If you live in the Philippines and have disposable income, you may learn to invest in the Philippine stock market. If you do your due diligence and learn how to invest in stocks effectively, you could end up a richer person for it.
Below we outline how to invest in the Philippine stock market, including short-term vs. long-term approaches, and which stocks to buy. Keep reading to learn all about how to invest on the Philippine Stock Exchange (PSE).
Investing in the Philippine Stock Market for Beginners
If you are a beginner, the first thing to learn is the exact definition of stocks. Having shares in the stock market means you are a part-owner of listed companies. As a part-owner, you have certain privileges, such as voting and gaining dividends from the company.
Before you invest your money, you will need to figure out the type of investor you are. For example, do you want to be active in managing your money? Or do you want to invest the money and let it sit there without much involvement on your part? Figuring out these answers will help you learn how to proceed in the stock market.
Investors: Aggressive, Conservative, or Moderate?
Investors are often faced with the daunting question of “How much risk should I take?”
The answer typically depends on your investment objectives and timeline. Generally, investors with a short-term horizon can tolerate more risk than those who need constant liquidity or retirement income.
- Aggressive investors seek to maximize their potential return on investment while at the same time accepting the associated risks.
- Conservative investors are more concerned about minimizing losses even if they don’t get any gains in return.
- Moderate investors are focused on balancing both responsibilities and returns.
Some people find investing too risky because they never know what might happen next with their investment now than ever before. Others love taking on more risk since it has been doing well over time, while other times, it can lead to serious losses.
Determining your risk tolerance will help you determine which investment strategy may be best for you, but it can be hard without guidance. As such, below, we’ll go over the factors that may affect one’s ability to tolerate risks when investing.
Factors that may affect Your Risk Tolerance
- Your psychological makeup – How do you respond in stressful and uncertain environments?
- Your financial position – Do you have any debt obligations? It could be hard if all of your savings go into stocks or declines due to lost value.
- Your time horizon – The longer you want your investments, the more risk you need to take on for them to be worth it. If you are only looking at a few years, then the chances are that stocks may not make as much profit since they can go up and down with no warning.
To decide what kinds of stock market investments might work well with your personality profile, it can be helpful to look back over past experiences that have been rewarding or challenging for you as a person–especially those where either success or failure was largely outside your control.
Why Invest in the Stock Market?
PSE gainers understand the type of advantages they can obtain from investing in stocks. The most common benefits are gaining dividends, increasing returns based on a historical perspective, influencing the direction of a company, and seeing company growth.
Here’s a list of some of the most important ones:
You own part of the company and can vote on key decisions that affect your investments, like mergers and acquisitions or executive compensation packages.
The capital gains rate is currently at a historically low level. This means that as long as you hold on to stocks for longer than one year and sell them for more than what they were worth when first purchased, there will not be any taxes applied if classified as a “long-term” investment.
If this sounds like something you’re interested in doing, then make sure that all investments being made have been held over 12 months before selling – otherwise, these trades would become taxable events (and incur higher tax rates).
Diversifying your investment portfolio can help to minimize risk. This is done by investing in different types of securities, which means that if one type sinks, the others may still be worth a great deal.
There are many ways to diversify an investment portfolio such as real estate and bonds. Another way of maintaining high levels of growth is through mutual funds – these allow investors access to hundreds of small companies for just a few dollars per month. Mutual funds also allow people who don’t have a lot of money to invest in the stock market, enabling them to reap all the benefits.
Still, it’s important not to invest all of your money into one or two investments because this will rarely pay off during rough economic times, like what we saw happen with the global financial crisis in 2008.
Lessons from History
Historically, stock prices and returns on investments have been increasing. The stock index has been rising by 11% for the past 10 years.
Stock markets have a history of rising and falling – but what can we learn from past events? In 1987, Black Monday occurred when stocks fell dramatically on Wall Street for no apparent reason (despite being one day after that year’s biggest gain!)
This is why people should take advantage of crisis: if you’re selling at low prices, then you’ll likely find yourself buying back higher-priced ones later on down the road! Keep this in mind when other investors panic and the market falls because it’s important to remember that this has happened before.
The bottom line: invest in stocks today, and you’ll be on your way to a secure financial future.
Short-term vs. Long-term Investment Approaches
When learning how to invest in the Philippine stock market, you will need to learn about short-term versus long-term investment approaches.
