A Beginner's Guide

Investing

and

Trading

Effectively A Beginner's Guide

>> INTRODUCTION <<

INVESTING AS A KEY TO FINANCIAL FREEDOM

In this day and age, it is not enough to simply rely on your paycheck in earning money. You may have a constant source of income, and this might be enough to pay the bills and put food on the table, but there are better ways to keep your money. If you want to be financially free someday, then you have to learn how to invest. Investing is perhaps the best way to make your money grow. Here, what you do is you buy and sell stocks - you trade stocks - of companies you select. This makes you part-owner of that company, since stocks are ways by which businesses fund their operations, and this means that you are practically helping run the business. When your selected company earns profit, you earn money as well, and so on until you eventually store up a considerable amount of money in the long run if all goes well. In the world of buying and selling stocks, the only possibility is for your money to grow exponentially in the long run - that is, if you stick to a profitable company and master the art of trading stocks. However, investing does not come without risks. In investing, the risks are high because there are many uncertainties surrounding it. There are sudden economic downturns here and there, and stock prices are constantly fluctuating. You never know when stock values will dip or skyrocket. In some ways,

investing may seem like a guessing game, but a calculated one which can be won through a bit of math and some strategies. The upside of being a high-risk venture though, is that investing is also a high-return endeavor. When investors find that a stock has a high rate of return, they know that it is also very risky, which means that its value can rise or fall at any time and no one can predict it. You will learn more about risks and returns later, but all you have to know now is that investing promises returns that are potentially much larger compared to your original investment. The world of stocks is definitely worth your time and money. Why? It’s probably one of the wisest decisions you can make regarding your finances. More importantly, investing sends you well on your way to financial freedom - provided that you are careful and you put enough thought to how you go about your investing transactions. You will learn that from this book. If all goes well, however, financial freedom is yours for the taking, thanks to investing. Financial freedom essentially means that you are not hard-pressed to earn money to satisfy your needs. You are free to do things other than consciously trying to earn. Being financially free means different things for different people. For some, it might mean just having enough to pay the bills and have some left for enjoyment. For others, it means being free from a job they don’t enjoy but which they keep because they need to put food on the table. Still, for most people, financial freedom means having enough wealth to cover both wants and needs. No matter what financial freedom means to you, investing is a path you can take to significantly 2

grow your finances. What you do is you essentially make others work hard for you. Your money, the company you invest in, the people employed there - they all work for you when you invest. In investing, you do your thing while others grow your money for you. With an income source that is not tied to your job or business, you are not burdened by having only an 8-5 job to support yourself or your family. It’s like putting your eggs in more than one basket. You can never go wrong with treading lightly on precarious ground like investing. It’s always better to have something to back you up, especially when it comes to financial matters, so investing is the way to go. Sun Life Financial insurance advisor Raymund Camat provided a nifty illustration of the difference between putting your money in a bank and putting your money as an investment in a company. He said, “Turning P1,000 into P1,003 is called a bank. Turning P1,000 into P1,300 is called an investment.” This clearly shows what you get from a bank and what you get from an investment. When you put your money in a bank, you make it earn less than one percent per year. Sounds great? Not so much, no. Doing this will make your money grow little at best and stagnate at worst. In the simplest terms, what the bank does is it safeguards your money and makes sure that what you deposit will be there in the future. The downside is that the money you initially deposited will be just that: the money you initially deposited, with the slightest incremental increase. On the other hand, when you put your money in a company and make yourself a part-owner of that business, you make your money grow more than it 3

could in a bank. It depends on the amount of your deposit, yes, and the number of shares you buy, but ultimately, you earn more from that company than in a bank. You see, it is never the bank’s job to grow your money for you; this is your duty. And you can do that best by investing in profitable corporation. Is investing beginning to seem like the solution to all your financial problems now? Don’t get your hopes up too much, because investing can only reap benefits for you if you know how to manage it. Investing does not always guarantee profit; neither does it always promise periods of increasing stock prices. Sometimes, the value of your chosen stock falls, either because of the volatility of the economy or some social issue or government decision. When this happens, take a deep breath and do not panic. There are various tried and tested strategies to adopt when dealing with bad investing seasons, and these are what you will learn later in this book. Don’t be afraid of economics downturns or sudden dips in stock prices. These will pass, and someday, you will see that even if your stock went through bad times, it will eventually be a source of great profit for you. The key to getting the most from investing is in finding the right company to invest in. The rule of thumb is to pick a business or an industry that earns a lot of money no matter what the season. Don’t invest your money carelessly, because you will suffer later on. You need to figure out which companies earn money consistently, and then you must stick with them. Half of your investment future depends on the amount of money you put in (Of course, the greater your deposit, the better your stock profit is); the other

half depends on the company you become part of, so choose well. Before you learn about the basics of stocks and investing, you first have to develop the right attitude in investing. In this endeavor, you can never go wrong with two things: discipline and strategy. Luck may play a part in how well your investing venture goes, but these two things can do the trick. The discipline part comes in when you find that you constantly have to monitor your stocks to see how they are doing in the market. This is important so that you know when to buy and sell them (something you will learn more about in the next chapters). Of course, you can choose to keep your stocks as they are, but buying and selling stocks - the “trading” part - can work wonders for your financial growth. Meanwhile, the strategy part comes in when you choose the company you invest in, and when you actually buy and sell shares. In investing, you can’t get by with just luck. It rarely happens that all the stocks you buy will do well all the time. However, you can emerge a richer person if you employ strategies in trading stocks. These you will learn later. As with all endeavors, you have to be careful too in investing your money. Be careful when you make a deposit, when you buy stocks, when you sell stocks, and when you generate profit from them. You can never go wrong with being careful. It might even save you from great losses. Now that you know how investing can contribute to your overall financial freedom, let’s proceed to learning about how stocks work.

