Primer on Investing in Stocks
1. What is Stock Market Investment?
It consists of the buying and selling of shares of stock of a company that is listed in the stock exchange. You invest and become part owner (stockholder) of a certain company up to the number of shares owned, with the hope that your money will profit in the future. What makes it different from savings or time deposit is that there are neither fixed terms nor any fixed yield. When you buy Phoenix Petroleum (PNX) shares of stock, you become a stockholder of the company.
2. How much is the minimum amount I can invest?
It depends on the share price of the company. The Phil. Stock Exchange (PSE) has set board lots to follow. For example, if the price of the stock is between P5.00-9.99, you can buy a minimum of 100 shares and increments of that, thus a minimum investment of P500-999. If the price is between 10.00-19.98, you can buy in lots of 100 shares too. Say PNX is now trading at P8.20 (June 25, 2012) and you buy a minimum of 100 shares, that’s an investment of P820.00. Note that brokers charge fees of P250-600 per transaction, so if you want your investment to reap substantial benefits, you should buy at at least 1,000 shares or P8,200 plus the broker’s fee.
3. How do I buy Stocks?
a. Approach a stockbroker. You can also do online trading.
b. Fill up a CAIF (Customer Account Information Form). The broker can advise you on other details: payment or settle-ment date, request for a stock certificate, etc.
c. Buy the stock of your choice. You can ask for recommendations from your broker and investor friends, and read business news and analysis regarding company performance. The Philippine Stock Exchange requires full disclosure of every significant report, information or news about the company to the public to level the playing field.
d. You can order by phone for subsequent transactions. Trading time is between 9:30 am to 3:30 in the afternoon, with a lunch break from 12:00 noon till 1:30pm. For online trading, you place your own order at your trader’s website.
4. How do I make money?
You earn two ways:
a. When the price of your stock goes up. For example, if you bought PNX shares in June 2010, its traded price was P8.00. This year in March, it went up to as high as P12.00 -14.00. You would have earned from 4 – 6 pesos per share or 50% – 75% if you sold earlier.
b. When the company declares dividends, either in cash or in the form of stocks. If you bought 1,000 PNX shares in January 2012, you would have earned 50% stock dividend since the company declared a 50% stock dividend, ex-date in March 23, 2012. This was paid in April of 2012. Thus, your total shareholdings would have been 1,500 shares. On top of this, the company also gave out P0.10 cash dividend on March 22,2012 or 100.00 for every 1,000 shares. Hereunder is a history of PNX dividend declarations:
Note that this is the bright side of the picture. It is healthy for stock market prices to fluctuate or move up and down. There are risks involved, though. Sometimes the market price of a certain company falls due to some adverse news, crisis, or external events. that is why you will have to carefully choose the stock and base your investment decisions on fundamentals such as price earnings, price earnings ratio, and industry prospects, and not on rumors or hearsay.
5. What factors affect the performance of stocks?
The stock market is the barometer or gauge of how the economy is doing. It is up when there are good news, like when a company reports very good earnings.
But in some major crises like the currency crises in 1998 when our peso devalued or when our Asian neighbors are faced with threats (like the North Korea incident), expect some knee-jerk reactions.
6. When is the best time to buy and sell?
The irony in the stock market is: One sells and the other one buys. Yet both think they’re right. It’s best to do your homework first. Study the basics – pick the right company by learning about its earnings, future revenues, even historical prices and trends. The time to buy is when you have the resources and you have picked out the stock you like to bank your money on. As to when to sell, it now depends on your appetite.
If you see that your stock is up by 10%, you would have earned a respectable trading gain and a much better yield as compared to fixed deposits. Or, you can position yourself as a medium to long term investor – say, hold on to it for a year or even more because the company will expand or grow further and the prospects are good.
PNX has consistently declared dividends since the time it got listed in the stock exchange (please refer to the table above on the history of PNX stock dividend). If you held on to your PNX stocks (e.g. 1,000 shares) since the time of its Initial Public Offering, you would have grown your stock to 4,968 shares compounded. That’s an increase of approximately 5 times your original stock position.
7. How often should I monitor my stocks?
It depends. If you are in for trading purposes, example: buy low and sell high (caution: there are times when you will have to sell at a loss or cut your losses, if the price of the stock goes down…), then you may need to look at it daily.
But there are other stocks which you can treat as an investment, meaning you can confidently keep it for a year or more since the company is blue chip. These are companies that have a long track record of profitability, and declare dividends year in and year out for over 30 years. So, you may just need to look at it on a weekly basis. It is good to acquire the discipline of monitoring your stock investments regularly because you might need to make some important decisions, like buying some more stocks or unloading some temporarily.
Good luck and happy investing!
This report is for informational purposes only and is not intended as an offer or solicitation for the purchase or sale of a security. Any forward-looking statements are based largely on current expectations about future events and financial trends affecting business and operations.
No representation, warranty or guarantee of any kind, express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this Article, including the accuracy, likelihood of achievement or reasonableness of any profits, losses, forecasts, prospects, results or statements in relation to the matters contained herein.
Copyright 2012 Phoenix Petroleum Philippines, Inc. No part of this shall be reproduced without the permission of PPPI.
“No representation, warranty or guarantee of any kind, express or implied, is made as to the fairness, accuracy, completeness or correctness of information contained in this Article, including the accuracy, likelihood of achievement or reasonableness of any profits, losses, forecasts, prospects, results or statements in relation to the matters contained herein.”