Day Trading and Quick Gains
Short-term investments are often seen as a way to minimize risk and protect against market downturns. To make quick gains and follow a short-term investment approach, you should create an account online at COL Financial. You can make investments in the stocks that you trust the most and trade daily.
Long-term investments have more risks but greater rewards. This approach is beneficial since a recession is often followed by years of recovery. Essentially, the more time you spend investing your money through long-term Investments, the higher your return should be.
For a long-term approach, you will need to do your research and study which stocks to buy. You will have to diversify your portfolio and think about which stocks will do well for the next five to 10 years. These long-term investment options also include mutual funds, bonds, and real estate assets.
How Can You Make Money in Stocks?
There are at least two ways to make money in stocks: capital appreciation and dividends.
Capital appreciation is the change in the stock’s price from the moment you buy it to when you sell it.
Stocks have a price increase because they are worth more than before due to inflation or other economic factors such as its fundamentals and long-term stock performance.
Dividends are the share of earnings that are dispensed among company shareholders as cash or stock dividends.
They’re sometimes paid in cash and other times set up as stock, but most often, they represent solid fundamentals and stability due to their established track records.
An investor who regularly invests in stocks or mutual funds is likely to receive regular dividend payments from the securities they own. Dividends are an important component of any investment strategy, being a form of compensation for both risk and time.
The dividend yield is determined by dividing the annualized dividend per share (DPS) by the price/share (P/S). The annualized DPS would be calculated by multiplying the quarterly DPS times four. For example: ₱0.50 x 12 months = ₱600
If an investor owns 100 shares and pays ₱30 for each share, their P/S equals 300 ( ₱30 *100= ₱3000/ ₱300= ₱1000 ).
Types of Stock in the Philippines
There are three types of PSEi stocks in the Philippines: common stock, preferred shares, and blue-chip stocks.
Common stock means you have partial ownership of a company. As such, you will have the ability to elect the board of directors and vote on company codes.
Preferred shares are stocks with dividends that ensure a company’s dividends are paid out to you before common stock dividends are distributed.
Blue Chip Stocks
Blue-chip stocks have the highest value and have shown stable earnings for many years since the companies are already established.
These companies tend to have a strong history and position in their industry, which means they may not be as volatile or risky as other stocks. Blue Chips can be either tradable securities on the stock market or company shares held by an investor betting that it will do well long term.
Some examples of blue-chip stocks include SM Investments, Ayala Land, and JG Summit Holdings. Investors often refer to these types of investments as “widow and orphan” stocks because they’re considered safer for investors with less risk tolerance. They also make sense for people who don’t want to focus only on high-risk stocks.
What Stocks to Buy?
When choosing which stocks to buy, look at the stocks with the highest gains over the past year in the Philippines. You will also want to take part in fundamental analysis and technical analysis.
Fundamental analysis looks at the value of the company as compared to the price of its stock.
It is one of many analyses that a financial analyst can use to assess the value of any given security and predict its future performance.
Fundamental analysis consists primarily of two steps:
(1) understanding the economic conditions that affect a company’s industry;
(2) using this knowledge about how an industry may perform in various scenarios to determine which scenario will most likely occur for that specific company.
In some cases, it also entails interpreting what management says on social media or during presentations and reading their press releases.
The following is a list with brief explanations of the most common fundamental analysis techniques:
- P/E Ratio: A calculation that divides a company’s current stock price by earnings per share. It can be used to estimate how much investors are willing to pay today for each dollar in future profits.
- EPS (Earnings Per Share) Growth Rate: The annual rate at which a company’s EPS is estimated to grow over time, based on estimates from analysts who follow the company and the industry it operates within. A negative growth rate means an actual decrease in EPS from year to year. At the same time, positive numbers reflect higher levels of expected profit growth than those seen historically or during recent periods with low volatility.
- PEG Ratio (Price/Earnings Ratio divided by expected growth rate) A measure of value related to the dividend yield.
- Dividend Yield: Indicates how much cash flow shareholders receive from company earnings based on one share.
Technical analysis is based on buying a stock at a low price and selling it at a higher cost.
The idea behind technical analysis is: there are predictable patterns that can be detected in past prices; these patterns will continue if nothing new happens to disrupt them; if this assumption is true, technical traders then try to discover what those predictions might be based on their knowledge of current conditions.
The idea behind technical analysis can be traced back 200 years ago with a man named Charles Dow. Dow was one of the first people in America to use charts for trading purposes, and he created what we know today as “Dow Theory.”
