Table of Contents
- Stock Market Basics
- Largest Stock Exchanges
- Is the Stock Market Risky?
- Why Should you Invest in Stocks?
- Who can Invest?
- What type of Investor are you?
- When Should you Invest?
- How to Know Which Companies are Worth Buying?
- How to Make Money in Stocks?
- How much is the Capital?
- How to Invest in Stocks and Win in the Stock Market?
- How to Start Investing in Stocks?
- Trading Fees
- Trading Hours
- PSE Board Lot
- How to Withdraw your Money?
- How to Know if the Stock Price will Decline?
- Signals Stock Price Will Increase
- 5 Best Stock Investing Strategies
Do you want to know how to invest in stocks?
Well, you’ve come to the right place!
I know stocks is quite complicated most especially for beginners or newbies.
But, don’t worry because this guide is for you.
Stock Market Basics
Stocks represents your shares of ownership in a company or corporation. Thus, if you buy stocks, you are entitled to be a shareholder or stakeholder of that corporation.
If you are a common stockholder, you have voting rights meaning you can attend corporate meetings and you can elect your preferred board of directors and auditors.
On the other hand, if you are a preferred stockholder, it means that you does not have any voting rights in the company. You buy shares to receive dividends.
Stock market is simply the place where you can buy and sell shares of stock of a publicly listed company. If you are currently living in the Philippines, all stock transactions are done in the Philippine Stock Exchange (PSE).
A stock symbol is the language of stock investing. You use them to place order in the Internet. Every company has its assigned symbol. For example, for Microsoft, its stock symbol is MSFT.
Market capitalization refers to the total market value of the company. You can identify the market capitalization of a stock by multiplying its total outstanding shares by the current share price.
- Micro Capitalization (under $250 million)
- Small capitalization ($250 million to $1 Billion)
- Mid Capitalization ($1 Billion to $5 Billion)
- Large Capitalization ($5 Billion to $25 Billion)
- Ultra Capitalization ($25 Billion & above)
Largest Stock Exchanges
New York Stock Exchange (NYSE) and NASDAQ are the two largest stock exchanges in the world in terms of market capitalization. Following are Japan Exchange Group (Japan), Shanghai Exchange Group (China), Euronext (France), Hong Kong Exchanges and Clearing (Hong Kong), LSE Group (UK), Shenzhen Stock Exchange (China), TMX Group (Canada), Saudi Stock Exchange (Saudi Arabia), BSE India Limited (India), National Stock Exchange of India Limited (India), Deutsche Boerse AG (Germany) and so on.
Is the Stock Market Risky?
Stock market is definitely very risky and volatile. Here, you will be dealing with two kinds of risks. The first one is risks that are common in the market. Second is risk due to ignorance.
“It’s not the investment that is risky…It’s the investor.”. -Robert Kiyosaki
Why Should you Invest in Stocks?
Stock investing is powerful investment for you to achieve your long term financial goals in life. In addition, stock market also helps you build your wealth.
Another reason why you should invest in the stock market is to beat inflation. You already that year by year, prices of goods and commodities are becoming more expensive so if you invest in the stock market, you are accumulating wealth which can help you beat inflation.
Who can Invest?
Well anyone can invest in the stock market. If you’re a housewife, construction worker, vendor, business owner, entrepreneur, security guard, doctor, blogger, blogger, nurse, government official or whatever job your status is, you are welcome to invest in the stock market.
What type of Investor are you?
Before investing in the stock market, it is also very important for you to know your risk profile for you to minimize your risks of losing your money.
- Conservative (worries about risks)
If you are a conservative type of investor, it is recommended for you to invest in stocks for long term ranging from 5 years and above. You should also invest in stocks that have large market capitalization or stocks with mid capitalization.
- Aggressive (high tolerance to risks)
If you belong to aggressive, then probably small cap and mid cap stocks are the best for you. To have great returns, invest in long term too ranging from 5 years or over.
When Should you Invest?
You can invest in the stock market as long as you are ready to take risks. It is also very important for you to learn first how stock market works before trying to invest.
As Warren Buffet said, “Don’t invest on what you understand.”
You might end up losing your capital if you do not know what you are doing. That is why I suggest you to start reading books now to fully equip yourself with the right knowledge just like what I did in the beginning.
It is also very important for you to determine your financial goals, risk profile, and objectives for you to assess if it is the best time for you to invest.
Remember that it’s not yet too late for you to start but the earlier you start, the better.
How to Know Which Companies are Worth Buying?
