The Philippine Stock Market has been experiencing steadfast growth in recent years. However, a mere 1% of Filipinos participate in investing activities–a number representative of the lacking awareness about investing opportunities. In the Philippines, investing is a niche, and is perhaps closer to luxury rather than a secondary stream of income.
Read more: UITF Vs Stocks Vs Bitcoin
The gap? I say it’s knowledge–not just in investing knowledge but in knowledge that the opportunites even exist. If you’re looking to supercharge your investing knowledge or if you’re a total investing greenhorn, then this article is for you.
Let’s begin by understanding the concept of a“Stock.”
What is a stock?
A stock is a share in the ownership of a company. So when you buy a share of stock, you are also buying a piece of a company. Once you invest in a stock, you will be a shareholder who is entitled to a portion of the company’s profits.
The stock market, on the other hand, is a place where traders buy and sell shares. The Philippine Stock Exchange (PSE) is the corporation that facilitates local stock markets and is the local counterpart of the America’s Wall Street.
Think of it this way: the stock market is like any real market (imagine palengke), but instead of goods, traders buy and sell shares (ownership) of companies.
How do you make money from stocks?
The answer lies in following the rule of thumb: Buy Low, Sell High.
Corporations issue dividends to stockholders, a process that involves the distribution of the company’s earnings to their investors. It may be in a form of cash or stock.
In a way, it’s common sense, right? Profit lies in the difference between buying a stock at a lower price and selling it at a higher price, but it’s easier said than done. How will you know when to buy? When to sell? Or maybe more importantly, when to hold?
Needless to say, it’s important to estimate what a stock is worth at market value. This way, investors will know whether it’s undervalued, inflated or how the value would appreciate or depreciate. Once you determine the stock’s market value, you can make clearer decisions based on movements from that reference point.
After that, you’ll need to establish the range at which you would purchase a stock. Once a stock crosses that range, monitor it closely and check on the corporation’s stock historical performance and don’t hesitate to pull the plug in case things go awry.
For beginners, this logic is a good starting point: BUY a stock at its current price and SELL a stock if the price has appreciated above the target sell price.
The Buy and Hold Concept
Aside from the usual ‘buy and sell’ method, some investors also use the buy and hold strategy which entails keeping a stock over a longer period of time. The key in this approach is having enough information about the stock to project if the stock’s price will rise over its market price.
For example: You bought 1000 shares of XYZ Company at P5.00 per share. Then, after 10 years, you assume that the stock price will be P30.00 per share. Your total profits would be P25,000 minus taxes. If done in scale, this could mean millions, if not billions.
Some advantages of the ‘buy and hold’ approach are lower transaction fees and short-term capital gain taxes. However, it requires some extra patience and careful decision making.
Knowing the Risks
Knowing which stock to invest in and when to invest is all about risk management. The general rule is: the more you risk, the more you stand to earn–and lose. To be a savvy investor, you’ll need to tread the fine line between calculated and reckless risk and making informed decisions to stay on that line.
At the end of the day, investing in stocks is all about information. Information will let you know which stock to invest in, when and not to invest and how much you should risk. Yes, initially the stock market can be daunting, complicated and downright unforgiving. But with enough information, experience and patience, you can be making money like never before.
If you don’t have the time and patience to invest in stocks, try investing in pooled funds like UITFs. Experts will manage these funds for you while having full transparency and automatically diversified investments.