So you want to make money in stocks? The stock market in the Philippines can be a great way to grow your money, but it’s important to know how to invest in the stock market if you want to see a return on your investments. Here are a few tips when investing in the Philippine stock market.
Related: The Power of Investing: Why Investing is Important
Table of Contents
How to Invest in Stock Market
Step 1: Do your research
Stock investment involves research. Understand what you’re buying and look at the company’s financials, its competitive landscape, and its long-term prospects. Here’s what to look for in a company’s financials.
Earnings per Share (EPS)
Earnings per share is a metric that shows how profitable is the company based on how much it earned in revenue for each share of stock. The earnings are divided by the number of shares outstanding, which equals EPS.
Price to Earnings ratio (P/E)
The P/E ratio is a measure of how many times the company’s earnings have been divided by the current market price of your stock.
Debt to Equity ratio (DE)
The DE ratio is a measurement of the amount of money that a company owes compared to the money it has in its bank account. To calculate this ratio, you take the total debt and divide it by the total equity.
Return on Equity (ROE)
The ROE is a metric that shows how much profit the business has generated per each dollar of equity it has. To calculate, you take the earnings per share and divide it by total equity.
Gross Margin (GM)
The GM is a number that shows how much money a company makes in the sales of its products. To calculate, you take the revenue and subtract the cost of goods sold.
Operating Margin (OPM)
The OPM is a metric that shows how much money a company makes for every dollar it spends on operating expenses. To calculate, you take the operating income and subtract the operating expenses.
Step 2: Understand your Risk Tolerance
There are two types of investors in the stock market: Those who are risk-tolerant and those who aren’t.
In order to be successful when investing in stocks, you need to be risk tolerant. This doesn’t mean that you should go out and buy risky stocks without doing your research, but it does mean that you shouldn’t avoid them either. You also need to be able to stomach the ups and downs as stock trading is considered to be a volatile market.
It’s important to remember that not all stocks are created equal. Some are much riskier than others, so it’s important to carefully evaluate the risks before investing. If you’re not comfortable with the potential risks, then you’re probably not going to be very successful with stocks. You’ll want to invest in low-risk investment instruments like bonds or certificates of deposit (CDs) instead of investing in stocks.
However, if you’re willing to take on a little bit more risk, you can potentially gain a higher return on your stock investment.
Step 3: Decide What Type of Investor You Are
If you are a regular everyday investor, it’s best to invest in a mutual fund that follows the same strategy as your investments. If you are more of an active trader, then you should do some research on the stock and decide whether you buy or sell more shares.
Eight Types of Investors
Passive
This type of investor will hold on to his investments for a very long time. He or she will not do much more than just hold their stocks, and they will only sell their stocks when the price drops below their purchase price. This type is for long-term investing.
Active
This type of investor will actively try to make profits from his or her investments on a short-term basis. He or she will look at the stocks on a daily basis buying the stocks based on their current price, what the market is doing, or to take advantage of quick gains or certain trends.
Fundamental
This type of investor will do research into the stocks he or she is considering buying. He or she may want to find out how a company makes its money, its economic situation, and what it does with the money it earns.
Technical
This type of investor will use technical analysis to make investment decisions. He or she may use charts and graphs to determine when a stock is going up or down.
Buy and Hold
This is a strategy that investors with long-term investment goals use. They can buy and hold stocks for several years or until the market collapses. After buying, they will not sell the stock unless there are very good reasons to do so.
Short Seller
This type of investor is never satisfied with the status quo. He or she will sell a stock even if it is rising in value. The person selling the stock may look to profit from the decline in the value of the stock.
Margin Trader
This type of investor is called a “day trader” because he or she does not hold any stocks for a long period of time. In day trading, he or she will buy and sell stocks on a frequent basis. It is more like trading on margin than holding a position.
Pump and Dump
This type of investor buys a high-priced stock, then sells it to other investors at a much lower price. The new owners think that the stock is undervalued and will sell it for a profit. The original owner sells his or her shares at a higher price and pockets the profit.
It is important to learn about the different types of stocks, how stock market investing works and what affects stock prices. You can also use online resources to help you make informed decisions about which stocks to buy.
