Silly questions you wanted to ask about investing in stocks

Silly questions you wanted to ask about investing in stocks

The stock market seems like such an exclusive club. You probably need to wear a business suit and know the secret handshake to get inside the fancy building that houses this “stock market” they only speak of in whispers.

However, stocks are really quite simple to understand once you know the basics. The payoff can also be very high if you allow yourself to be educated about it. So, here are some questions you wanted to ask your accountant friend, but felt too silly to say them out loud.

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Yes, you do need a kind of middle man between you and the daunting stock market who will allow you to buy and sell stocks. And like everything nowadays, you can just do this online with an online stock broker or a brokerage firm.

The popular ones in the Philippines are COL Financial (www.colfinancial.com), BPI Trade (www.bpitrade.com), and Philstocks (www.philstocks.ph). In terms of choosing your online broker, take a look at the minimum investment they require, and how easy it would be for you to open and fund an account. For example, BPI Trade can be linked to a BPI account.

There are different instructions for buying and selling stocks on these different websites. They are usually easy-to-follow even for beginners.

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Investing in stocks might seem like gambling, and it does come with high risks. So, be a smart gambler and don’t go all in. This is what it means to diversify.

Buy stocks from different companies, so if one company doesn’t perform well, you have others to fall back on. Similarly, include stocks from different industries that will forever be necessities like food, real estate, telco, power, and banking.

Also, don’t invest all your money on just stocks alone. Invest in a business, buy real estate or even gold. Just don’t allow your money to sleep in the bank. The secret of successful Filipinos is that they make their money work for them instead of continuously working for money.

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Once you fund your account, that means you can already buy stocks. Think of it like having store credit to buy items from an online store. You can also convert this “store credit” back to cash when you need it, but it’s not as quick as withdrawing from an ATM. Putting your long-term savings in stocks is great, because it curbs impulse spending.

Keeping your money in a savings account does not really save it, because over time, the value of your money goes down as the inflation rate increases. Even savings accounts that earn supposedly high interest rates cannot keep up with inflation.

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The stock market operates on a simple buy-and-sell concept. You buy stocks and sell them at a price higher than what they cost you. For example, you bought Cebu Pacific stocks at ₱10 per stock today. After a few of years, maybe the company invested in space travel and now their stocks are worth ₱1,000 per stock. If at that point you decide to sell them, then you just earned  ₱990 per stock you sold (exclusive of your online broker’s fees and taxes). Multiply that price by the number of Cebu Pacific stocks you currently own, and you now know how the rich gets richer.

Dividends are payouts that companies give to their stockholders—that’s you. It’s a cut of their profit that is computed according to how many stocks you own. Dividends can also be in the form of additional stocks. The first type is called cash dividends, while the second are stock dividends. It just happens without you asking or doing anything for it.

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You’re not placing  your money in the hands of dubious agents. Instead, you’re buying a part of a company. So, invest in the stocks of companies you trust and those that will probably still be there by the time you retire. You know that big companies like Ayala or San Miguel are legit and have survived economic ups-and-downs over the years. When the value of their stocks go down—which is normal for stocks—they’ll bounce back even stronger.

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You own a part of the company now. Your last name might not be Sy, but you can now walk around SM and say you own a piece of that mall. But unless you own a lot of SM stocks (like a true Sy), you can’t really make decisions for the company.

Although, the company is still accountable to you as a business partner and you have the right to know what they are doing with your investment. Check out the Business section of the newspaper and see if they’re building more malls or introducing new services. You can even attend the annual stockholders meeting.

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That’s the difference between a trader and an investor. A trader studies the market everyday, has insider knowledge, and the right skill set  to constantly buy and sell stocks to make a considerable amount of profit. That’s his or her livelihood.

If you’re not this type of person, then just be an investor and do this on the side. Buy stocks now and let their value appreciate over a long period of time before selling them. This might be when your children are in college or when you’re retiring.

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You might have seen the scrolling ticker on a news channel. The info on the ticker is more important to traders than to casual investors because they make a living from following stock trends.

Every company is identified by a code combination of two to five letters and numbers. Sometimes it’s obvious. “ABS” is the ABS-CBN Corporation and “PGOLD” is Puregold. On the other hand, “PIP” is Pepsi-Cola and “TEL” is PLDT.

You can look up the stock symbols for all companies listed on the Philippine Stock Exchange here: http://www.pse.com.ph/stockMarket/listedCompanyDirectory.html.

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A low stock price doesn’t mean that the company isn’t doing well. The price could be smaller if the company is offering a large number of stocks. For example, San Miguel’s stock price is currently around the ₱50 range. However, you  must also take a look at the minimum number of shares that you can buy from the company. That’s what you call the board lot. For San Miguel, it’s 100 shares. So, you can already buy shares from San Miguel with ₱5,000. For companies with even lower stock prices, your ₱1,000 might already be enough.

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Some online brokers allow for automatic bank transfers or regular deductions so you don’t have to think about funding your account. It is also possible to place orders for stocks even when the market is closed. So, you can do this at midnight in your pajamas. Try to explore the different features of your chosen online broker.

You could also simply get a mutual fund that invests in stocks. So, you can have experts doing the buying, selling and thinking for you.

 

 

 

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