(The examples here are specific to the Philippines but the ideas are applicable to stock markets of any country.)
At first glance, the stock market might seem like something you can never learn about because it just seems so complex. For most people, looking at the screens that stock investors use looks just like the screens expert hackers and programmers use.
It’s scary, it’s nauseating and the first thought you get is to run away from it. (But please don’t!)
*Above is a picture of the home page of my online stock broker, colfinancial.com. (More on brokers at a later part of this article.)*
But the only reasons you feel scared is because you don’t know anything about it yet! Once you start learning about the basics, a lot of the fears and confusion you feel will go away. And if you continue learning, you won’t even notice that looking at stock information has already become natural to you!
I should also note that you don’t have to learn every single thing about the stock market to start investing, or even to be a good investor. Once you get the basic concepts and you understand the fundamentals of choosing a stock, you’re pretty much set to go.
This specific blog post though, is about a few basic concepts surrounding the stock market, which is great for beginners! We will have future blog posts that will explain even more basic topics, and also future blog posts to help you choose which stocks you should invest in.
Necessary disclaimer: All stock names mentioned in this article are NOT recommendations. I am NOT telling you to invest or not invest in them. They are merely examples.
Now that’s out of the way, let’s start with what a stock and stock market is.
What Is A Stock And A Stock Market?
First, we have to talk about a stock (which can also be called a share). A stock simply represents part ownership of a corporation. That means that if you own a stock, then you have part ownership in a company, even if it’s just 1 share!
If you buy 1 stock of Jollibee, for example, that means you are technically one of the owners of Jollibee. That doesn’t mean you get free Chicken Joy though! Remember, you are not the only owner, and free food from Jollibee just isn’t one the perks of ownership, unfortunately.
So, what do you get?
As owner of a stock (and part owner of the business), you are entitled to receive your part of the profits, called dividends. You also have the right to sell your shares when you want to. Hopefully, you are able to sell your shares at a higher price compared to the price that you paid for it.
Shares can be bought and sold in a stock market. In our country, we have only one such market called the Philippine Stock Exchange (PSE). It’s not an actual physical place though, and at this era, we can simply use the internet to place buy or sell orders on the stock market.
At the time of writing this article, there are 271 stocks being sold in the Philippine stock market and about a handful are added every year. These stocks are given symbols so it’s easier to identify them.
- JFC for Jollibee Foods Corporation
- PGOLD for Puregold Price Club
- BPI for Bank of The Philippine Islands
- PIZZA for Shakey’s Pizza (My favorite symbol!)
- BPI for, well… BPI
How Do You Profit From The Stock Market?
Essentially, you earn income in 2 ways.
The first way is in receiving dividends which, again, is your share in the profits of the business. Most mature companies usually release dividends to their stock investors. Most of the time, dividends are very minimal, but they are still nice to have.
Last March 2019, I received dividends from San Miguel Food and Beverage (FB). I had about 1,500 shares of FB and they gave P0.40 cash dividend per share. This meant I was entitled to P600 in dividends (1,500 shares times P0.40).
You should know though that there are companies that do not release dividends. Instead, they use the profits to improve and expand the company. Eventually, though, they will most likely release dividends when the company is sufficiently larger.
I personally don’t care that much about dividends, but it feels great to receive them. (More on why I don’t care about dividends in a future article.) However, the bigger profits come from the other way to earn.
The second way to earn money as a stock investor is by selling your stock at a higher price than the price you purchased them.
If you bought Jollibee Foods Corporation (JFC) shares back at the beginning of 2009, you probably paid around P40 per share. 10 years later during sometime in 2019, Jollibee’s shares have gone up to about P250+! This means that your JFC investments would be at a 525% gain, or in other words, your profits are 5.25 times whatever amount you invested.
You would be a millionaire in 2019 had you invested P160,000 on Jollibee shares during sometime in 2009!
If we go back a bit further in the year 2000, JFC only costs around P11 per share. 20 years later on 2019, your investments will show a profit of 2, 173%!