Lots of investors are applying two methods to evaluate and analyze a certain company. In that way, they will know which companies are worth buying.
These two methods are namely fundamental and technical analysis.
A method that estimates the total value of a certain stock by focusing on studying the factors that affects the company and its future growth.
You can perform fundamental analysis by taking an in-depth look at the company’s balance sheet, income statement, cash flow and other operational data. Essentially, doing your own fundamental analysis will let you know the financial condition of the company.
A method that estimates the future value of a stock by reviewing and analyzing the historical price charts and patterns and the market statistics of the company.
How to Make Money in Stocks?
There are two ways for you to earn money in the stock market.
When a stock price increases, that is what we call capital appreciation or capital gain. If you bought a stock in a low price and sold it in a higher price, that is a very huge profit. The more shares you have, the more profit you can have.
“Buy low, sell High.” That is the most common strategy for investors to gain profits in the stock market.
For example, Amazon (AMZN) stock price was $20 in 2000, then it eventually reached $2000 per share last February 2020. That is surprisingly a capital gain of $10 per share or more than 20% increase.
The second way to earn in stock market is through dividends. It serves as the company’s payments to their stockholders or shareholders and is usually in the form of cash or stock.
Dividend is a great source of income too. You have nothing to do but you just have to invest in companies giving dividends. In fact, companies that issue dividends are the ones that have more stable stock prices.
Instead of giving cash to the shareholders, the company preferred to give more additional shares. You can sell these shares just like your ordinary stocks anytime you want.
Another way a company issue dividends is through cash dividends, the most common one. Cash dividends are cash earnings given for every share of stock upon the decision of the company.
For example, If a company decided to issue $10 per share, then you are entitled to receive $10 to every share you have in the company.
How much is the Capital?
The minimum capital for you to start investing in the stock market is Php1000 (U$20) only. Take note that other stock brokers have higher minimum amount required and some also does not have minimum amount.
If you have less money, you may prefer stock brokers with lowest or no minimum amount required. On the other hand, if you have tons of money, you may prefer stock brokers with higher amount required.
How to Invest in Stocks and Win in the Stock Market?
Before investing in the stock market, it is also very important for you to have a specific strategy. What are you goals and objectives? Will you be a trader or investor?
1. Clear Investing Goals
Most investors invest with a specific goal they want to achieve in stock investing. They invest with a clear objectives and mindset.
On the other side, there are actually a lot of investors out there losing their money in stocks just because they do not have their specific goals.
So try to ask yourself. Are investing for long term or short term? For Warren Buffet’s advice, the world’s well-known successful investor, says that you have to invest for long term to minimize your profits. For him, investing in long term helps you build wealth.
2. Know thyself.
Will you be an investor or trader? So what’s the difference between the two?
Investor- buys stock shares and keep it for 10-20 or more years and never opt to sell his stock shares in a short period of time. He prefers to buy shares from great and excellent companies and eventually keep them for so many years.
Trader- buys stock shares and sell them whenever the stock price increases. His main job is to watch the market every single day and analyze and understand stocks with potential growth. This could be done through fundamental and technical analysis.
So are you going to be an investor or trader? Well it’s up to you.
How to Start Investing in Stocks?
After learning the basics of stock market investing, let me now teach you the steps on how you can start investing in stocks.
1. Choose your stock broker
Take note that you can never invest in the stock market without a stock broker so take time to decide on your preferred stock broker.
Your stock broker must be suitable for your needs. If you want a stock broker that responds quickly to your questions, then look for a stock broker that has responsive and fast customer service support.
There are 130 listed stock brokers in the Philippine Stock Exchange (PSE). For you not to spend your time doing research for your stock broker, I made a list on the top 5 best stock brokers in the country. You can read the article by clicking HERE.
2. Submit the required documents
Every stock broker has its own requirements to individuals who wants to open a stock trading account. These requirements are necessary so you should start gathering them.
- Tax Identification Number (TIN)
- Signature Card
- Valid ID (Passport, Driver’s license, etc.)
- Minimum Deposit
There are also stock brokers that offers online application. If hate spending your time and effort submitting your documents to a courier, then you must apply via online application.
For online application, you are required to fill out the online application form, submit the scanned required documents and your valid government issued ID. After finishing your online application, your stock broker will email you your account number and how you can fund your account.
3. Fund your account
After submitting the required documents, you have to deposit the minimum amount for you to start investing in stocks.
You can fund your account via the partners of your stock broker. You can also deposit through the major banks like BDO Unibank, Metrobank, Bank of the Philippine Islands (BPI), China Bank and many more.
