What is the Stock Market and how does it work?
What’s the first image that comes to mind when you hear the words, Stock Market?
When I was younger, it was an image of people yelling and punching orders through computers while glancing at numbers on big, wide screens. Blame it on the movies. I had no idea what they were shouting about.
All I know is that they were making money.
At least I got that last part right. The Stock Market is essentially a marketplace where people buy and sell stuff. But instead of produce, people trade money and stocks. Simple enough, right?
But in order to fully understand the whole concept of stock market trading, we have to understand what a “stock” is first.
Investopedia tells us that “A stock is a type of security that signifies ownership in a corporation and represents a claim on part of the corporation’s assets and earnings”.
In layman’s terms: It’s a “piece” of a company.
What is Stock Trading and Investing?
Let’s say you want to buy a box of pizza. Realizing you’re 100 pesos short, you decide to have two friends share some of the costs in exchange for a few slices. For our purposes, these slices are the “stock”.
Rick offered to chip in 50 pesos in exchange for two slices. Marie offered the same deal.
They’re now both “shareholders”.
This, my friend, is the basic concept of stock trading. At its core, it’s all about making money through buying and selling stock. Whether you’re the company (pizza owner) or shareholder (Rick and Marie), money is made whenever an actual sale of stock (pizza) is made.
So how do you invest in stock, exactly? Going back to our example, Rick and Marie invested their money by buying your pizza. To make things easier, let’s continue with our scenario to learn the different ways to earn money from stocks.
How can you earn money from buying/owning stocks?
Later that day, friends of Rick and Marie saw their pizza and offered to buy it from them. One friend offered Rick 35 pesos per slice while Marie’s pal proposed to buy all four slices for 100 pesos (25 pesos each).
They happily obliged. Both of them were able to net earnings of 5 pesos per piece.
Since Rick and Marie were able to sell their pizza, they made a profit. However, they also ran the risk of not getting anyone to buy their pizza—if their original intent was to resell it for profit. With an actual pizza as an example, its value depreciates with each hour that passes. After all, who would want to buy stale, old pizza?
In stock trading, you earn money when the value of stock you own appreciates and you sell it. In other words, its price per stock went up from what you originally purchased it for allowing you to sell with a profit. This is called Price Appreciation.
Another way you can earn is if the company you have stock on decides to share its earnings to stockholders. This is called Dividends. You can receive this type of income in the form of cash or stocks.
Lastly, Stock Rights is an opportunity given by companies to stockholders that allows them to purchase shares at a lower-than-current market price.
How to Start Investing in the Philippine Stock Market
Investing in the Stock Market is a lot simpler than it sounds. With the advent of online brokers and cashless payment systems, setting up an account and trading has never been easier.
Here are the main steps:
1. Do your due diligence and understand the risks involved
As with any financial endeavor, effort and diligence are keys to avoiding the pitfalls of lost money. Make an effort to understand key concepts. Know the risks.
If possible, strive to continuously learn more about the whole thing to increase your chances of making better decisions. Remember, it’s your money we’re talking about here.
2. Open a stock trading account with an online broker
Most online stockbrokers generally require the same steps for new account holders.
First, you visit their website and download a registration form. Fill it out, submit it back to them, wait for approval, then start funding your account. We’ll discuss the actual steps required for each online broker in the next few sections.
3. Fund your account and start trading
Once your account is up and running, you may begin funding it for buying your first couple of stocks.
3 Best Online Stockbrokers in the Philippines
Ask anyone currently trading in the stock market who their broker is and these two names are most likely to come up: COL Financial and First Metro Sec. And for a reason. These two are popular especially to newbies because of the ease in setting up the accounts and in using their website.
What is COL Financial?
Established in 1999, COL Financial is considered to be among the top online stockbrokers in the Philippines. With an asset base of more than Php 62 billion from 200,000 customers, it prides itself as one of the pioneers in the digitalization of stockbroker services here in our country.
Here are some of COL’s offerings to its customers:
- Direct market access and order execution
- Expert insight and research
- Streaming data and live charting
- 24/7 access to your COL account and portfolio
- Lowest commission rates
- Mobile device access (iPad and iPhone)
How to open an account in COL financial
1. Visit their website. Click “Open an Account”- COL offers 3 types of accounts depending on your initial investment.
- COL Starter (Minimum Investment: P5,000) – An entry-level account suitable for long term investing. Provides access to basic research reports, standard market information, and end-of-day charting data.
- COL Plus (Minimum Investment: P25,000) – For active traders. Provides streaming quotes, comprehensive research reports and live chart data with some customizable features.