There are Five Types of Stocks
Common Stocks
These are the stocks that you buy and sell. These stocks are traded on the Philippine Stock Exchange (PSE).
Preferred Stocks
These stocks have special rights and privileges. These include the right to vote in annual shareholder meetings, the right to be paid a regular or special dividend at certain times, and the right for the company to buy back shares from shareholders.
Convertible Stocks
These stocks have the right to convert into shares of common stock. You can also sell convertible stocks without owning common shares. In most countries, you must hold a minimum of a certain amount of stock for three years before you can sell your shares.
Warrants
These securities give the holder the right to buy a certain number of shares at a fixed price for a set period of time. Warrants are usually sold by companies, who want to raise cash or increase the value of their company.
Options
These contracts give the buyer the right to buy a certain amount of stock at a fixed price for a set period of time. Unlike warrants, options are not securities but rather contracts between buyers and sellers. They can be sold as part of an investment strategy or bought as part of speculative investing.
One of the best ways to research individual stocks is to use a financial website like Bloomberg or Yahoo! Finance. These websites offer a variety of information, including historical data, news stories, and analyst ratings. You can also find information about company earnings, dividends, and price-to-earnings ratios.
Another great resource for researching stocks is the Securities and Exchange Commission (SEC) website. The SEC website has a searchable database of all public companies in the Philippines. Or you may also want to check the list of billion dollar companies in the Philippines.
Step 4: Choose the Right Broker
The most important factor in determining how much you should be investing is the broker. You want to choose a firm that has a strong trading history, which also cares for its investors’ funds and that has been around for a long time. Look at the firm’s track record and ask them how they’re doing with their current clients.
Tips on How to Choose the Right Broker
#1 Research brokers before you invest in shares
Be sure to compare the broker with other brokers offering similar services. Choose a broker that is well-known and has been active for a long time. Find out how many people are using the firm’s trading platform and how many clients the firm has.
#2 Consider the cost of your investment
Some brokers charge a monthly fee and some charge a yearly fee. The cost of the service should go hand-in-hand with the quality of the service you receive. Get estimates from as many brokers as possible to compare different fees, spreads, commissions, and services before you choose one.
#3 Compare the services you receive
Compare the services offered by each broker to determine which one meets your needs best. Check out their website. The broker should explain the services you’ll receive and allow you to request a demo if necessary.
#4 Look at customer reviews
Check out the broker’s Facebook page, website, and Twitter account to see what other people have to say about the broker. Compare costs. Check out the charges of different brokers.
#5 Check out the broker’s background
If a broker has had any legal issues in the past, that may indicate poor customer service. Check out their location. If you’re looking for a broker based on convenience, find one near your home or work.
#6 Ask around for recommendations
Your friends and family may be able to help you find a good broker.
Top 7 Stock Brokers in the Philippines
Right now you can open an account online with any of these top stock market brokers in the Philippines.
Address: 11th floor Ayala North Exchange Tower One 6796, Ayala Avenue corner Salcedo and Amorsolo Streets, Legaspi Village, Makati City 1229
Minimum Investment: None
Commission: 0.25%
Mobile app: No
Contact number: (02) 8246-5555
Email: [email protected]
Offer: 7 day trial
Address: 2401B East Tower, Philippine Stock Exchange Centre, Exchange Rd. Ortigas Center, Pasig City 1605
Minimum Investment: Php 5,000
Commission: 0.25%
Mobile app: None
Contact number: +632 86515888, +632 8633512
Email: [email protected]
Offer: Free 7-day trial
Address: 18/F PSBank Center, 777 Paseo de Roxas cor. Sedeno St. Makati City 1226
Minimum Investment: None
Commission: 0.25% or P20.00 whichever is higher
Contact number: (632) 8859-0600, (632) 8859-0699, 0917-8124047 (Cebu), (082) 293-9354 (Davao)
Email: [email protected], [email protected]
Offer: 5-day trial
Address: G/F Unit EC-05B East Tower, Philippine Stock Exchange Center, Exchange Road, Ortigas Center, Pasig City 1605
Minimum Investment: Php 5,000
Commission: 0.25% or P20.00 whichever is higher
Contact number: +63 (2) 8588-1900
Email: [email protected]
