Stocks are shares of ownership in a company. When you buy stocks of a publicly listed company, you become part owner of that company. As a part owner, you participate in the company’s growth and future profits. Conversely, you may also lose if the company suffers a loss or performs below market expectations.
The stock market is a place where stocks are bought and sold or a place where people can invest in publicly listed companies through the Philippine Stock Exchange, Inc. (PSE).
Historical data has shown that investing in stocks over the long-term provides superior returns. Stocks offer potentially higher yields compared with fixed income instruments such as time deposits, government securities and bonds. There are three (3) rationales for stock investing:
a. Ownership in a company
When an individual invests in the stock market, he automatically becomes a stockholder of a particular listed company. As a stockholder, he is entitled to the following benefits: a.1) voting rights; a.2) dividends to be declared by the corporation; and a.3) share of the remaining assets of the company if it is to be liquidated.
b. Liquidity of funds
A stock market investor has easier access to funds. Compared with banks which require high minimum conditions for deposits and credit, an individual can start an investment for as low as Php 5,000.00. He can cash in or out his funds during trading hours, through his broker.
c. Make money
Investors in the stock market make money through dividends and capital appreciation. When a listed company declares dividends, its shareholders increase their investing power. An investor who buys into the company at a low market price and sells it at a higher price will gain capital appreciation.
There are two types of dividends that can be given by companies:
a. Cash dividends – these are earnings for every share of stock declared by the company.
b. Stock dividends – these are additional shares given to shareholders at no cost which can be sold anytime.
View historical dividends / rights declared by listed companies.
While it is true that a stock investment is the most volatile of all securities, investors might well remember that uncertainty is a permanent feature of the investing perspective. This means that risk is always a part of any investment. A better attitude would be to limit and manage your risk. A maximum level of gain or loss should be set, and calculated decisions should be made when this level is reached.
Just like an ordinary savings account, an investor has to open an account and present valid identification with a broker before he can actively trade stocks on the Exchange. An investor would need at least the minimum amount of investment to open a trading account which is Php5,000.00.
Getting started in the stock market is a simple process.
1. Choose your stockbroker or trading participant (view Stockbroker’s Directory).
2. Open a trading account with your stockbroker of choice.
3. Place your buy or sell order either online or through a phone call to your stockbroker.
4. Monitor and keep track of your investments.
The minimum amount of money needed to invest in the stock market depends on the minimum number of shares to be traded for the stock and the minimum amount required to open a trading account. The minimum number of shares that can be traded will be determined by the prevailing market price of a particular stock. The PSE has a Board Lot table which shows the minimum number of shares that can be bought or sold given a certain price range.
There are over 100 licensed stockbrokers accredited by the PSE. Your choice of stockbroker should depend on the type of service you will require and who will best suit your needs. The types of stockbrokers can be classified into:
a. Traditional – those who assign a licensed salesman that take orders through written instructions or phone calls
b. Online – those whose main interface with the customer is via the Internet
You can get a complete list of accredited stockbrokers by visiting the PSE website, www.pse.com.ph, or contacting the PSE at (632) 876-4888.
Similar to the process in opening a bank account, you will be required to fill out a form called Customer Account Information Form (CAIF), and submit the following documents, namely:
a. Two (2) valid IDs;
b. Specimen signature cards; and
c. Proof of billing (although some brokers do not require this).
Depending on your stockbroker, you may be also asked to provide additional pertinent documents and an initial cash deposit in order to begin investing in stocks.
For overseas Filipinos, the simplest and more convenient way of investing directly in the local equities is to open a trading account with an online stockbroker or apply directly with any overseas branch of Philippine banks that are affiliated with any of the active stockbrokerage houses in the PSE. Through the internet, overseas investors will be able to access the Philippine stock market and trade stocks real-time.
Overseas investors can also participate in the Philippine stock market through mutual funds, and index and variable-linked funds offered by various financial institutions such as banks, mutual fund management companies and insurance firms in the Philippines.
The conventional way of placing an order to buy or sell is through a phone call to your stockbroker. However, online trading is now being practiced so investors can place orders directly via the Internet.
Settlements of accounts are done through the clearing house of the Exchange, the Securities Clearing Corporation of the Philippines (SCCP). Stock market transactions are settled on the third day after the trade (T+3). Transfers are based on trades done at PSE. Shares are transferred on settlement date to the buyer, and the buyer pays the seller through the clearing banks within the same settlement period. This means that transactions done on Monday must be settled by Thursday.
The PSE through its central depository, the Philippine Depository Trust Corp. (PDTC) uses the computerized book-entry system (BES) to transfer ownership of securities from one account to another, thus eliminating the need for physical exchange of scrip between buyer and seller. This system is called scripless trading. However, you may still request for an upliftment of your shareholdings to get a physical certificate.
1. Always update personal information provided to your broker, particularly:
a. client’s residence or business address
b. contact numbers
c. e-mail address
2. Always settle your buying transactions on T+3 (settlement date).
1. Your agent must confirm your securities transaction after trading hours.
2. Buying/selling invoices must be delivered to the client on T+1 (transaction day plus one day).
3. Stockbrokers must send the client’s statement of account on a monthly basis.
4. Your stockbroker must send you information and correspondences relevant to your investment.