- COL Premium (Minimum Investment: P1 Million) – For the premier investor. Provides access to all available features and a personal relationship manager dedicated to assist you.
2. Download and complete the application forms – After deciding on an account, you need to download and print forms and submit additional requirements to proceed.
3. Submit all forms and requirements – You can submit all requirements to COL Financial’s office in Ortigas or though iRemit branches. Another options is to attend a free COL seminar that they conduct regularly and submit the requirements there.
4. Funding your account – The last step is putting funds into your account so you can start trading. You can personally visit their office or through online banking. One important thing to note is that you should fund your account within 3 months after you submit all requirements. Failure to do so will require you to re-submit everything again.
How to fund your COL Financial account:
COL Financial features a wide array of options for funding your account. These include bank transfers from BDO, Metrobank, BPI, and AUB. For specific instructions, please visit this page.
What is First Metro Sec?
First Metro Sec is the stock brokerage arm of the Metrobank group. Established in 1994, they have been a trusted provider of online stock brokerage services in the country.
If you have an existing Metrobank account, the initial deposit will be waived. An initial deposit of Php 25,000 is required for non-account holders.
How to open an account with First Metro Sec:
1. Visit their website. Click “Get Started” then “Open an Account”
2. Select from three options:
- For Metrobank account holders.
- Other Bank depositors (valid ID required).
- On-site account opening (you download the form to complete it then submit it personally).
3. After completing all the required fields, an email will be sent. Click on the link to verify your account.
4. Upload the required documents.
5. For non-Metrobank account holders, they will set-up a video call with you.
6. An email confirming your account has been set-up will be sent
How to fund your First Metro Sec account:
- Visit the Metrobank Direct Personal page.
- Click on Pay Bills.
- Under Category, select Investments
- Under Biller Name, choose First Metro Securities Brokerage Corporation.
- Enter Subscriber / Account No., your FirstMetroSec Account Code (OTxxxxx)
- Enter Reference Code, your FirstMetroSec Account Code (OTxxxxx)
- Enter the amount you wish to transfer and Click Continue.
You can also fund it through OTC and Deposit slip. For steps, please visit this link.
What is BDO Nomura?
BDO Nomura is the brainchild of BDO Unibank Inc and Japan Nomura Holding’s joint endeavor to set up an online stockbroker in the Philippines. It actually took over PCIB Securities, which was acquired by BDO way back when it combined with Equitable PCI Bank.
BDO Nomura is a strong option for those who already have an existing BDO account. Like First Metro Sec, you don’t need to deposit an initial balance if you’re a BDO account holder. You can also complete the whole registration process online.
How to open an account with BDO Nomura:
1. Visit this link. Note that you must be enrolled in BDO Online Banking.
2. Upon log-in, you’ll receive an OTP on your phone. Enter this on the appropriate screen.
3. Follow the next few steps until you reach the Investor Profile and Suitability form. Complete all required fields.
4. Click Confirm once done. Wait for the email confirming activation of your account (would take 24 hours to complete the entire application process).
How to fund your BDO Nomura account:
1. Log-into BDO Nomura using your BDO Online Banking credentials
2. Click “Deposit/Funding” tab.
3. You’ll be presented with a page showing dropdown options for moving funds from your BDO account into your BDO Nomura funds
5 Things to Consider in Choosing an Online Stockbroker
All three online investment brokers we mentioned above are excellent choices. At the end of the day, however, it all boils down to your preferences and needs. Here are some tips to help you streamline the process of picking the right broker for you:
1. Broker Fees and Charges
All online stockbrokers charge a fee for their services. No matter how much you have in the account, it’s a good idea to familiarize yourself with the different fees structure featured by each online stockbroker.
The differences on fees among brokers may look small but if you have a large amount of assets, these differences can be significant enough. In general, the lesser fees the better.
2. Features, Usability and Reliability of the Online Broker’s website
The main reason why you opt to use an online broker is convenience and speed. Having the ability to check and trade using your computer and smartphone is what makes it tick.
That’s why it should be a given that all these online features are up and running and easy enough to use when you’re accessing it. You’re dealing with money here and time is of the essence. A few minutes (or seconds) can spell the difference between a gain or a loss.
3. Hassle-free funding and withdrawals
The ease of which you can deposit and withdraw money into your account is crucial. Not only does it save a lot of time, but it also makes you more disciplined in investing since it removes the friction brought about by the hassles of the physical process.
Imagine visiting the bank to deposit some additional funds only to be stuck in traffic for an hour. Not fun. You might end up scrapping the whole idea and possibly losing on some potential gains.
Some online stockbrokers offer seamless integration with banks allowing you to deposit and withdraw funds the same way you send bill payments online. This makes things a whole lot easier.
