Nowadays, a lot of Filipinos are now getting more interested and curious about the stock market. You may have heard stories from your family, friends, and colleagues about the stocks they have bought and how they are earning from the market. However, only a few people are invested in it because of the horror stories they hear that someone lost their money in it. (READ: 5 Stock Market Myths Debunked)

What is a stock market? How does it work? How can I start investing? How do you make money from it? These are just some of the common questions asked by our fellow Filipinos who would like to invest but don’t know where to start. In this article, we will discuss the basics of stock market and answer the most common questions that will serve as your guide in taking your first step in investing.

What are stocks?

A stock is a unit of ownership in a company. Buying a share of a company makes you a shareholder or stockholder or a part-owner of a particular corporation. Companies usually sell stocks to the public to have more funding for their business expansion, creating new products and improving their existing products.

What is a stock market?

A stock market is a place on where you can buy or sell shares of publicly listed companies. There are a lot of stock markets around the globe but in the Philippines, The Philippine Stock Exchange (PSE) is the only stock exchange that regulates our local stock market.

What is Philippine Stock Exchange?

The Philippine Stock Exchange (PSE) is the national exchange of the Philippines. It is one of the oldest stock exchanges in Asia and has been in the continuous operation since the establishment of Manila Stock Exchange (MSE) in 1927. Previously, the stock exchange is separated into two forms — Manila Stock Exchange and Makati Stock Exchange (MkSE) — until 1992 when PSE was formed from the merger of MSE and MkSE.

The PSE is composed of stock “index” or also known as the PSEi. An index is considered as a “bird’s eye view” or the overview of the market. It is usually measured by an average of selected stocks in different segments such as Financials, Industrial, Holding Firms, Property, Service, and Mining and Oil.

The PSE opens its trading at 9:30 AM – 3:30 PM, from Monday to Friday (except holidays) with a market recess from 12 noon to 1:30 PM. Before 9:30 AM, there is a “pre-opening” that starts at 9 AM where the trading can already start. Meanwhile, the market pre-closes at 3:15 PM and totally closes at 3:30 PM.

How to make money in the stock market?

As a Shareholder, there are two ways to earn in the stock market:

• Capital or Price Appreciation
• Dividends

Earning through capital or price appreciation

Capital or price appreciation is the increase in the market price of your stock over time brought. There are several factors on why the price of a particular stock is increasing and one of the main reason is supply vs demand of the stock — how many people want to sell VS how many people want to buy stocks. For example, if the company announces that they will have a business expansion, more people would like to buy a stock because they want to own a share of a company that is profitable. In this case, the demand is higher than the supply. On the flipside, if there is a bad news about the company like low sales or problems in their operation, then most people would sell their stocks because of fear that the price will go lower and the gain of the profit is less. In this situation, the supply is now higher than the demand.

Aside from supply vs demand, some of the other reasons why stock prices are changing are economic situation of the country, political stability or instability, and global market situation.

Earning through dividends

Another way of earning in the stock market is through dividends. Dividends are the portion of the company’s profit that is being shared with stockholders as a benefit of being part-owners of the company.

A publicly listed company gives dividends to their stockholders in two ways — cash dividend or stock dividend. Cash dividends, obviously, are dividends that are given in form of cash and it is computed through the amount of dividend they set per share multiplied to your current number of shares. For example, Jollibee Foods Corporation (JFC) announced that they will give cash dividend amounting to P 1.14/share. If you have 2000 shares of JFC, your dividend payout would be 2,280 (2000 x 1.14) in which you can use to reinvest the money.

Stock dividends, on the other hand, are additional shares of the company given to stockholders at no cost.

Why invest in the stock market?

The Philippines is a country with one of the fastest rising economy in the world and the fastest in Asia. With this in mind, you will be able to be part of this rapid growth because as the Filipino companies grow, your investment will also grow. The earlier you invest is better because time is an essential factor to make your money grow in the stock market. Moreover, investing earlier gives you the advantage in achieving your financial goals and the ability to enjoy the benefit of your money working for you.

How does the stock market work?

As mentioned previously, a stock market is a place where stockholders can buy or sell stocks. When you buy a stock, you are buying a piece of the company. Company issues share primarily because they wanted to raise more money and the stock then continues to trade on an exchange. In general, the stock price increases over time which makes buying shares attractive. However, the stock prices might also fall due to several factors. Shares can be bought or sold at any time, provided that there is enough volume available to complete the transaction. This means investors can cut losses or take profits whenever they wish. Meanwhile, investors can also enjoy some of the perks such as dividends, earning profits through price appreciation and voting rights.

