The Beginner’s Guide To The Philippine Stock Exchange
The Philippine Stock Exchange’s (PSE) overall performance in the past few years has consistently been good, yet only a small number of Filipinos are investing in it because most of them just don’t know where to start.
Although there is no single rulebook that will tell you what you should do, or where you should invest in, here are a few stock trading tips that you might want to consider before getting started.
1. Do your homework
Know what the stock market is. This tip is pretty much applicable to anything you want to get into, but it is more so for the stock market. Basically, the PSE allows you to buy shares of companies, which under normal circumstances you would not have access to.
Companies list or sell portions of the corporation to raise capital instead of borrowing from financial institutions or using its cash flow. Basically, you become the part owner of a company when you buy its shares of stock. The more profitable a company becomes, the more its share prices increase over time. Sometimes, a company also releases dividends in the form of cash or stocks, and these are credited to your account.
This is but a very basic rundown on what the stock market is, there is so much more to learn before you even attempt to invest in it. Allocate the time to educate yourself by attending trainings and seminars so that you could be properly guided.
2. Determine your risk profile
Are you a conservative investor or a risk-taker? Or somewhere in between? This should reflect on the stock you are buying. There are volatile stocks with the potential to go higher but it also has the potential to go south. On the other hand, there are stocks that goes up on a steady note despite the market going bullish but it also remains steady when it plummets.
Your investor profile is based on several factors, which include your investment horizon and your risk tolerance. Determining your risk profile will greatly depend on your willingness to take the risk for a promising ROI. And, this may change over time, especially if your financial objectives change. Initially, what you need to understand is how much your are willing to risk at moment for an unguaranteed ROI.
Once you’ve determined your risk profile, you can attend seminars and read up on investment articles and books so that you can identify stocks that match your risk profile. There are a number of brokerage firms or financial gurus that offer free seminars and workshops for stock trading, and they could guide you and give you a recommended list of stocks to invest in depending on your risk profile.
3. Allocate funds, but don’t go all out
While trading stocks is one investment that could potentially give you high returns, the returns are not guaranteed. Invest only if you have regular cash flow from either your salary as an employee and/or your revenue from your business to support your basic needs. The trick is to not put all of your money in a single investment. Make sure you don’t use your emergency funds and savings, because at the end of the day investment returns are not guaranteed.
As the saying goes, never put your eggs in one basket. Diversify the way you keep your savings and funds and not just put them all in your stock investment. So that when the need calls for you to have some money on hand, you don’t end up selling your share for a least favorable price.
4. Don’t stop learning
Choosing the right stocks to purchase is crucial to successful investing. Read up and do your research. Check your favorite newspaper’s business section and see which industries are currently doing well and pull up their annual financial reports. Don’t fall for “hot stock tips” from people who might not know any better, and stay away from penny or speculative stocks to avoid “gambling” with your money.
For starters, some of the most stable investments would be blue chip stocks. These are stocks from well-established and financially-sound companies who have seen success in the market for many years. However, while blue chips stocks will always be relevant in every portfolio, they shouldn’t be your entire portfolio because it’s important for you to diversify your investment with mid-caps and small-caps stocks as well.
Diversifying your investments will give you a safety net even if a specific industry or company is not doing so well.
5. Control your emotions
The guiding principle behind investing in the stock market is simple: buy low, sell high – but so many people get it so wrong because they let their emotions influence their investment decisions.
It’s certainly alarming if the market is bearish, and the default response of most investors is to sell off their stock holdings to “cut their losses.” It’s instinctive, but it may not be the best thing to do. The decision to buy or sell should be made with more research and forethoughts, rather than selling at the first sign of price dropping.
If you are holding stocks from reputable and profitable companies, the fluctuations in price could be temporary. Rather than giving into fear or hearsay, do your own analysis by looking at the historical performance and also the bigger picture before making your judgement.
Buying a particular stocks because everyone else is buying it does not bode well for your investment portfolio either. Don’t fall for the herd mentality. Always go back to research and analysis before making any investment decisions.
6. Monitor your stocks
Inactions can cost as much money as wrong decisions when it comes to investment. Sell the stocks that are underperforming. The best thing about long-term investment is that you don’t have to monitor your stocks daily or weekly — though periodical monitoring will be good. However, if the stock exchange’s performance makes it to the news, you should make an exception.
If you’ve noticed that a particular stock has been less than stellar for some time, then you may want to sell it off the next time the market is doing well. You can use the funds that you get from it to buy more stocks of high-performing companies the next time the market goes down to beef up your portfolio.
There are now various ways for you to monitor your stocks. One is by accessing the PSEi website, everything that you need to know will be right on their homepage. The easiest however is by downloading stock market apps such as Bloomberg, PSE app, and First Metrosec. These apps are available in both iOS and Android. Apple phones however come with a preinstalled stocks app which you can also integrate with your own stock investment account.
7. Start trading
Assuming that you’ve learned the basics and have done your homework, the next step you’d need to do is to open a stock trading account. This account is the one you’re going to use to actually buy and sell stocks or shares of companies.
You can either open an online stock trading account in websites like philstocks.com, colfinancial.com, firstmetrosec.co, and the likes or go through a traditional broker. Find one that works best for you. According to the PSE, there are over a hundred licensed stockbrokers, and your choice depends on the type of service you need. You can get a complete list of accredited stockbrokers by visiting the PSE website, www.pse.com.ph.
8. Fees and charges
It’s important to be familiar with the fees and charges when trading stocks because they will affect your returns. Different brokers have different calculations, but just to give you an idea, these are the fees that you can expect when you start investing on stocks.
This is the fee charged by brokers such as COL financial, First Metrosec, BPI Trade, and the likes. The rates vary per broker, but the maximum fee is 1.5% of the transaction amount or ₱20 whichever is higher. Broker fees are usually charged every time you make a trade, whether or not you are making a profit. The broker’s commission already includes VAT; it’s 12% of the broker’s commission.
PSE Transaction Fee
The Philippine Stock Exchanges charges 0.005% of the gross trade amount of a transaction, since all the stock trades go through them.
Securities Clearing Corporation of the Philippines (SCCP) Fee
This is also known as the Clearing Fee. The SCCP is a wholly-owned subsidiary of the PSE, and they facilitate the clearing and settlement of stocks-related transactions. The fee is 0.01% of the transaction.
Sales tax is only applicable when you sell your stocks. Its rate is 0.5% of the gross sales amount, and is charged even if the transaction resulted to a loss for its seller.
Start small, but dream big!
It’s a false pretense that stocks trading is only for the affluent. The PSE is an opportunity that every Filipino can leverage on, and it does not require you to have a huge chunk of cash in order to get started. You can start small with just ₱5,000 to buy you a good number of shares/ stocks. Once you get past all the learning curves of the trade and start earning even a just little, surely you’ll be wanting to invest more.
With a goal at hand coupled with a lot of persistence and diligence, eventually you’ll be trading like a pro! It’s going to take some time, but what matters is you’ll get there.