4. Trading Tools, Researches, and other Features
Assessing and predicting a stock’s value is the name of the game here. That’s why you’ll need all the resources and data you can get to make a sound decision.
Some online stockbrokers like COL Financial and First Metro Sec feature charts and additional resources on their websites that may help guide you in your selection.
5. Top-Notch Customer Service
The need to ask questions, concerns, feedback, and report service issues pops up from time to time. Having speedy and helpful customer service assistants ready to address your queries is a nice bonus.
10 Stock Investing and Trading Tips for Beginners
It’s always exciting the first time we try something out, right? Sometimes, the anticipation itself is enough to give us a feeling of exhilaration that builds up to the actual moment we do it.
And I’m willing to bet that you’re reading this because you heard or read about other people’s success stories in the stock market. Stories of regular folks making thousands and even millions in just a few months.
You’re ready to pull the trigger, ready to get a piece of the action. But before you dive into this whole thing, here are some useful advice:
1. Due diligence is required
Take time to understand and study how the stock market works. Since you’re reading this, you’re off to a good start.
Know that for every incredible success story out there, there’s dozens of less fortunate ones. Should this deter you in investing in the stock market?
But it should serve as a caution. More often than not, only modest gains are realized. But that’s the great thing about it. It shouldn’t be like gambling. It’s never always a win-or-lose situation.
A lot of people delve into stock trading for modest gains. They use it as an alternative and faster investment vehicle to reach their ideal financial goals. And you can do it too. With the right knowledge, discipline, mindset, and expectations.
2. What’s your Risk Profile?
Risk profile refers to a person’s willingness to take risks. It’s typically used in determining a person’s investment allocation strategy.
For example, a high-risk profile has more tolerance towards high volatile stocks that can reach dramatic gains yet at the expense of a higher chance of incurring a loss. It’s a “Win Big or Go Home” mindset.
Conservative profiles tend to favor “safer” investments with the trade-off being the slower growth pace of gains. Some use a mix of both, combining both risk-heavy and conservative stocks in their portfolio.
By knowing what your Risk profile is, you can craft an investment strategy that aligns well to your investment philosophy and goals.
3. Stick to your financial plan
Stock trading opens up a wonderful opportunity to grow your money at a faster rate versus banks. This doesn’t mean, however, that you should put all your money into it. Be smart.
Stick to your financial goals and obligations (having emergency funds in the bank, investing your money in other vehicles, etc) so you won’t run into the risk of losing it all in a highly volatile scenario.
4. Brush up on the basics first
The first thing you learn when playing basketball is dribbling the ball. The basic mechanics of throwing down the ball and bouncing it back to your hand requires practice and fine-tuning.
In trading stocks, it’s crucial to learn about the most commonly-used definitions and jargons so you can keep up to speed to the material and research you’re analyzing. You can’t begin advancing your knowledge if you can’t even understand the terms you’re reading.
You can start by reading books about investing, watching YouTube videos, tutorials, articles and more. Google is your friend. You may also join Facebook groups or join communities of like-minded individuals so you can further expand your knowledge.
5. Learn to manage your emotions
Think of all the unfortunate events that happened in your life simply because you lost your nerve. Sucks, doesn’t it? More often than not, bad things happen when we let our emotions get the best of us, especially when it comes to money.
It’s easy to fall into the hype and FOMO of “hot” stocks that everyone seems to be snagging left and right. Decisions of whether to buy or hold affected by our emotional attachment and ego. Learn to use your brain over your feelings as much as you can.
Stick to your game plan.
Research and analysis are still your best tools when it comes to determining a stock’s value.
6. Timely and constant monitoring is crucial
Some people might argue that they’re no longer checking their reports as often since they’re invested in blue chip stocks (more on this later) and are in it for the long game.
While there’s some bit of wisdom in it, constant monitoring is still recommended. Remember a big reason why you’ve chosen to invest in the stock market is due to the higher gains you can get versus letting your money sit in the bank. And inaction can be as costly as being hyperactive.
You might miss some great opportunities if you let your money stay with underperforming stocks. Find a good balance on your activity scale and allot a specific period for checking your portfolio’s performance.
7. Be mindful of fees and charges
We mentioned this on the previous section. All brokers are not created equal and knowing which ones provide the service you need with the corresponding fees you can live with is an important factor to consider in the whole process.
Some investors might opt for a broker with higher fees just because he finds their service and features more robust.
Also, both the Phil Stock Exchange and Securities Clearing Corporation of the Phil charge transaction fees. There’s also a sales tax when you sell your stocks.
