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The Stock Market
Availability: Brokerage Houses, Investment Banks, Online Stock Brokerages
Nowadays, trading in the stock market is simpler than it seems. They say even monkeys can trade stocks. It’s just a matter of logging on to your computer with an internet connection, and then using the web browser to go to the website of your online stock broker, and logging on to your account.
Fees: Brokerage fees, with minimum P20; taxes and exchange fees depending on the number of stocks traded
Risk: Moderate-high depending on investor’s knowledge and experience
Taxation: (To be discussed later)
Picture this: Large companies are split up into billions of little pieces and then are sold in a market. That’s exactly what a stock market is.
Why do corporations or companies do this? The principal reason is to raise more money or capital to fund new projects or grow the business. When you buy those pieces of the company, you effectively become an investor or “kasosyo” of that company. The money you bought those pieces (stocks) with will be used by the company to grow itself or fund new projects. As a holder of that piece of the company, you also become part owner of that company. The word “Shares” is also synonymous to “stocks”. The stock market is also known as the “equities” market. The word “equity” means “ownership” or “how much you own”. That is why when you buy stocks, you own a portion of that company. That is what it means by investing in the stock market. The pieces of company that you buy and sell are called “stocks”.
When a company decides to sell itself in the stock market, it is said that the company “goes public.” In effect, a company goes from privately owned to publicly owned, by selling parts of itself to the public to raise more money.
Now it doesn’t mean that when you buy the stocks of a company, you are now mandated to run it and become part of its daily operations. Stockholders have certain rights and limitations. Stockholders have the right to “transparency,” meaning access to basic financial information about the company in order for the stockholder/investor to make better informed decisions.
Stockholders are only liable to the extent of the amount of their investment. That means your exposure to loss is limited only to the money you invested. You cannot lose more than what you invested. When a company goes under and files for bankruptcy, investors are not responsible for the debts incurred by the company. However, when a company does go under, investors are the last to be paid with whatever is left of the company
Now how do we make money by buying these pieces of company or stocks?
Basically there are two ways to make money in stocks.
The first one is through capital gains. We have already discussed the meaning of capital gains, that is taking profit from the appreciation of an asset. That is buying low and selling high.
I must tell you that the price of a stock fluctuates all the time in a stock market. This is how stock traders make a profit: by watching these numerical values, the prices of stock, increase or decrease, throughout the day in their computer screens. They time when they buy, when the prices are low and time when they sell, when the prices are high.
Nowadays, trading in the stock market is simpler than it seems. They say even monkeys can trade stocks. It’s just a matter of logging on to your computer with an internet connection, and then using the web browser to go to the website of your online stock broker, and logging on to your account. I will explain more about how to start trading in the stock market later.
The second way to make money in the stock market is through dividends.
Remember that stocks are parts of a company, and one of the main purposes of a company is to make profits. Assuming that the company you’re investing in is indeed profitable, dividends are the stockholders’ (your) share of profits or earnings. But don’t expect too much from here, because just like the stocks which are parts of the company that have been broken into billions of pieces, dividends are also divided into billions of pieces. Dividends received are on a per share basis.
The Bulls and the Bears
Bulls and bears are used to describe the stock market performance in general.
It is said that when a bull pounces on an enemy, it dives its head and uses its horns to ram and pick up the enemy in an upward motion. That is why when a market performs very well, and most companies are going up, they call it a bull market. Our stock market, as of the time of writing is very “bullish,” in fact one of the best performers in Asia in 2012.
On the other hand, when a bear attacks its enemy, it uses its sharp claws in a quick downward swiping motion of its paws. That is why it is said that a market in a sustained downward trend is called a bear market.
