Investing Basics: How to invest in the stock market

CEBU, Philippines - People may have a lot of options as to where they could possibly invest their hard-earned money. Generally, there are many forms of investments, establishing a business for instance, or one that guarantees profitability and good financial outcome.

However, among others here is one viable investment that one can get into but is often judged otherwise, the stock market.

Most people tend to shy away from this form of investment and are not keen enough to learn the ropes of stock trading because of the misconceptions they have heard and the “jargon.”

Questions such as “What are stocks?”, “How to make money in stock trading?”, “Why invest in this industry?”, “When is the best time to invest?” and “How to invest in stocks?” should be answered to fully understand the whole thing and discredit the misconceptions.

The concept of stocks

In reality, stock market can be thought of as the market that most people know and are familiar about: the place where they buy fish and meat.

“It’s actually just like that,” said Marco Nino M. Velasco, business development officer of Utrade of UniCapital Securities, Inc. “However, in this case, we go to the stock market to buy shares of companies.”

UniCapital Securities, Inc. is a full service securities brokerage and a member of the Philippine Stock Exchange.

When a person buys a share of stock, he or she becomes a part owner or shareholder of a particular corporation, claiming a specified portion of assets and earnings.

Stocks are shares of ownership in a company and the stock market is where stocks are bought and sold.

Velasco said not all companies are publicly traded: “The process actually is that the company will decide if it wants to sell its ownership to the public in exchange for capital.”

Velasco, who is also a stock investor, discussed with The FREEMAN the ways that guide you through on how to invest into the stock market:

1. Take the risk and start small. Like any other investment instrument, one should be ready to take the risk. The volatile nature of the stock market suggests that the investor should only use the money that he or she can afford to lose.

It can be a risky endeavor to engage in, Velasco said, so it is vital to get educated and risk management tools such as investing in different stocks.

“We can’t always predict what will happen, it’s reality that there are factors that would affect your investment,” Velasco noted, adding that it is better to use only excess money to get into the market.

The percentage of the trader’s ownership in the company depends on the number of stocks he or she bought.

2. Seek advice. Despite the presence of the online stock trading, others still prefer the traditional way by going personally to the broker to seek for advice and guidance. Brokers, and sometimes

Financial planners, give prospective investors ideas on established companies that are growing and doing well in the market.

They tell about stock market basics and serve as the bridge between the potential investors and the companies: “In a way, we are like advisers because we know what’s going on in the industry,” the Utrade officer explained. “We just give inputs but the final decision on what company to dive in would be coming from the investor.”

The Philippine Stock Exchange is the corporation that runs the country’s stock market. He said the reason why companies register in the PSE is they want to raise capital from shares and use the money to implement expansion and research.

3. Study the market while brokerage firms are there to guide and give advise, stock traders are

Advised to keep updated on the latest stock market information. Newspapers generally publish stock market coverage.

Velasco also said traders should get to know the company by going to its website to access its financial statements, annual reports and development plans.

A developing economy affects the corporate earnings, he added, and so also investors are more willing to pay for their stock prices.

“Choose the right company and get the right broker,” he advised. “As much as possible continue to learn and get updated on the market condition. What’s happening abroad also affects us here.”

4. How much one of the people’s misconceptions on the stock industry is that it’s expensive. But Velasco debunked this idea saying new players are always advised to start small.

Stockholders can enjoy the company’s growth either through capital appreciation or dividends. Capital gains refers to the increase of the market value of stock while dividends imply the company’s profitability or earnings and are paid through cash or stock.

For instance, Velasco cited the amount of PLDT’s estimated shares priced at P2,700 and a P5 and above board lot or the minimum amount of shares an investor can buy. If the two are multiplied, this means the trader will need a start-up capital of P13,500.

He explained, “In every price, there is a corresponding minimum shares. The higher the price the board lot gets lower.”

Generally, a P10,000 start-up money is the most appropriate amount but it could go down to as low as P5, 000.

5. Commitment and knowledge. It is important to know how the system works and the essentials in the market.

Velasco said if the goal is to succeed, the investor must commit to a long-term endeavor, saying “Keep building so you can keep on investing.”