Welcome to Stock Market 101: Philippine Stock Market, where we’ll explore the basics of investing in the Philippine stock market. Whether you’re a beginner looking to dip your toes into the world of stocks or someone curious about the unique features of the Philippine stock market. This guide will provide you with an introductory guide to help you navigate the financial market.
Stock Market 101: Philippine Stock Market
- What are Stocks?
- Different Types of Stocks
- How to Earn in the Stock Market
- What’s the Difference: Investing vs. Trading
- Essential Things to Do Before Investing in the Stock Market
- Investment Analysis for Philippine Stock Market
- What Type of Investor Are You?
- What is Active vs. Passive Investing?
What are Stocks?
A stock is like a piece of a company that you can buy. It’s called a “share” and it means you own a part of the company. The more shares you have, the more you get of the company’s assets and money for dividends and capital appreciation.
What is PSE?
The Philippine Stock Market is a dynamic financial market where various companies stocks or shares are traded. PSE is the only stock market in the Philippines. It serves as a platform for investors to buy and sell ownership interests in publicly listed companies.
Key Concepts of the Stock Market
- Stock Tickers: Each listed company is assigned a unique stock symbol or ticker, representing its shares. Tickers are used for identification and tracking purposes during trading.
- Indices: Stock market indices provide a snapshot of the overall market performance by tracking a specific group of stocks. In the Philippines, the PSE index (PSEi) is the primary benchmark that reflects the performance of the top 30 companies listed on the PSE.
- Market Capitalization: It refers to the total value of a company’s outstanding shares in the market. Market capitalization is calculated by multiplying the stock price by the total number of shares.
- Trading Hours: The Philippine Stock Market operates on weekdays, from Monday to Friday.
PSE Trading Hours in 2023
|Time||Market Window||Trading Activity|
|9:00 AM – 9:15 AM||Pre-Open||Orders can be placed, modified, or cancelled No matching of orders|
|9:15 AM – 9:30 AM||Pre-Open||No cancellation period|
|9:30 AM – 12:00 NN||Market Open||Orders can be placed, modified, or cancelled |
Orders can be matched
|12:00 NN – 1:00 PM||Market Recess||Orders cannot be placed|
|1:00 PM – 2:45 PM||Market Resumption||Orders can be placed, modified, or cancelled |
Orders can be matched
|2:45 PM – 2:47PM||Pre-Close||Orders can be placed, modified, or cancelled |
No matching of orders
|2:48PM – 2:50 PM||Pre-Close||No cancellation period|
|2:50 PM – 3:00 PM||Run-off||Orders can be placed and matched at closing price|
|3:00 PM||Market Close||Off-hours orders can be placed, which will be sent to the PSE on the next trading day during pre-open session|
Different Types of Stocks
Upon a company go public and be listed on a stock exchange, investors are presented with the opportunity to acquire ownership stakes, referred to as stocks or shares. However, it is crucial to note that there exist two distinct types of stocks or shares that a company may offer to the general public: Common and Preferred.
- Confer voting rights to shareholders in direct proportion to their ownership stakes.
- The majority of stocks or shares available in the stock market are issued in this form.
- Common shareholders are the last in line to receive payments, following creditors, bondholders, and preferred shareholders.
- Function similar to bonds, as investors are assured a fixed dividend payment.
- Relatively less abundant in the stock market compared to common stocks or shares.
- Preferred shareholders do not possess voting rights, but they receive payments before common shareholders do.
How to Earn in the Stock Market
Capital Appreciation often referred to as Price Appreciation, is a lucrative investment strategy that entails reaping financial rewards from the upward movement of a stock’s market value. By acquiring stocks at a relatively low price and subsequently selling them at a higher price, investors can generate substantial profits, which are classified as capital gains.
On the other hand, dividends represent a means for shareholders to partake in a company’s earnings. As a stakeholder, you become entitled to a share of the profits, which can be distributed in the form of cash, stock, or other valuable assets. The magnitude of dividends is directly proportional to the number of shares you possess, allowing you to enjoy a proportionate portion of the company’s prosperity.
Guide to Different Types of Dividends
- Cash Dividends represent a distribution of the company’s earnings to shareholders in the form of monetary funds, which is the prevailing and widely adopted method of dividend allocation.
- Stock Dividends entail to shareholders are provided with additional company shares instead of receiving cash dividends. This alternative approach is typically communicated to stockholders as a percentage increase in their ownership of shares.
What’s the Difference: Investing vs. Trading
Do you want to be an Investor or Trader?
Investors take a long-term approach to stock trading, seeking out stocks with substantial growth potential or those that are undervalued. They focus on identifying opportunities for accumulating stocks when prices are trending lower, aiming to secure favorable entry points. Employing the techniques of fundamental analysis, investors thoroughly analyze companies, examining their financial performance and industry standing. This detailed assessment enables investors to make informed decisions based on a stock’s intrinsic value and long-term prospects.
