Read the Tagalog Version of this article: Stocks 101
In my past articles we have discussed about how we can invest in UITF (If not, read my article: “Investing in a UITF “). We also have previously discussed on how to invest in Mutual Funds in my article: “Investing in Mutual Fund“.
Now we will talk about an investment instrument or investment vehicle being used by both UITF and Mutual Fund to earn, the stocks or equity. In relation to the UITF and mutual fund products, this is what you see and read as “UITF-Equity” and “Mutual Fund-Equity Fund”. In this bank product, you are sure that portion of the fund is being invested or being used by the fund managers to trade in stocks market. Investing in stocks is one of the best way to increase your portfolio.
Stocks Investing vs. Stocks Trading, wait a minute…are they not the same?
Most of the time, many people who have heard the word “to invest in stocks” has an instant reaction of “fear” that they will just lose their money. Others say that it is “dangerous” to buy and invest in the stock market. Well, it’s just natural to be afraid when someone prompt you to do something that you have no idea. It is something comparable when someone place a black close box before you and asks you to put either of your hands inside its hole. You do not know what’s inside, it might be a snake, rat, a frog ….wait, why everything we mentioned are all scary? But the box might also contain a handkerchief, fruit, balls, etc. The fact is, we feel afraid of the things we do not have sufficient knowledge or idea (Something like a Panphobia).
One of the purposes why I created this article is to remove that fear and misconception regarding stocks investment. So before we invest and listen to the advice of others, it is still “best” that you investigate and study it by yourself. Anyways, life is a continuous process of learning right? So then you should lose the ignorance and fear to invest in stocks after you fully read this. A new “level-up”, so to speak.
Okay, back to our topic. Note that stocks investment is not the same as stocks trading. These are two different entity; Stocks Investing and Stock Trading. Investing in stocks let you buy a share of stocks of a company and from this you will profit through dividends. To simplify it, dividend is your profit as part of earnings of the company you invest with over a year period (other companies give dividends even less than a year)
Like this, for example I have company and we will call it as Green Stickman ™ and Co. (Just like VST & Co. who is a popular singing group during 70′s & 80′s in the Philippines. But of course I will not sing!) And I built a small business of drinks ang refreshment, and we will call my product “Green Stickman ™’s – Green Lemonade”. Now, for me to get started in the business, I will need an amount of Php 1,000 which will be used for the table, the ingredients, water, etc. The problem, my money is only Php 900. And it happens that you have Php 100, you can invest it in. This means you have…
[(100 ÷1,000) x 100] = 10%
10% shares from my new refreshment product. If for instance the business make a profit net of Php 100,000 a year, 10% of these revenues will be yours. So roughly, you will get (10% of 100,000) Php 10,000 as dividend. Now, it will be your decision to either take it as cash (Php 10,000) or not and invest this to increase your share to more than 10% for the next business cycle. This is how a stock investment profit. Growing or earning the money you receive through dividends which are usually given at the end of the year. Cool isn’t it?
Now, if from Green Stickman ™’s Green Lemonafe income, I decided to build a Noodle House (We’ll call it “Noodle House by Green Stickman ™“) with an amount of investment of Php 5,000 that will cover for the table, kitchen equipments and utensils, and ingredients for the noodles. The capitals will then be Php 1,000 pesos for the lemonade business, and Php 5,000 for the noodles business. So the total capital is Php 6,000 pesos. How much of this is your share again? Isn’t 10%? And how much is 10% of Php 6,000? Yes, it’s Php 600. Did you notice? Previously, you invest Php 100 but it is now worth Php 600. The value of your capital from Php 100 increases by Php 500 pesos. You got that? Apart from dividends, there are other ways to earn your money. And this is called Capital Appreciation. Now it’s cooler right?