Philippines Stock Exchange (PSE)
The Philippines Stock Exchange operates similarly to other stock exchanges.
Initial Public Offering
An initial public offering (IPO) is the first time an unlisted company sells shares on a stock exchange.
Large corporations that have been privately held can undertake an IPO when they want greater access to public capital or if they want to take advantage of the expertise that comes with a large number of shareholders.
IPOs are becoming increasingly popular due in part because there are more and more people who believe these companies will go on to be successful over time.
You can learn how to invest in IPOs here.
PSE Trading Hours in 2021
PSE trading hours are from 9:30 AM when the market opens to 1:00 PM when the market closes. There is also a pre-open time slot at 9:00 AM.
Top 10 Best Stocks in the Philippines
The top 10 best stocks to buy in the Philippines are listed below:
- SM Investments Corp. (SM)
- Ayala Corporation (AC)
- SM Prime Holdings (SMPH)
- Ayala Land, Inc. (ALI)
- International Container Terminal Services, Inc. (ICT)
- Jollibee Foods Corporation (JFC)
- JG Summit (JGS)
- Alliance Global (AGI)
- BDO Unibank (BDO)
- Aboitiz Equity Venture (AEV)
What Are the Risks in Owning Stocks?
The risks in owning stocks include high liquidity, which means stocks are difficult to sell or buy. Another risk is that every stock you buy has a non-guaranteed return on your investment. As such, there are also non-guaranteed dividends.
There is no guarantee of how much they will be worth in the future. The company may not produce a good product or service, which would lead to lower profits and share prices.
Also, if you do not diversify your investments by buying stocks from different companies, all of them can lose money simultaneously due to an economic downturn.
How to Buy Stocks
Step 1. Get a Stockbroker
To buy stock, you need to hire a stockbroker.
Find a stockbroker online or via a more traditional route, such as word of mouth.
An online stock broker allows people to invest in stocks and other securities without going into an office physically. Online brokers allow investors to trade through websites or mobile phones at designated times.
The broker becomes more available for clients as they offer their services instead of being limited by traditional business time frames. Most companies also have toll-free phone lines clients can contact for questions about account information or transactions; some even let you speak directly with live representatives.
Some known online stockbrokers in the Philippines are:
A traditional stockbroker sells shares directly from their client’s account at the market rate, as well as executing trades based on a customer’s instructions.
The commissions can vary depending on which services the individual user needs. In general, brokers charge when one sells securities while receiving commissions when one buys them. These charges are usually calculated as percentages of trade amount either per trade or on an annual basis.
Step 2. Create an account
Then, you can open an account with stockbrokers platforms.
Step 3. Add funding to your account
You’ll need to add funding to your account.
It also allows you to log onto the trading platform to buy or sell stock online or call your stockbroker.
Step 4. Log in to the trading platform
Step 5. Decide on your minimum board lot
You’ll need to decide on your minimum board lot and check your preferred number of shares, stock ticker, and price.
|Price Range (Pesos)||Board Lot (Min # of shares)
Step 6. Pay the order
Then pay the order to buy stock.
Step 7. Monitor or Track Your Investments
Lastly, you’ll want to track your investments to decide when to buy or sell stock
Step 8. Continue Learning
Smart Pinoy Investor is a free portal you can use to access select reports about the stock market. You get to see ALL research, Special Reports, Stock Rankings, Technical Analysis, and ALL other reports expertly analyzed by brokerage firms.
They have a lot of extensive yet easy-to-understand stock information to help you make intelligent stock market decisions.
Frequently Asked Questions
How much initial capital should I start with?
You will likely want to purchase stocks worth at least ₱8,000. But it depends on your finances and the primary requirement of your stockbroker. Avoid risking your savings in one shot because losses will be difficult to recover if things don’t go as planned.
What is the stock trading schedule in the Philippines?
The Philippine Stock Exchange (PSE) is open from Monday to Friday, except for holidays declared by PSE in advance. Trading hours are 08:30 AM – 05:00 PM Manila time during weekdays, 09:00 AM – 06:00 PM Saturday and Sunday.
What’s the minimum amount needed to invest in stocks?
While there is no minimum amount needed to start investing in the Philippine stock market, it’s advisable to buy blocks of stock with a minimum value of ₱8000. This is because online or traditional stockbrokers change fees and commissions on the trade.
I still want to learn more. Are there any seminars I can attend?
You can check out a list of the best stock market seminar and courses in the Philippines here.