8. What’s your long-term goal?
Some people invest in the stock market with a specific goal in mind. Some do it to save for retirement, others leverage it for funding future educational expenses, some invest to fund their dream home or vacation.
We all have our reasons. By knowing how much your goal at a certain point of time, you can have an idea on how much you will need to invest and allocate into your portfolio. It also sets the tone for your investment strategy since you now have a target figure and date.
A portfolio’s growth depends on 3 main factors:
- Net annual earnings on your capital
- Number of years of your investment
9. Start Small
Did you know that less than 1% of Filipinos trade stocks? There’s a belief that stock trading are only for the affluent and the rich because it requires tons of capital to invest. As you’ve seen the plans from online stock brokers earlier, this is not true.
You can start with as little as Php 5000.
For beginners, it’s recommended to start small so you can test the waters while accumulating the know-how about the whole process. As you get the hang of it, gradually allocate more funds into it while constantly expanding your knowledge.
Important: Only invest money you’re willing to lose.
Also Read: How to Become Rich
10. Know about the companies you’re buying
With all the ticker symbols and information flashing on your screen, it’s easy to get overwhelmed when you’re starting.
Don’t fret, stick with the core principle of stock trading which is to buy low and sell high. And to do this, you have to do your research on the companies that you are buying.
Don’t simply follow the herd.
The most successful people in the stock market are those who make it a point to truly understand what a company does and how it operates. They understand and see the underlying values that will help them determine if a company is worth investing on.
Top 10 Blue-Chip Stocks in the Philippines
What are Blue Chip stocks?
Blue chip stocks belongs to companies that have operated for many years and typically have market capitalization of billions of dollars. These are the well-established, household name companies that are market leaders in their respective sectors.
1. SM Prime Holdings Inc. (SMPH)
Industry: Real Estate
Date Founded: January 6, 1994
Headquarters: Pasay City
What they do: Develops, operates and maintains popular commercial shopping centers.
Business Segments: Malls, Residential, Commercial & Hotel and Convention centers.
2. Ayala Corp. (AC)
Industry: Real Estate
Date Founded: January 23, 1968
Headquarters: Makati City
What they do: Holding company that provides real estate, telecommunications, utilities, logistics, financial and insurance services.
Business Segments: Parent Company, Real Estate and Hotels, Financial Services and Insurance, Telecommunications, Water Infrastructure, Electronics Manufacturing, Power generation, and Automotive, IT/BPO and Others.
3. Jollibee Foods Corp. (JFC)
Industry: Gaming, Lodging & Restaurants
Date Founded: January 28, 1978
Headquarters: Pasig City
What they do: Develops, operates, and franchises fast food stores under the trade name Jollibee.
Business Segments: Food Service, Franchising, and Leasing
4. BDO Unibank, Inc. (BDO)
Date Founded: August 16, 1967
Headquarters: Makati City
What they do: Provision of commercial banking services.
Business Segments: Commercial Banking; Investment Banking; Private Banking; Leasing and Financing; Insurance; and Others.
5. Metro Pacific Investments Corp. (MPI)
Date Founded:March 20, 2006
Headquarters: Makati City
What they do: Engages in real estate and infrastructure project investment.
Business Segments: Water, Toll Operations, Power, Healthcare, Rail, Logistics, and Others
6. Globe Telecom, Inc. (GLO)
Headquarters: Taguig City
What they do: Provision of telecommunications services – Digital mobile communications, fixed line communications, and broadband services
Business Segments: Mobile Communication Services and Wireline Communication Services
7. Bank of the Philippine Islands (BPI)
Date Founded: August 1, 1851
Headquarters: Makati City
What they do: Provision of commercial banking services
Business Segments: Consumer Banking, Corporate Banking and Investment Banking
8. Megaworld Corp. (MEG)
Industry: Real Estate
Date Founded: August 24, 1989
Headquarters: Makati City
What they do: Property-related activities such as project design, construction and property management
Business Segments: Real Estate, Rental, Operations, and Corporate and Others
9. San Miguel Corp. (SMC)
Industry: Oil, Gas & Coal
Headquarters: Mandaluyong City
What they do: Manufacturer and seller of beverage, food, and packaging products.
Business Segments: Beverage, Food, Packaging, Energy, Fuel and Oil, and Infrastructure.
10. Universal Robina Corp. (URC)
Industry: Consumer Products
Date Founded:September 28, 1954
Headquarters: Quezon City
What they do: Manufacturer and distributor of consumer food products.
Business Segments: Branded Consumer Foods, Agro-Industrial Products, Commodity Food Products, and Corporate Business
Fundamental analysis vs. Technical Analysis
In stock market investing, there are two main schools of discipline when it comes to analyzing the value of a stock: Fundamental Analysis and Technical Analysis. To better understand what each is for and how they differ, read on to the next few sections.