4. Buy your first stock
After funding your account, you are now ready to buy your first ever stock.
✓Go to order section and choose the stock you want to buy.
✓Decide how many shares you want to buy.
✓Choose your stock order type.
✓Select buy button.
✓Enter your password
✓Congratulations! You just bought your first ever stock.
Suggested: Top 30 Blue Chip Stocks to Buy for Beginners
A day order is an order that buys a stock that expires at the end of the trading day.
Good till Cancelled (GTC)
A GTC order is the most common among investors and investors. You use GTC when you want to buy/sell a stock in a certain price you want.
Other Basic Terms
Ask– For buyers: The price that sellers are willing to accept for the stock.
Bid– For sellers: The price that buyers are willing to pay for the stock.
5. Sell your stock
If the stock price dramatically increased, it is the perfect time for you to sell your stocks. Take note that there will be fees deducted from the gross amount as discussed above.
The more shares you have, the higher the profit you have.
6. Enjoy the profits
After receiving your profits, why not buy more shares to increase your stocks value?
If not, why not go outside and buy something? It can be your favorite food or anything you want. Remember to reward yourself because you just did a very great job. Congratulate yourself too!
When you buy or sell stocks, there will be fees collected from the gross amount. Here they are:
Commission Fee – 0.25% of the gross amount
Value Added Tax (VAT) – 12%
PSE Transaction Fee – 0.005% of the gross amount
Securities Clearing Corporation of the Philippines (SCCP) Fee – 0.01% of the gross trade amount
Additional Selling Fee
Stock Transaction Tax – 0.05% of the gross trade amount
Here’s an example below.
You bought 1000 shares of Megaworld Corporation (MEG) at Php4.01 per share.
Gross Trade Amount: Php4,010
Commission Fee 0.0025 x 4,010 = 10.025
Value Added Tax 0.12 x 10.025 = 1.20
PSE Transaction Fee 0.00005 x 4010 = 0.20
SCCP Fee 0.0001 x 4,010 = 0.40
So the total purchase amount is Php4,010 + 11.83 (total fees) = Php4,093.
You sold 1000 shares of Megaworld Corporation (MEG) at 5.10 per share
Gross Trade Amount: PHP5,100
Commission Fee 0.0025 x 5,100 = 12.75
Value Added Tax (VAT) 0.12 x 12.75 = 1.53
PSE Transaction Fee 0.00005 x 5100 = 0.26
SCCP Fee 0.0001 x 5100 = 0.51
Sales Tax 0.005 x 5100 = 25.5
So the net sale proceeds received is Php5,100 – 40.55 = 5,059.45.
In Philippine Stock Exchange (PSE), trading hours is from 9:30 AM until 1:00 PM.
Take note that you are only allowed to buy and sell stocks during trading hours. Once the market is closed, there will be no more transactions.
9:00 AM Market Pre-Open
9:15 AM Pre-Open/No Cancellation Period
9:30 AM Continuous Trading
12:00 PM Market Recess
01:30 PM Continuous Trading
03:15 PM Market Pre-Close
03:18 PM Pre-Close/No Cancellation
03:20 PM Run-off/Trading at Last
03:30 PM Market Closed
PSE Board Lot
A board lot shoes the number of minimum shares one investor can buy or sell depending on the market price of the stock.
0.0001 to 0.0099 1,000,000
0.010 to 0.049 100,000
0.050 to 0.249 10,000
0.250 to 0.495 10,000
0.50 to 4.99 1,000
5.00 to 9.99 100
10.00 to 19.98 100
20.00 to 49.95 100
50.00 to 99.95 10
100.00 to 199.90 10
200.00 to 499.80 10
500.00 to 999.50 10
1000 to 1999 5
2000 to 4998 5
5000 to UP 5
How to Withdraw your Money?
You can withdraw your money anytime during the trading hours. Take note that you are only allowed to withdraw your money after three days of selling your stocks.
So if you sold your stocks on Monday, you can ask for withdrawal with your stock broker on Thursday.
Then wait for few days for the money to be deposited to your bank account. However, you can choose to withdraw your money via cheque.
How to Know if the Stock Price will Decline?
If you’re currently watching your stock portfolio and thought of what if the stock price will decline anytime then probably you should start checking this ones.
1. Check the company’s overall debts
You already know that debts are determined as liabilities. However, If you found out that the company has too many debts, it means that the company is struggling and there is a possibility that it may become bankrupt.