Offer: Free 7-day trial
https://securities.abcapitalonline.com/
Address: 12th and 19th Floors PSE Tower 5th Avenue corner 28th Street, Bonifacio Global City 1634 Taguig City
Minimum Investment: None
Commission: 0.25% or a minimum of P20.00
Mobile app: None
Contact number: (632) 8898 7555
Email: [email protected]
Offer: 7-day trial
https://baseconline.psetradex.ph
Address: Suite 401-403 CLMC Bldg. 259-269 Edsa Greenhills Mandaluyong City
Minimum Investment: Php 5,000
Commission: 0.25%
Mobile app: None
Contact number: (+632) 8722 8832 or (+632) 8727 5374, +63 997 514 7987 or +63 917 560 8060
Email: [email protected], [email protected]
Offer: None
Address: 1701 Tytana Plaza Oriente St., Binondo, Manila or Unit 1603 – 1605 PSE Tower 5th Ave. cor. 28th St. Bonifacio Global City, Taguig City
Minimum Investment: Php 5,000
Commission: P100.00 per transaction
Mobile app: None
Contact number: +63 8242 4006 to 09, 0956 331 4860, 0961 111 0794
Email: [email protected]
Offer: None
Step 5: Consider Investing in Index Funds
Index funds are funds that track the performance of a particular stock, bond, or commodity index. The best way to select an index fund is to choose one that tracks the same index as your investments.
An index fund is a type of mutual fund with a portfolio constructed to match or track the components of a market index, such as the PSE. An index may be composed of stocks, bonds, or other securities.
These funds are passively managed, meaning their managers aim to replicate the performance of an index rather than trying to beat it. This approach results in lower costs and taxes, which makes it more attractive to investors.
Step 6: Understand how Dividends work
Dividends are an important part of any company’s financials. This is because dividends allow you to make money on your investment without having to take a risk. They also provide a steady stream of income to your portfolio, which can help keep your portfolio growing over the long term.
Dividends are payments made by companies to their shareholders from their profits. A company can either pay a dividend in cash or additional shares. When a company pays a dividend in cash, the shareholder receives a check or electronic transfer from the company. When a company issues new shares as a dividend, the shareholder receives additional shares in the company.
There are two types of dividends: regular and special. A regular dividend is paid on a set schedule, such as quarterly or annually. A special dividend is paid outside of the regular schedule, often in response to the good news about the company, such as an increase in profits.
Dividends are an important source of income for many investors. They provide a steady stream of income that can be used to pay for living expenses, reinvest in other assets, or simply saved for retirement.
Step 7: Diversify your Portfolio
Don’t put all your eggs in one basket. Invest in a variety of stocks across different industries so that if one stock performs poorly, you won’t lose all your money.
Types of Industries in the Stock Market
- Technology
- Healthcare
- Energy
- Industrials
- Consumer Discretionary
- Financials
Step 8: Use Peso Cost Averaging (PCA)
When you Peso-cost Average, you purchase shares of a stock over time instead of all at once. This helps reduce the risk of buying shares at a high price point.
Peso-cost Averaging is a time-tested investment strategy that can help investors mitigate the risk of buying stocks at inopportune times. By investing a fixed amount of money into a particular stock or stock market index on a regular basis, you reduce the effects of sporadic changes (up or down) in the price of the security on your portfolio.
In other words, by buying shares over time, the average cost per share will be less than if the investor had purchased all of their shares at once.
This approach is often recommended for new investors who may be uncertain about when to buy and sell stocks. By buying into the market over time, they are essentially “averaging out” their purchase price and reducing their exposure to potential losses.
Step 9: Be Patient
The best thing about investing is that it takes time for your money to grow. It is important to remember that the market can go up or down on any given day. The best investors are those who understand this and act accordingly. If you wait ten years, your money will have grown by an average of 10% per year.
Final Thoughts
Some investors believe that the market will always go up. They buy stocks on a tip from a friend, a hot tip from a stock “prophet”, or even the latest “hot” stock that everyone is talking about. But what if they are wrong?
In the long run, the market is a very good place to invest money. But it is not perfect and you should always keep in mind that there are no sure things when it comes to investing.
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