At this return rate, you would only need to make an investment of about P44,000 on JFC’s stocks during the year 2000, and you’d be a millionaire in 2019!
The longer you hold the stock, the more your profits will be. This is mostly only true if you invest in the right stocks, though. But don’t worry, because we will make articles on proper stock picking, and other investment guides in the future. We got you covered!
Why Should You Invest In The Stock Market?
The simplest answer is that you want to be rich.
Rich enough to make sure you can provide for your family, especially your children’s needs. Rich enough to make sure that when calamities destroy your home, you can easily rebuild it or when a family member needs hospitalization, you can afford the best healthcare possible.
The easiest way to do all this is by investing in the stock market.
Multiple historical data proves that the stock market provides the greatest return on your investments.
You work hard for your savings, so you want to make sure you invest it in the most profitable investment.
We actually made a more detailed blog about 6 Reasons Why The Philippine Stock Market Is The Best Investment, and you should definitely read that for more info on why investing in the PSE is a great idea.
Investing in the stock market effectively is also easy. You just need to how to pick the right stocks for investments. And that’s why we create blogs here in Baku Finance. And again, expect us to write more proper investing guides in the future!
For now, though, let’s proceed with more basic concepts.
What Do I Need To Start?
You mostly only need to open a broker account and fund it with about P1,000 to P10,000 to start, depending on which broker you choose.
Brokers are mostly there because they facilitate the buying and selling of company shares, as authorized by the Philippine government and its agencies. Brokers also do other stuff, like provide business news and stock pick recommendations.
Once you have a broker account, you can simply transfer cash to it and use their website or app to start buying shares, which takes about 5 to 10 minutes. It’s that simple!
Take note that you can’t buy a stock at any day and at any time. The PSE is only open on Mondays to Fridays, except on holidays. They also have a strict schedule where you can only start buying between 9:30 am to 12:00 pm, and also between 1:30 pm to 3:30 pm.
Brokers will also have tutorials on their website on how to place stock buy/sell orders, cancel orders and just using their brokerage website in general for news and recommendations.
On our next article, I’ll explain in more detail what a broker is and the steps you need to take to create a broker account. I’ll also recommend specific brokers on that article. Stay tuned!
For now, let’s proceed with how investing is different from trading. It’s important to always remember that we here on Baku Finance only teach and advocate that you become a stock market investor. We do NOT teach or advocate being a trader.
Investing vs Trading
Trading and investing are both ways of using your money in the stock market to make profits. However, they are both very different in the ways that they approach earning profit.
Investing is essentially about putting money in good businesses and getting good returns, even though you have to wait for years.
If the business is profitable and the stock price is not expensive, investors invest money on that stock. After that, investors usually just hold the stock for about at least 7 years before selling it. The longer, the better!
Trading is about using the short-term volatility (or the ups and downs) of the stock market. Traders try to predict the movement of the stock in the next few hours, days or weeks, and they profit from being correct in their predictions. When their predictions are wrong, they lose their money.
- Buy and sell; short-term
- Decisions are based on news, rumors, price movement
- Very high risk, good returns if done well
- Difficult to do
- Always looking at stocks; time consuming
- Higher fees from frequent buy and sell
- Buy and hold; long-term
- Decisions are based on facts & business performance
- Low risk , high returns
- Easy to do
- Spends only few minutes a month looking at stocks
- Low fees due to infrequent transactions
Sure, you can get large gains really quickly by trading, but you can also just as easily lose all your money trading as well!
Whenever you hear about people that lose money in the stock market, they are usually those that do trading. Or they’re people who think they are investing, but the actions they take are actually that of a trader buying a stock and selling it immediately in a matter of weeks or months or a few years only!
I have met traders that lost about P200,000 up to P1,0000,000 in a year by doing trading. Most of them have studied hard, had a plan for trading, and some even had complex and expensive software that helped them.
They still lost money though because, at the end of the day, nothing can change the fact that trading is still just mostly gambling. And gamblers seldom gain money.
