to buy.org. Numerous brokerage houses provide closing prices as well as the composite index and the indices of the different sectors. market capitalization of listed companies.m. and information service companies (i. Information about a listed company Apart from keeping track of the stock prices and other indicators. to 12:00 noon and from 1:00 p. the company overview. Most leading daily newspapers cover the stock market and publish the previous days closing prices and traded volume. investors can rely on the following sources: stockbrokers. These reports and other financial statements are kept in the PSE library and are available to the public. etc. closing and opening prices. “Stock market Live” on Channel 21 (Sky cable) covers the stock market every morning during trading hours. What do you need to do before you invest? fglinc.
they should not borrow to be able to purchase more shares. The principle of making a profit in the stock market is simple: buy low sell high or buy when the stock is inexpensive and wait till its price increases to sell. different stocks from different reduce your risk considerably. pulling down prices sharply and quickly. Diversification is the opposite of “putting all your eggs in one basket. If you had invested P100. When this happens.com/knowinvest. Instead.000. will cause much disappointment. What are stocks and equities? 8/9 . 15.htm#1. 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 you want to invest may be quite different from what you have to invest. having placed an initial amount in stocks. the profits realized will be higher due to a bigger initial investment. Monitor your investments. it might be tempting to put as much money as possible in the stock market to get rich quickly.tripod. rumors circulate in the stock market. Frequently. It becomes part of the information he or she considers when making investment recommendations and selecting specific financial assets. debt securities and deposits – that will give you the expected return at the desired moment. it is time to start selling. the management. As discussed in number 13. especially when there is heavy trading. These are the questions that your broker will ask in order to create your financial profile. and determine the goal or purpose of making the investment. But what if stock prices are declining and you are incurring a capital loss? There might not be enough money left to repay the borrowed money in the stock market – money in excess of that required for their living expenses. Based on the answers. investments instruments have to be chosen – stocks. Greed in this case. Remember that stock investment carries a certain risk. Diversification. But an investment of P500. Each individual should set a limit and be prepared to get out of his stock when the limit is reached.000 you would have gained a profit of P20. It is difficult to foresee when the stock price has reached its bottom or top. At such times. development plans. Don’t expect extraordinary returns. the financial performance of the company as shown in the annual and other financial reports. Diversify your portfolio. Stock priced can very substantially from day to day. Therefore.000 would have yielded P100. Although temptation of putting everything into one stock might be very great. the bigger the possible capital gains. What are some investment tips which can help you while investing? Investigate before investing. often to make money out of it. growth opportunities. Investors should therefore keep up-to-date with the developments in the company. Butt investors should only invest extra money. Even trained experts with the best tools cannot accomplish this feat frequently. It is not advisable to put your money into any stock without first looking at the corporation. It is one of the basic rules in stock market investing. But investors should not try to buy at the bottom or sell at the top. savings. an investor should now keep track of the stock price and the company’s performance on a regular basis. Consider an annual rate of return of 20%. For at the peak many investors will get nervous and start selling. These are the questions you must answer before making any investment.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET Before making any investment. especially when the price is moving upward. 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. More specifically. Issues that have to be looked into are: market share and sectoral importance.000. Borrowing money acts as leverage: if stock prices are increasing. Rumors and hearsay should be carefully checked and verified by the investor. Don’t be greedy. Determining your capital available for investing should be considered first. Investors should spend some time ____________________________________ and particular stocks to invest in. people launch rumors as to where the stock price will go. investors should set objectives in terms of expected return and profit and act accordingly. He should not cling onto his shares for that extra bit of profit. it should be avoided. Please ask your broker for assistance in selecting the stocks.” a practice that is as risky as putting all your funds in one stock. It is true that the bigger your investment. the necessary insurance coverage and cash reserves for emergencies. Don’t rely on rumors. on the other hand. Investors should therefore sell according to the previously set profit objective and not wait for the very last moment. Simple: don’t be greedy. it may be difficult to sell. fglinc. When the stock is still rising and the investor feels that the price has reached the desired level yielding the expected profit. you must first evaluate your current and potential means. and with their specific risk characteristics. is the investment strategy of investing in different industry sectors and if possible. “How much risk am I willing to accept?” Stated differently: How much money are you able and willing to risk. etc. resulting in a lower-than-expected gain or profit. the industry and the economy. “What is the purpose of my investment?” To generate cash immediately or to build capital? For receiving dividends or for capital appreciation? For a child’s education or your retirement? For short-term benefits or long-term gains? “How much return would you accept as reasonable for your investment?” Be realistic about the returns the stock market can give you. a particular investment strategy has to be designed to achieve those goals. Only in this way you are able to foresee possible consistent poor company performance which will be reflected in low stock prices.
20% stock price decrease) and get out of the stock when this level has been reached. but also the most profitable. savings. stocks are by far the most risky of financial instruments. or nothing at all. when the government’s deficit becomes too large. and to lesser extent. stock prices can speed up.TopStockAnalysts. the variability of the cash dividends and of the capital gains constitutes the total risk of stockholder. Since stock process can be very volatile. private and government organizations have generally proven to be able to hold their promises and repay the money they borrowed. cash dividend payments are not fixed.e. the capital gains decrease. generally carry a low level of risk. preferred stocks and convertible securities. or even result in capital loss. The risk is related to the failure of the financial institution – bank. Thus.5/7/13 KNOWING HOW TO INVEST IN THE PHILIPPINE STOCK MARKET Limit your risk. including the interest to the account holders. which can be used for other investment opportunities. private company or government – to pay the promised interest at regular intervals.g. a further loss of capital is prevented. Fortunately. This is true for treasury bills. They will receive less.com Panel of nation's leading analysts just announced their favorite picks fglinc. It depends on the Board of Directors of the company if dividends will be paid out. Top 12 Stocks to Buy Now www. What are stocks and equities? 9/9 . A maximum level of loss should be set (e. As history has shown. Likewise. the risk characteristics are distinct depending on the type of investment instrument. What are the risks involved in stock market investing? All financial assets carry some risk – the risk that the actual return might be lower than expected or promised.htm#1. Secondly. In that way.tripod. the capital gains an investor is entitled to depend on the price movement of the stock. it might not be able to pay the holders of treasury bills the promised interest. As stock prices go down. and be the best hedge against inflation and loss of buying power. Together. this type of risk refers to the volatility of the capital gains. its assets might not be sufficient to pay all the debts. the amount of it and the time. Therefore a stockholder is never sure of the cash dividend he will receive. and time deposits. To summarize. 16. even when the stock price keeps falling.com/knowinvest. Very few people like to sell at loss and. Remember that stock investments are subject to risk. A better attitude would be to limit and manage your risk. are less predictable. such as bonds. can vary substantially from one day to another. This is the first type of risk he encounters when buying stock. they have proven to substantially outperform other financial assets. The returns from stocks. The buyer of these assets know in advance how much interest payment he will receive at the end of each month. When a bank goes bankrupt. Fixed-income securities. the increase in the market value of the shares held varies too. However. Fixed-income securities generally provide less than half the return on stocks but exhibit substantially less risk. hold on their shares. also dollar deposits. i. On the long term. consequently. but can also take a sharp dive. however. As outlined earlier. Remember that stock provides potential income in the form of cash dividends and capital gains when the stock price appreciates.
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