Stock Market 101
I consider myself a saver. Most often I buy assets and not liabilities. I have opened an account to few banks and always on the look out if there are banks that will give me a good gain. Unfortunately I haven’t seen one!
In this time of uncertainties wherever you put your money there is always a risk of losing it. So why not try the riskiest investment while you are still young? High risk, high reward. Not for the faint of heart.
Of course do not put your eggs in one basket. I still encourage you to put some money on savings account, time deposit and mutual funds aside from stock market.
What is a stock?
Stocks are pretty simple. Investors buy stock for a particular company because they feel that the particular company’s valuation will increase. You invest in the stock, sit on it, and watch it appreciate – or depreciate. Jollibee Food Corporation (JFC) is a publicly held company so if you want to buy Jollibee stocks you can do it.
So what is a Stock Market?
The stock market allows any person to purchase a part of any publicly held company. In this way, the stock market raises capital a company can use to continue producing its product or offering its service. In return for the use of investors’ money, if the company does well, investors get to share in the profit. If the company does poorly, however, investors see a loss.
Where to buy stocks?
In the Philippines, we have our Philippine Stock Exchange where all publicly held companies are listed. Through your stock broker you can pick certain stocks you like.
How do you make money on stocks?
You can make money through:
1. Dividend – big companies like to give dividends to investors especially if the business is doing well. Although dividend is not mandatory, most often you will get dividend once a year depending on how many shares you have. Blue chip companies such as PLDT, Ayala, SM, BDO and MBT give dividends yearly.
2. Stock price – when you buy a stock at a certain price and you sell it higher then you will gain from it. It’s like a buy and sell business (to make a simple analogy). Prices can go up or down in any given time because there will be a lot of buyers who want to buy and sellers who want to sell. In a bigger picture, prices will go down if there is a bad news or the company is not doing well.
How long should I hold my stocks before selling?
It depends. If you think in a 5 years time the company will become a multi-million company then you might as well hold on to your stocks. You can sell and buy at any given time, it’s up to you. Take an example, JFC was trading at 30+ per share last 2008 and now the price is 100+ per share. If you buy 1,000 shares when it was 30/share, then your position is now worth Php 100,000 from a Php 30,000 investment. That is just 4 years.
Who are the stock brokers?
There are two types of brokers:
1. Traditional brokerage where we communicate with our broker if we will put an order (buy or sell). We have seen this type of people many times on movies where people in the trading floor are talking on the phones accepting orders.
2. Online broker where you do your order by click of a mouse. No need to wait for your broker to answer your call. Just do it.
Advantage of online broker is that you have the liberty to do anything you like without waiting time and commission and other fees are cheaper. Not to mention if you use a live broker you might need a bigger capital for you to be entertained first.
Online brokers also give news and updates about the companies and they have extensive research that is given to account holders for free.
Stock investor vs. Stock trader
The definition of the two depends upon the person but basically they differ in the time horizon. Investors are those who hold their stock for a long period of time. A year and up while traders are those who buy and sell stocks within a day, few days or few weeks. Most of the investors check the fundamental aspect of the company that is why investors love blue chip companies. Traders on the other hand use technical analysis to determine if the price of the stock will move up or down. They use indicators to look into the current sentiment of the buyers and sellers. Stock trading will consume a lot of time unlike stock investing.
Is stock market a form of a gambling?
Gambling is when you put your money and depend on your luck to win while in stock market you have to analyze the fundamental and technical aspect of the stock.
you may also download the pdf file here Stock Market 101
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