Ideas & Opportunities

Stocks are certificates of ownership in a listed company—one that raises capital by selling its shares (the parts into which its capital stock is divided) to the public through trading in the stock market.  When you buy a company’s shares, you get a claim on its assets and earnings—a piece of the company, if you like—in exchange for investing your money in it. There are several ways to invest in the stock market: by buying common stocks, preferred stocks, warrants, or bonds. You make money through capital gains (when the price of the shares you have bought increases, and you sell the shares for profit) or through dividends (company earnings that are divided among stockholders including yourself).

Stocks are good investment vehicles because of their liquidity. You can easily convert them into cash whenever you like compared with real estate, for instance, which take time to liquidate or turn into cash, says Dennis Lee, a stock trader with Triton Securities Inc. Also, putting your money in a savings account earns you minimal interest, but you could make 20 or 30 percent profit from stocks particularly in a bullish or rising stock market.

To start trading in stocks, hire any of the 150 authorized stockbrokers here by consulting the telephone directory or the website of the Philippine Stock Exchange. (www.pse.org.ph). Then check out the brokerage firm’s track record by clicking on information about the company or viewing an online file of its annual reports. Stockbrokers like Triton normally ask potential investors to fill out a form and then to submit it with two I.D. pictures and documents to prove that they have money to invest. The stockbroker normally will assign a stock trader to transact business in your behalf, and have analysts who prepare reports and recommendations on which shares are good to buy.

A listed company is usually allowed to sell shares at a minimum board lot—the minimum number of shares an investor may buy. A listed company’s shares of stock may be valued at P1,000 each, for instance; but if there’s a company rule saying an investor should buy at least five shares initially, then you pay P5,000 for the five shares plus the taxes, documentary stamps, and fees that go with scripless trading—a way of transferring ownership of shares of stock without money changing hands physically. Scripless trading also allows you to hold on to your stock certificates or deposit them with the stockbroker’s account at the Philippine Central Depository.

You may ask the stockbroker to buy shares on your behalf by telephone. Once he has bought the shares you’ve asked him to buy, he will confirm the transaction to you and issue a provisional receipt and a confirmation paper on the details of your investment (the number of shares you have bought and at what price, the date they were bought, etc.) before the listed company’s clearing office issues your stock certificates. You may then have the certificates credited to your name if you plan to hold on to them for a while, or to your stockbroker if you intend to sell them quickly. Certificates credited to your name require three days’ clearing from the stockbroker before you can sell them, while a phone call is all you’ll need to sell your shares quickly if they’re credited to your stockbroker. The stockbroker sells your shares of stock right away when you call and then deposits the proceeds to your bank account after three days. You pay him 0.25 percent to 1.5 percent in commission for the service.

The advantage of hiring a broker and then investing in the stock market on your own is that you can decide which issues or companies to buy and sell any time you wish. A good stockbroker is one who gives you immediate feedback, monitors your investments, automatically credits your dividends, and is prompt in confirming the status of your shares of stock: whether or not their purchase, transfer, or sale went successfully.

Analysts normally base their recommendations on a company’s projected earnings compared with its stock’s selling price, according to former stock market analyst and now accounting firm owner Henry Ong. He says investors may evaluate stocks through fundamental analysis (looking at earnings, costs, and other things to find a company’s “intrinsic value”—or what its stock is really worth as opposed to the price at which it is being traded or sold in the market) and technical analysis (reviewing a stock’s performance to predict its price movements). “Technical analysis is usually based on history,” says Ong. “It should still be reconciled with fundamental analysis because there should be some justification for why the price of a stock is going up or down.”

What you need to remember is that there’s no foolproof system for picking the right stocks to buy. “Every strategy is at best a guess of how to invest,” says Deliza Ridoloso, managing partner at Pacific Sun Solutions. Lawrence Gonzaga, a stockbroker with leading brokerage firm Abacus Securities, agrees: “Trading based on tips, rumors, and inside information is a loser’s game.” Gonzaga multiplied his best account seven times in value over eight years, but he always plays it safe. “Twenty to 25 percent annual return is a reasonable target,” he says.

Indeed, specialists advise investors to be very selective: to avoid highly manipulated stocks and go for blue chips—stocks selling for high prices because they belong to companies that are considered well-established, highly successful, and reliable—and those with good track records—stocks like blue chips San Miguel and Ayala Corp. “Blue chips are high-level investments,” Gonzaga says. “Maski ipit na, they could still declare dividends.”

Still, Minettte Del Rosario, a financial planner with insurance company Philam Life, warns people against investing their retirement pay in stocks—“just the money they have in excess.” Lee describes the stock market as very risky and difficult to gauge. “There are no safe things—even blue chips.” You may buy a share for P100 and see no movement for two months, and if you lose patience, you sell it at a loss. Indeed, a wag once said that the stock market is so risky that the only time to get into it is when you see blood in the streets—when there’s chaos and everyone’s leaving it. “If everybody’s crazy about the stock market, avoid it,” says Lee. “When they start forgetting about it, then that’s the best time to come in.”

GOING MUTUAL 101
If you feel the stock market is too intricate to get into, try investing your money in a mutual fund—a company that pools money entrusted to it by people and institutions and then invests it in various securities. You may tap financial institutions such as Philam Life, which offers investment packages to clients that are managed by its Asset Management division.

Philamlife is said to offer clients 7 to 8 percent interest on its bond fund and 12 to 15 percent interest on its mixed fund (bonds and stocks) if they can invest P20,000 and up for one year. Its global fund lets clients invest $5,000 to $10,000 in paper and government securities of different countries that are managed by JP Morgan Chase and AIG’s Fund Management Group.

CRAMMING 101

If you’re not familiar with how the stock market works or how securities are traded, log on to the Philippine Stock Exchange’s website  to know basic information on securities, stock trading, investing procedures, and trading cycles. You may also visit the PSE library to research or buy publications on stock investing in the Philippines.

It’s best to consult people who know about stock investing before you even consider buying shares of stock. Then pick a stockbroker and make sure he’s authorized to do business at the PSE trading floor before asking him to buy and sell shares on your behalf.

TREADING LIGHTLY 101
Some things to keep in mind when investing in the stock market:

• Start small. Keep your investment to a minimum if you’re playing the market for the first time. Know the market first before investing serious money.
• Spread your risk. As they say, don’t put your eggs in one basket. Try putting some of your money in mutual funds—financial institutions that pool money from investors to invest in stocks and bonds.
• Invest only what you can afford to lose. And never invest borrowed money. The stock market is only for serious players—not gamblers and adventurers.
• Don’t be greedy. If you make some money, quit. You can’t push your luck in the stock market without coming to grief.
• Track your investment. The more you understand how your stocks are performing, the more money you can make from them.
• Know when to quit. Limit your losses on any stock. Five to 10 percent is okay, but if the share price dips any lower, sell the stock and move on to something else.