Now, your friend heard that your “shares” in my company is earning. He is interested to buy your shares but only for the same initial amount you invest. Yes he wants to buy it for only Php 100. Would you agree? If you’re in a sane mind, of course you will not. Because you know that its value is greater now. And your share now is worth Php 600. Now your friend says I will give you Php 600 for your shares. Would you agree? Maybe you might say yes. Since, you have already earned dividends and now an interest from your capital. However another friend of yours come and is willing to pay Php 1,000 for your shares. Maybe this second friend of yours sees the market “potential” of my company Green Stickman™ & Co. So he wants to buy it even more expensive than the current price said. Would you sell it? Now, this part is up to you to decide. Maybe if you see as the market potential of my company, you would not just sell them. But in case you need to actually have (either in an emergency or when there is some irresistible bid), at least you will get bigger value from your capital.
Here you will see the difference between “real value” and “perceived value”. The real value is the original worth of your shares. In our example, this is the Php 100 being released in the beginning. The perceived values are the given worth or prices by those who want to buy shares. In our example, this is about Php 700 to Php 1,000 offered bid price of your friend. If you notice, the perceived value is related to the “law of supply and demand”. Because many demand (high demand) you to sell the shares you merely sell to other (low supply), the tendency will increase its price greater than its corresponding value. And as a seller, you will agree of course to a bid with an extra worth.
Now we know about investing in stocks. It earns through dividends and capital appreciation. How about trading stocks? It’s something not for an amateur because your investment might become a “first blood offering”. Leave this to a “traders” who work for 8 hours to trade and monitor the stocks market.
This is the main reason why so many are afraid to invest in stocks. They are assuming that stocks investing and trading stocks are just the same. What’s the difference? There’s a huge difference. Investing in stocks means buying stocks and lets this earn through dividends and capital appreciation. We leave our money for long time to grow such stocks. Investing in stocks requires you to set your mind in long term investment. Or if possible forever, meaning without investment withdrawal. While with stocks trading, it is only transient or very short term. You may purchase or invest today, and sell them tomorrow when its worth skyrocketed from its purchased amount. This is like an instant buy and sells. If you try to participate in one of the forums of stocks traders, you will always reads and encounter the term “prediction” analysis. They predict whether there will be an increase of value of a certain stocks. It is something vital to know for they can have an idea when to buy and when to sell the stocks. We can say that trading stocks is more of speculation or guesswork because you never really know what will be the actual occurrence in the future, but you can have an idea whether it will increases based on the data history of the company and you have great experience in trading stocks. So if you’re inexperienced or an amateur, and rely on the forecast of other traders, have mercy on yourself. Stop now and be happy on investing in stocks. Especially if you’re an employee, focus on your work to earn and earn a lot more for you to invest. Work for your employer while you buy a company with a better market performance.
Imagine this, if for example you work in Jollibee as an ordinary crew or cashier. And while you work, you save. And those extra savings of yours will be invested by buying stocks from Jollibee. Maybe if you tell your colleagues or co-worker that you have share of stocks of Jollibee they may say that you are dreaming. Then show them all your stocks certificates, their jaw might fall down. This is not impossible if you have patience in saving, discipline, and invest; you can buy even the company you are working at. Super cool isn’t it?
How to join and invest in stocks?
Before, if you join in stocks investing, you have to do it manually by calling and telling your “broker” what you wanted to buy in the stock market. The brokers that I referred to are those who can only process your transaction. Now we are lucky indeed because almost everything is already available online. Even brokers are now online. One of these is CITISECONLINE. There were also many other online brokers, but I think, now, they have the finest online trading platform in the Philippines (If you have known any other, put your comment below this article).
Lucky for us, it’s easier to invest in stocks nowadays because everything can be done at your finger tips, buying and selling of stocks.
Here in the Philippines,you can start and open an account with them for as low as Php 5,000. Since you’re an inexperienced, you may start with this. They call this as EIP or Easy Investment Program (There are other programs which requires a minimum of Php 25,000 to start with. This is for the Regular Account of traders or a Corporate accounts).
How to open an accounts?
To open an account, there are 2 ways to do this:
- Personally go to their office to fill-up the application form.
- You send them the application forms through a courier such as (LBC, FedEx, JRS Express, 2Go, DHL, etc.)