How to Get Started in the Stock Market
Getting started in the stock market is as easy as opening a bank account, but here are the steps to give you a complete idea and a jumpstart to success:
1. Save up some capital
Start by pinching pennies and saving up on your allowances/salaries. The easiest way to save is to “pay yourself first.” That means immediately putting money aside as you receive your allowance/salary. Paying yourself first is setting aside that money, in effect making an expense, for your savings, before you give that money to anyone else like unnecessary expenses and bills. I recommend saving from 30%-50% of your money at the start, or even greater if you can.
I will discuss the amount needed shortly.
You need some starting money to open an account in brokerage houses or investment banks. The “Broker” is just a word that means “sales person.” So a stock broker sells stocks. (A real estate broker sells houses and so on.)
There are many, many brokerage houses and investment banks, and usually even the regular banks also have divisions responsible for investments.
In my case, used the services of the biggest online brokerage house in the country, called Citisec Online (now COLFinancial). With COL Financial, you can open an account for as low as P5000. With this amount you can begin to buy shares of stock. However, with only P5,000, you can only pick one stock to invest in that you can regularly put money on. This is called their EIP Program. You cannot trade stocks with this set-up, you cannot buy and sell multiple stocks as you wish, and you will not have an online trading platform.
But with at least P25,000, you can open a real stock trading account, and have access to an online, internet browser-friendly trading platform. This platform allows you to buy and sell stocks as you wish, and use a variety of tools to guide you in your trade or investments.
Again, you can open an account and start buying stocks for P5,000 but you can only trade stocks and use the online trading platform for a minimum P25,000.
I know that P25,000 or even P5000 seems daunting at first, but with effective budgeting and saving skills, you will be surprised to have this cash in no time.
2. Open an account
Once you have your savings of P5,000 or P25,000, all you have to do now is go to the office of the stock brokerage, in this case COL Financial, at the Philippine Stock Exchange Centre in Ortigas, along with the requirements (in COL, 2 Valid I.d.s, and you may already bring your cash).
Please double check the address of the office of your stock brokerage house because not all brokerages have offices at the PSE Centre in Ortigas.
Make sure you have an email account to receive email announcements and important trading documents.
Bring two valid I.D.s, usually government issued I.D.s such as voting ID, driver’s license, passport, or professional ID and your cash.
All you do in the office is fill up and sign some forms, show the staff your IDs, and give them the cash to be loaded to your account. You will then be given an account number and password you can use to log in their website on your computer at home!
Your P5,000 or P25,000 will be loaded to your account as is. No fees will be charged on opening an account. You will be charged the brokerage or transaction fees only when you begin to buy and sell stocks. These are the basic charges for buying and selling.
I know that it may also feel daunting to go to the office, and open an account with minimum requirements as a beginning investor. But we all have to start somewhere. Think of this as something you will finally be able to do for yourself and for your financial future.
I came with my mom and my experience was that the people were very professional, friendly and non-judgmental. They even said that the earlier we start investing, the better. I cannot agree more!
What I like about COL Financial are the free seminars they provide their clients, on such topics as the basics on how to be successful in the stock market, fundamental and technical stock analysis, etc. We will brush up on these topics later in Phase 4.
This was my experience in opening a stock brokerage account. As you go along and talk to more people, you will find that there are more online stock brokerage houses available to choose from.
3. Log on to your computer
When you return home, open your computer with internet connection and follow the easy instructions to activate your trading account.
You do this by opening any internet browser, going to the website of your stock broker, (in this example COLfinancial.com) then using your supplied username and password.
4. Familiarize yourself with the interface and tools available for you
Familiarize yourself with the different tabs and areas of your trading account. Actually, the interface for buying and selling stocks is very intuitive and obvious. Remember, you can always call the customer service hotlines if you have any question.
As for the other tools, you will be able to appreciate them more once you attend the free Fundamental and Technical stock analysis seminars. Some of these tools are the stock price charts, technical charting tools, informational details about each stock, buy and sell recommendations, corporate news, global and economic outlooks and many more.
I highly recommend that you attend these free seminars because here you will learn the basics of stock market trading and investing, and get an idea as to how the rest of the public invests in the market.
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