By Edmund Lao
What is an investment?
An investment is anything that puts together money, time, and effort to produce a result to outpace inflation and eventually make money beget money. It is said that by investing, one is actually trading his money for his time and freedom, in contrast to employees who trade their time and freedom for money..
There are lots of instruments for investments and one of the most exciting is stock market investing.
What is a stock market?
Similar to a wet market where sorts of foods are being sold, a stock market is also a market, distinct in that if it sells shares of different companies to the investing public.
There are people who say investing in the stock market is good and there are those who say otherwise. What is the truth then? It depends on the person’s perception. Those who say investing in the stock market is good have first hand knowledge before they part with their money. On the other hand, those consider it risky have very little wrong information. In fact investment in any instrument is not risky, but it is the investor’s emotional decision that makes investing risky.
What is a stock?
A stock is a security that represents ownership in a publicly traded company in the form of shares. . Buying these shares denotes a part ownership for a shareholder of that company. For example, if one buy some shares of Bank of the Philippine Islands (BPI), he becomes a part-owner of BPI. By buying shares of stock of blue chips companies, one automatically becomes a business partner of tycoons like SM’s Henry Sy, JG Summit’s John Gokongwei, BPI’s Ayala, or even JFC’s Tony Tancaktiong. Imagine being a part-owner of branches of malls or banks or even restaurants that one can’t even own by franchising. By investing in these companies, one co-owns all the branches with a minimum of Php 5,000 instead of owning just only one for millions of pesos.
How does stocks investing work?
There are two ways to earn from the stock market.
First is through an increase of stock price or a capital appreciation. Investors and traders buy a particular share with the goal of profiting through increase in the price per share over time. This is just like buying a property for Php 1,000,000 today and selling it after a year for Php 2,000,000 which results in a gain of Php 1,000,000 gross..
Second is through dividends declared by the company. Dividends are payments made by a company to its shareholders from the profit made by the company.
There are two types of dividends, cash dividends and stock dividends.
If the company declares a cash dividend of Php 2.00 per share, assuming one owns 10,000 shares, the shareholder earns Php 20,000.
Now, if the company declares a 20% stock dividend, the 10,000 shares will have an additional 2,000 shares at no cost. The stock dividend can be sold any time after the shares have been issued.
Before beginning to invest in stocks, one must first invest in education. With proper knowledge, one minimizes risk and maximizes gain. It is often quoted that ignorance is more expensive than having education. My actual experience is that whenever I stress the need for financial education for a financially illiterate person, more often than not, the person choose ignorance. Why? It is because most people prefer to watch telenovelas than go to a free financial seminar to learn.. There is truth to the adage “Rich people educate themselves and poor people entertain themselves.”
In being educated on stock investing, one needs fundamental analysis (FA) to know more about the company and technical analysis (TA) to study charts, graphs and historical prices to know the future price of a stock. Studying both may cause nosebleed for some, but for me, the best way is to do a Henry Ford. One does not need to know everything. Consult someone who knows and has vast experience about stocks investing. Ask him to teach you the do’s and don’t’s.
But if one has the interest and passion to learn he consider the following:
a. Enrolling in an intensive training workshop on technical analysis Technical analysis knowledge is useful not only for stocks trading but also for commodities, fixed-income securities, forex, etc.
b. Buying books or searching for e-books about stocks trading, technical analysis, or investing. (books by John J. Murphy, Dr. Alexander Elder, Martin Pring and Benjamin Graham).
c. Use the internet.. Read the articles on investopedia.com, stockcharts.com, or watch stock-trading videos from Youtube.com! One can also join online forums, eg. Finance Manila, Traderspizza.com, StockmarketPilipinas.com (to get the latest rumors, facts and humors about a company’s stock). Financial news on bworldonline.com, Business Mirror, or inquirer.net.. There are also Pinoy stock experts like Aya Laraya and Marvin Germo who are staunch advocates of investing.
Stock investing is not that risky. One just has to know his goal,risk profile and investment horizon.
The best time to invest is NOW. Remember, the Philippines is now one of the best performing markets in the world. It is really more fun (and more fund) to invest in the Philippines.
(first published in the Philippine Online Chronicles, October 28, 2012)
Photo: “Wall Street Trading Room” by SJU undergraduate admissions, c/o Flickr. Some Rights Reserved