What is Fundamental Analysis?
Here’s our key take-away, Intrinsic Value.
Fundamental Analysis is the study of the underlying factors that contribute to a company’s financial health and earning performance. Why is this important?
Fundamental Analysts believe that by identifying factors like a company’s earnings, growth, and value in the market is the best way of pinpointing the value of its stock.
In this investing philosophy, even external factors are considered (e.g overall economy and industry conditions) because Fundamental Analysts believe that these two can affect current and future performance of a company’s stock.
Bottomline, it uses health and performance as key metrics for determining a quantitative rating to decide if a company’s stock is overvalued or undervalued.
What is Technical Analysis?
This type of investing method focuses mainly on stock volume and price.
Technical Analysts argue that all intrinsic values are already factored into the price, hence it’s no longer a priority to study them.
Technical analysis rely heavily on stock charts to spot patterns and trends that will allow them to forecast a stock’s future performance.
Difference between Fundamental Analysis and Technical Analysis
If I was tasked to explain the difference between Fundamental and Technical analysis to a complete stock market newbie, I’ll use a simple weather analogy.
Some people may try to guess the chance of rain using a number of factors: location, humidity, wind direction, cloud formation, scent of air, the sky, and even behavior of certain animals. These are “intrinsic” values. These people use Fundamental Analysis to determine if it will rain or not.
On the other hand, some people may simply look at historical data of the previous days and weeks, analyzing weather reports to predict the chance of rain. These people use technical analysis.
To be clear, you’re not supposed to use one style of investing only. In fact, most investors use a combination of both to determine a stock’s worth. And it makes sense, right? Why restrict yourself to a particular style when you can have the best of both worlds?
10 Active Stock Trading & Long-Term Stock Investing Strategies
If Technical and Fundamental Analysis are the “tools” needed to make sound investment decisions, Active and Long Term trading reveals an investor’s approach to trading with respect to time.
Active Trading is based on short-term stock movements and can be categorized into 4 subtypes:
1. Day Trading
As its name implies, it’s all about buying and selling securities within the day. Positions change the next market day.
2. Position Trading
Day traders use short-term charts for making their next move. On the other hand, Position traders use longer-term charts and a combo of other strategies in order to “see” the market trend. I like to think of them as surfers. They hop on the next wave (trend) and jump off once it dies down. It’s a harder to implement though during periods of high market volatility.
3. Swing Trading
During the time of market price volatility in between trends, that’s when Swing traders get in on action. They capitalize on these fluctuations to determine their buy or sell position. Short-term opportunities are what Swing traders look for and exploit.
To “take as many small gains as possible” is the the mindset of a scalper. And no, it’s not really a bad thing. They do this by trading based on small price changes that will rake them (small) earnings. It’s quantity over quality. It’s imperative to follow a strict exit strategy because one big loss will wipe out all their gains.
Whereas the long-term approach to value investing in stocks has these 6 prominent subtypes:
5. Buy and Hold
This is your strategy if you’re in it for the long term. Investors who use this strategy are not deeply concerned with short-term movements because they believe that even if the market went down in the short term, the longer time frame should net a positive value.
6. Long Pull Selection
An investing strategy that look out for fast-growing companies in the assumption that its earnings will grow higher compared to the market average. It can be risky since it rests on the potential of capital gains and not dividend income.
7. Bargain Purchases
Similar to the concept of bargain hunting if you’ll ask me. It makes use of various proven and tested investing strategies to look out for securities that are believed to be below their true value.
8. General Trading
Main strategy is to spot market trends and and participate in its general direction.
9. Selective Trading
Method on selecting stocks based on the perceived potential of better performance compared to others in a few months to a year.
10. Buy Low, Sell High
Exactly how it sounds like. Technique that uses stock market expectations and sentiments as indicators to exploit to determine if you should buy or sell.
Investing in the stock market may be risky, but can also be incredibly rewarding. To me, I see it as another way of growing our money faster. And that is enough of a reason to try it out. The earlier we figure it out, the earlier we can get better value for our money. As Benjamin Franklin once said, “An investment in knowledge pays the best interest.”
What’s Next? Other things to learn:
Below are other useful resources and tools you can use to further grow your knowledge in stock trading/investing:
Charting & Stock Chart Patterns:
Stop Loss & Limit Orders:
List of Philippine Stocks:
Other Useful Guides:
- How I Plan My Stock Market Investing Strategy and Gained 30.21% in 7 Months
- How to Invest in Phililppine Stock Market for Beginners