Though, of course, there is a chance that you could get large gains by trading if you can do it well and/or if you’re lucky. And since it is your money, you should do what you want with it. Just make sure you understand the risks you are taking before you do trading.
So again, it’s important to always remember that we in Baku Finance teach and advocate being stock market investors. We do NOT teach or advocate being a trader.
The Basic Strategy Millionaires Use
Like I said, investing in the stock market is easy. All you have to do is follow a simple strategy, which is composed of 6 parts.
I plan to make a separate article to explain the basic investment strategy better and with more detail, so watch out for that.
For now, here is the short version:
Part 1: Buy Large, Good Performing Companies
- Usually companies you’ve heard of
- Companies that have many branches through the country
- Examples are SM, Jollibee, BPI, BDO, Metrobank, and Ayala
Part 2: Invest In Multiple Companies
- If one stock fails, you still have the other to profit from
- Always stay invested in about 3 to 5 companies, maybe more but…
- …don’t have too many; over 10 at the same time is probably too many
Part 3: Buy Low, Sell High
- When the stock price is low, buy it
- Don’t sell unless selling results to a profit
- if it’s a loss, keep it for now
- Do NOT buy high and sell low (because so many people do and it hurts)
Part 4: Invest Over The Long-Term
- Stocks of good businesses will always go up! Always!
- However, it might not go up immediately
- Long-term investing is about holding stocks for at least 7 years. The longer the better
- The best long-term investors hold stocks for 20 or 30 years!
- Regularly can be every month or every quarter
- It can also be any amount you are comfortable with
- What matters here is developing a habit of saving and investing
- There are also so many benefits like averaging prices, which we’ll talk about more in the future
Part 6: Re-Invest Your Profits
- When you buy, hold for years, and sell, you will have profits
- Do not spend the profits, but instead, re-invest them
- Doing so will generate even more profits
- Stop only when you get the desired amount you want
How Will Your Daily Life Change When You’re A Stock Investor?
Honestly, it will not change at all.
You should still do what you usually do every day, like going to work and all that. The only day that will change is the day you receive your salary.
I recommend you do what I do: Every month when I receive my salary, I set aside some amount as my monthly savings for stock investments. I transfer that money from my bank account to my brokerage account using my bank’s app.
Then, I login to my broker account, which is colfinancial.com. I check if the money transferred correctly, and I check which stocks I should buy. (You can decide what stocks to buy with the help of your broker’s recommendations.) Then I buy the stock and proceed with the rest of my day.
… and that’s it! The rest of the days, you don’t need to do anything else to your stock investments. Also, all the things I said above can be done by just using your phone or computer.
Again, all of this happens only on 1 day a month: the day when I receive my salary. Also, on that day, I only spend around 10 to 20 minutes managing my investments!
You’re probably wondering, “Wait, I thought I have to check my stocks every day?!”
Not really. I mean, we are long-term investors, remember? We buy and hold until it’s been at least 7 years or more. We don’t sell until 7 years or more has passed and the stock has shown good amounts of profits.
We hold especially if the stock is still at a LOSS!
In fact, it’s actually a bad idea to check stocks too often. This is because it usually leads to you doing dumb things, like selling a stock at a loss because you are panicking when you saw a LOSS on your investments.
There is a lot of things I can talk about here. Including the time we had a stock that went from a 50% LOSS to a 600% GAIN (because it was a good business and we held on to it no matter what.) In a future blog post, we’ll talk more about holding stocks for a long time, the story of our 600% gain in 3 years, and more long-term investing guides and topics. Stay tuned!
So, that’s mostly the basics when it comes to stocks, the stock market and on the basic strategy to use in stock market investing.
There are still a couple of concepts you need to understand before you start investing. Which, again, we will make articles on in the very near future.
We’ll be talking about a few other important concepts like how to pick good stocks, and on how to navigate through a broker’s website and buy stocks (using colfinancial.com as an example, but it should be the same for other brokers too).
Good luck, and I hope you learned something!
Got questions? We might have answers! Ask your questions below, or message us on Facebook or Twitter.