2. No stable Dividends
Dividends is a good way to earn another good source of income in the stock market but if you observed that the company stopped issuing dividends to its shareholders, there is a problem within the company. However, analysts said that if a company stopped issuing dividends, there is a problem with the company’s earnings or cash flow.
If a company announced that there will be no dividends to be given to the shareholders then probably you should find out why.
3. Check the company’s total sales
Before you buy your favorite stock, make sure that its sales are increasing every month or every year. If you observed a dramatic decrease in the total sales, there is a problem with the company.
There are a lot of factors leading to decrease of sales such as poor marketing strategies, competitors dominating the market and many more. You just have to simply check it out for you to discover why that company loses its sales.
If you try to check this ones, you will know if the stock price will dramatically decrease which can lead to loss of capital.
Signals Stock Price Will Increase
There are factors you need to consider if you want to know if your current stock will increase in terms of price.
1. Increase in Assets as Liabilities Decreases
The best way to look at company’s assets is to look at their most recent balance sheet and compare it to the past balance sheets. In this way, you can see a trend developing.
If you found out that the company’s balance sheets are continually increasing and stable, it is a strong sign that the financial strength of the company is becoming stronger leading to better company performance.
2. Rise in Earnings
If you noticed that one of your stock increased in terms of price per share, that is a strong sign that the company is earning more. The more a company makes, the higher stock price will increase.
Let’s take Amazon as an example. Last 2010, Amazon stock price is $100 but as of April 24, 2020, its stock price went up to $2,410.22. That means that the company’s earnings are earning a lot of bucks year by year.
3. Positive Publicity
I guess you already heard a lot of companies in news, newspapers, magazines, articles, websites, books and many more resources. If the company went public and thousands of customers bought the services or products of the company, that will have huge impact to the company.
More customers results to higher sales and earnings which will then results to higher price of the stock. Positive consumer experience leads to company’s growth and success.
5 Best Stock Investing Strategies
If you want to be successful in the stock market, you have to consider having your own strategies. Take note that these strategies are easy and doable. Thus, they can increase your chance of building your wealth through stocks investing.
1. Buy low, sell High
I already mentioned this above but I have to repeat it all over again. If you really want to make more money on stocks, you have to buy low and sell them in a higher price. This very simple strategy can increase your chance of gaining more profits from the stock market.
If ever the stock price went low, do not attempt to sell it or else you will lose a lot of your capital. Wait for it increase then eventually sell them.
2. Avoid buying stocks in peak prices
This means never buy stocks that are in very high prices. Wait for the stock price to decrease and when that time comes, it’s the perfect time for you to buy shares you want.
If you bought a stock in its peak price, the possibility is you will end up losing your money. What if the stock price dramatically decrease tomorrow?
Well, we cannot predict what will happen. Stock market is quite tricky and no one knows if the price will go down or up.
3. Learn more
Yes! You have to learn more. Your knowledge is still not enough for you to become successful in the stock market. You will be making mistakes but it’s totally okay.
To minimize loses, you have to learn a lot. There are hundreds of articles and guides in the Internet you can find or try to read books. In this way, your skills and knowledge will help you minimize loses.
Lack of knowledge constitutes the greatest risks for new stock investors but dimi having that risks starts when you start gaining knowledge.
The more familiar you are with the stock market, the better you minimize risks and gain profits.
4. Invest More
In investing, you have to diversify. Buy stocks with a strong potential growth and keep them.
Do not just buy a single stock. What if the company went bankrupt and you kept it for almost 10 years? That’s the biggest regret in your life.
Don’t just focus on a single stock. Buy stocks you know that can give you profits in the future. Try to have research or try to do technical and fundamental analysis before buying your stock.
5. Save More
If you want to own more shares of a certain company, then you have to save money for it to happen. Save more then invest it. In this way, you are increasing your chance of gaining more profit.
Take note: Save to Invest, not save to save!
Stock Market is one of the best investment if you want to build wealth and achieve your long-term financial goals.
Take note that stock market won’t make you rich overnight. It can take weeks, months or even many years for you to achieve high return of investment (ROI).
When you invest in stocks, just make sure to choose the best company with a high potential of growth. Conduct your own research, read books and start analyzing stocks using your fundamental and technical analysis skills.
Additionally, diversify your investments as possible. Do not put all your eggs into one basket. For beginners, two to three stocks is recommended.
I hope this blog post helped you learn how to invest in stocks. Have a nice day!
Mladjenovic, Paul (2006). Stock Investing For Dummies, 2nd Edition. Wiley Publishing, Inc.