What makes stock prices rise or fall?

In a nutshell, a stock price goes up or down depending on how people want to buy them. When people want to buy the stocks of a company, stock price goes up. In contrast, stock price goes down when people want to sell them.

More Buyers = Stock prices go up

More Sellers = Stock prices go down

There are several reasons on why more buyers are coming in to buy a particular stock. Some of the reasons are the investors have extra money, the company has strong earnings, there are new mergers & acquisitions, new products or services, future developments, business expansions, good news about the company, political stability and positive changes in the economy.

On the flipside, more sellers are cashing out because investors need cash, the company has weak earnings, stagnant growth, no new products or services, no interesting developments in company’s future, bad news about the company, negative changes in the economy and political instability.

Is there a way to know when the stock price will rise or fall?

Short-term movement in the stock market is often difficult to predict due to the volatility of the stock prices. Quick traders are often relying on technical analysis or the analysis of trends through looking at charts to know the stock price direction. The stock price direction is referred in three ways — bullish, bearish and sideways. A “bull” season is the upward movement of the prices because of the bull’s upward attack while the downward movement of prices is referred to as “bear” season because of bear’s paws swiping down. Moreover, a sideways trend is neither downward nor upward movement.

On the other hand, some investors are relying to fundamental analysis or the method of evaluating a security in an attempt to measure its intrinsic value, by examining related economic, financial and other qualitative and quantitative factors.

The rise and fall of stock prices: Is it risky?

Every investment imposes a risk. The stock prices move quickly so the price today can rise or fall tomorrow. For example, the Jollibee’s contractualization issue has caused JFC stocks to suffer because of the bad news about the company. On the other hand, a news about Jollibee’s global expansion has made the stocks surge.

However, here’s the catch. The secret to getting rich in the game of stock market is to sell your accumulated stock at a profit. If you sell your stock with a price that is less than what you paid for, then you lose money.

What to do before entering the PH stock market?

Before investing your money in the stock market, you should first evaluate your current and potential financial position to determine if this investment works for you. In doing so, try to ask yourself the following questions:

• What is my purpose in investing in the stock market?
• What am I trying to achieve?
• What is the amount that I am willing to invest now?
• What is the return that I am willing to accept?
• How much time am I willing to commit to this investment?

These are just some ideal questions that you need to ask yourself prior to investing. If you are still not yet decided on which financial instrument to invest into, consider reading books that will help you improve your financial literacy. (READ: Easy-to-Read Personal Finance Books Written by Filipinos for Filipinos)

Requirements for entering the PH stock market

If you have finally decided that you wanted to invest in the Philippine stock market, then here are the steps to take in order to start investing.

Find and choose a stockbroker. In the stock market, you must go through a broker in order for you to buy or sell stocks. There are two types of broker in stocks — traditional or online broker. A traditional broker is an individual that acts a buyer or seller in the stock market. On the flipside, an online broker is where a stockholder buys and sell a stock over an electronic network, typically with a brokerage firm. There are different online stock brokers in the Philippines to choose from such as COL Financial, BPI Trade, BDO Nomura and First Metro Securities.

Open an account. When you have decided which stock broker to use, you will need to open an account with them. While some of the stockbrokers such as First Metro Security, BDO Nomura and BPI Trade requires you to have an account in Metrobank, BDO, and BPI, respectively, as these stockbrokers are subsidiaries of these banks, some stock brokerage firms only requires you to fill out a Customer Account Information form and some identification papers for verification purposes. Hence, different brokers have different requirements so make sure to check the requirements of your preferred stock brokerage firm before applying for an account.

Requirements for opening an account for online stock brokers (click each link for more details):

• First Metro Securities
• COL Financial
• BPI Trade
• BDO Nomura

After you submit all the requirements, wait for your application to be approved before depositing the capital investment for your account.

Start trading. Once you have funded your trading account, you can already start buying your first stocks. Do note that getting rich in the stock market doesn’t happen overnight. You need time to make your investment grow, an effort to analyze the market and a lot of trial and error to refine your trading strategy.

Never stop learning

“The expert in anything was once a beginner.”

Those stock market savvies or people that trade well in the stock market was once a novice and they become what they are today because of constant learning and understanding on how the market works, how to evaluate stocks and other investment topics. If you want to be successful in investing, be hungry for information and invest in knowledge, too. Not only your investing skills will grow, so will your portfolio.

Happy investing. 🙂