Traders excel in the art of short-term trading, making swift buying and selling decisions to capitalize on market fluctuations. They diligently study charts, searching for specific formations and patterns that indicate favorable trading setups. Typically, traders prefer to enter positions when stocks exhibit upward momentum, as it presents potential for quick gains. Employing the tools of technical analysis, traders forecast future trends in stock prices, allowing them to make informed decisions in their pursuit of profits.
Essential Things to Do Before Investing in the Stock Market
Designing a well-balanced portfolio demands careful consideration and planning. It’s crucial to devise an investment strategy that not only aligns with your risk tolerance and investment horizon but also ensures a peaceful night’s sleep. Discover how to navigate the complex world of investments and create a diverse mix of stocks tailored to your needs.
2. Secure Your Investment Capital
While the allure of significant returns may be enticing, it’s wise to exercise prudence and allocate funds responsibly. Building a solid financial foundation should be your initial focus. Before diving into investments, set aside a dedicated portion of your savings exclusively for this purpose. By safeguarding your essential financial obligations, you can confidently embark on your investment journey, remembering the golden rule: “Invest only what you are comfortable risking.”
To participate in stock market transactions, partnering with a reliable broker is the most important part. Online brokers act as intermediaries, facilitating the buying and selling of stocks by connecting buyers and sellers through digital platforms. Your ultimate goal is to find a broker who perfectly aligns with your investment strategy, fulfills your unique requirements, and shares your long-term objectives. Explore the intricacies of selecting the ideal brokerage partner to maximize your investment potential.
Investment Analysis for Philippine Stock Market
Fundamental analysis is a comprehensive approach that delves into the overall performance and financial strength of a company. It goes beyond just looking at the stock’s price and volume. Instead, it focuses on evaluating various financial drivers and economic data to gain insights into the company’s intrinsic value and potential growth.
By analyzing the overall condition of the industry, market trends, and macroeconomic factors, fundamental analysis aims to predict the future performance of the company. This method considers factors such as revenue, earnings, cash flow, debt levels, and competitive positioning to assess the company’s potential for long-term success.
On the other hand, technical analysis takes a different approach by closely examining the stock’s historic price charts and market volumes. This method believes that the past behavior of the stock can provide valuable insights into its future performance.
Technical analysts use various tools and indicators to identify patterns, trends, and signals in the stock’s price movements. By studying chart patterns, support and resistance levels, moving averages, and other technical indicators, they attempt to gauge market sentiment and forecast potential price movements. Technical analysis focuses on timing entry and exit points, as well as identifying potential trend reversals.
Both fundamental and technical analysis have their merits and are used by investors and traders to make informed decisions. While fundamental analysis provides a deeper understanding of the company’s financial health and growth potential, technical analysis helps identify short-term price patterns and trends.
What Type of Investor Are You?
Understanding Your Risk Tolerance and Investment Style
- This type of investor prioritizes the preservation of capital and is averse to market volatility.
- They seek the safety of their funds even if it means accepting relatively lower returns.
- Their investment strategy revolves around investing in high-quality blue-chip companies known for their stability and consistent performance.
- The moderate investor aims to preserve the majority of their portfolio’s total value but is willing to take on a certain level of risk.
- They are comfortable with accepting lower returns in exchange for some potential losses.
- Dividend-paying securities are attractive to them, as they provide a regular flow of income and stability.
Moderately Aggressive Investor
- Often referred to as “balanced” investors, those with a moderately aggressive stance seek a combination of regular income and capital growth.
- They have a longer time horizon and a medium level of risk tolerance.
- These investors are prepared to accept some volatility and short-term losses in pursuit of higher returns in the long run.
- The aggressive investor embraces market volatility and views market declines as opportunities for potential gains.
- They have a higher risk tolerance and are willing to accept a greater degree of investment risk.
- These investors are driven by the potential for significant long-term returns and are not deterred by short-term losses.
What is Active vs. Passive Investing?
The pursuit of “market-beating” returns and the quest for performance that surpasses benchmark indices characterize active investing. In this approach, portfolio managers engage in constant research, meticulously analyze stocks, and make market forecasts, often taking calculated risks to achieve superior results. However, it is important to note that the pursuit of such outperformance comes at a cost, as actively managed funds typically entail higher fees for investors due to the expertise and resources involved in their management.
Also known as index fund management, passive investing aims to replicate the returns of a specific market index or benchmark. Rather than actively selecting individual stocks, passive investors seek to mirror the overall performance of the chosen index. Since the management of these funds is less interventionist compared to actively traded funds, the fees associated with passive investing tend to be lower for investors. This approach allows investors to gain exposure to a broad market segment while minimizing costs.
When deciding between active and passive investing, it’s crucial to consider various factors such as investment goals, risk tolerance, and time horizon. While active investing offers the potential for higher returns, it also entails higher costs and greater involvement. On the other hand, passive investing provides a more cost-effective and low-maintenance approach, particularly suitable for investors seeking long-term, diversified exposure to the overall market.
Remember to conduct thorough research, seek professional advice if needed, and make informed investment decisions based on your financial goals and risk tolerance.