I made separate instructions about applying to COL. Just click items 1 and 2 for complete instructions.
After COL had processed your application, you will receive your account details in your e-mail account. And you can login to their online trading platform at this address: https://www.colfinancial.com/
Before you apply or while you are waiting for your account to be approved, you can take their 7-day trial use of their trading platform and be familiar. You can make a demo account here: https://www.colfinancial.com/ape/Final2/home/demo_account.asp
Oh, by the way, you do not need to send money to their office every time you want to invest (except on your first time you go if decide to personally apply to their office). You can do this by bank deposit at any branch of BDO, BPI, Security Bank, HSBC and Metro Bank.
Green Stickman™ Stocks Investing Tips
- Once you decide to invest in stocks, make sure your money for investment is just an “Extra Cash” of yours. It will be more favorable if you have your Emergency Fund beforehand. (See my article “Building Your Emergency Fund“)
- If you are already enrolled and ready to buy stocks, it’s better to have funds of least Php 8,000 in your account. Although Php 5,000 will be enough for you to participate and buy, it will limit your options because every company has the so called “Board Lot” when you buy shares. Let’s have an example to understand it more easily; you want to buy stocks from Jollibee which is Php 60 per share. However the minimum shares it requires you to buy are 100 shares. It means you need Php 60/share multiply by 100 shares will be Php 6,000… for you to buy the shares of Jollibee. If you only have Php 5,000 in your account, you’re still not able to buy.
- If you’re an amateur, remember that “stocks trading” is not for you. Study the market carefully before you decided to go on trading because maybe your investment will flush out of your portfolio. Hope those things I wrote above are clear with you. Be reminded that according to the study, 80% of participants of stocks trading are losing because there is not enough knowledge. If you will be stubborn, maybe you’ll be included in the 81% stock investors who have lost their money on trading stocks.
- Do not focus your investment in just one company. Make sure you diversify. Invest in different companies.
- If you buy or shop for stocks in a company, you may want to base it on your day-to-day needs. Choose companies related to electricity, water, grocery store or mall and banks. These companies are related to the “basic needs” of people. If you will not stop in spending to pay your bills in those companies, it will also be unlikely for those companies to lose. After you have invested in them, then you may buy stocks from others such as phone or telecoms, real estates, fast foods, broadcasting, mining, etc. Always choose those companies that you think will still be around after 10 or even 20 years.
- If the price of stocks fell for a company, consider it like you are in a mall SALE. Buy as much as you can. Though its value is lower now, you will not regret it once you saw its market value rising up again.
- If ever the value of stocks you bought has dropped, do not fear and do not just withdraw your investment. Certainly, it will increase again, have faith.
- Stocks investing are for long term investment. Let it stay… Let it grow. Treat it like a piggy bank for your extra cash. Every month, commit yourself to invest in companies that you want to buy. When will be the right time for you to sell your investment? After 20 years. Yes, it’s true. This is called cost averaging.
- Do not believe in gossips. Observing in the forums of other stocks investors is fine but do not be affected to whatever you hear or read on them regarding increase or decrease of price of stocks of a company unless proven. Whether there’s a hike in oil prices, or political crisis, or recession, we should continue to invest. Just invest and buy stocks every month.
- Do not be deceived by mere feelings if you are investing in stocks. If its value goes lower, do not withdraw your money. If its value rises, do not over react and purchase. Don’t be emotionally attached to your investments. Always look for the cheapest to buy. As I mention in item number 6.
- If you want narrower tips for your stocks investment, I would suggest you to join and subscribe my Stocks Reco service in IGAN. For more details, you can read it HERE.
You will receive tips on what stocks to buy, what price to buy, and what price to sell. But of course anything that is convenient comes with an extra “service fee”. But it’s worth it especially when you are new to stocks investing.
Let’s end the discussion about Stocks here for now. I hope this article enlightened you when it comes to stocks investing. In the next article we will discuss about taking care of your Financial Accounts (Protecting Your Finances).
Always remember, the harder you work to earn a certain amount, the hardest for it to save, invest and multiply.
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