CHAPTER 1

The

Basics

Investing

STOCKS & HOW THEY WORK

It is impossible for businesses, especially large companies and corporations, to readily have all the funds they need for their operations. When a company is formed, it involves a group of people who are called incorporators. These people cannot possibly have all the money in the world to finance the business and run it completely by themselves. Therefore, companies cannot survive without investors. What investors do for the company is they fund its activities so that the business can carry out activities from which it will earn profit someday. Investors purchase units of ownership called shares or stocks. Because they help run the business even without actually taking part in its operations, investors are considered part-owners of the company. Hence, they can exert a certain level of influence in the company’s affairs and decisions, depending on the number of shares they purchased. When you purchase 0 to 19% of the company’s shares, you exert little influence on the company’s activities. This means you have no say when it comes to decisions that require the approval of the investors. This also means you cannot vote in the election of the board members of the company. This level of influence is ideal when you do not want to take part in the company’s affairs and just want to be a casual investor. Meanwhile, when you purchase 20 to 50% of the company’s shares, you come to exert significant influence on the affairs and decisions of the company.

This means you can form part of the decision-making process of the company you invest in. You have a say in matters requiring the approval of the investors. You can also take part in the election of the board of directors of the company. This influence arises from the amount of money you helped the company with. On the other hand, when you purchase more than 50% of the company’s shares, you have control over the company. You become what is comparable to a VIP because you get consulted in matters requiring crucial decisions to be made. Naturally, you also get to earn more from the stocks you bought.

HOW YOU EARN FROM STOCKS

There are two ways you can earn from your investments. One is by capital appreciation and the other is by dividends. When you buy stocks, there is a value attached to them. This is what you call price per share. This is the amount of money you pay for each stock. For example, if you buy 2,000 shares from Company A for a total of 10,000 pesos, this means that the price per share is 5 pesos. Now, when you earn from capital appreciation, this means that the price per share increased. The value of your stock jumped to a certain level which allows for profit to be made. Let’s go back to the Company A example. When the value of the shares you bought jumped from 5 pesos per share to 10 pesos per share, you can sell your stocks for 20,000 pesos and get 10,000 profit in return. Sounds great? Of course it does.

This cycle of buying and selling stocks is what you call trading. You can earn good money from trading if you constantly monitor your stocks and employ a clever buy-and-sell strategy. And that’s just one way of earning from stocks. Another way to earn from stocks is when the company gives out dividends. When you get a dividend, you get your share of the company’s profit. In simple terms, a dividend is a distribution of the company’s earnings to investors. Essentially, when the company earns, you earn. The amount of the dividend you get depends on the number of your shares in the company. Only the Board of Directors has the power to declare dividends and they do so when the company has earned enough from its operations to actually give out part of its earnings to its investors. This is why you must choose a company that earns well over time so that you also get to benefit from its profit. Dividends can take the form of cash or stocks. Getting a cash dividend is fairly straightforward. When the company earns, it distributes its earnings to investors in the form of cash. This can be drawn up as a check or can be deposited into your account, depending on the agreement between you and the company. On the other hand, you can also get a dividend in the form of stocks. This means that you get to own more shares than you did before. Actually, this is a clever strategy of the company to increase its funds. Of course, when you get more shares of the company, this also means that the company gets more financing from the shares it gave you. Remember, shares are actually ways by 9

which the company gets money to finance its operations.

TYPES OF STOCKS There are also two main types of stocks you can purchase. One is called a common stock or share, and the other is a preferred stock or preference share. Common stocks are ordinary shares that come with voting rights but without dividend privileges. This means that when the company decides to give out dividends, common shareholders get these dividends second or at a later time. This is because the preferred stockholders are the ones who get the dividends first. Preferred stocks, on the other hand, come without voting rights. Hence, if you have a preferred stock at your disposal, this means you exert no level of influence whatsoever on the company. However, you do get liquidation and dividend privileges. Liquidation privileges means that after the company pays all its debt and other obligations, preferred stockholders get to claim their share of the company’s remaining assets first. Meanwhile, dividend privileges mean that when the company decides to give out dividends, preferred shareholders are the ones who get it first. For example, at one point in time, there are 1,000 common shares and 500 preferred shares in a company. The company then decides to dole out 5,000 pesos worth of cash dividend at 5 pesos per share. This means that all the common shareholders get 5,000 pesos in total, and the preferred shareholders get 2,500 pesos in total.

However, the company has decided to only give out 5,000 pesos worth of dividends. What happens is that the preferred stockholders get their share first before the common stockholders do. Of the 5,000 pesos, 2,500 will go to the preferred shareholders, and the remaining 2,500 will go to the common stockholders. What happens to the other 2,500 for the common shareholders? Well, it may be given out the next time the company declares dividends, depending on whether it is cumulative or non-cumulative. When you get a cumulative common stock, any pending dividends from previous unmet dividend declarations will go to you the next time the company declares dividends. However, if you own a non-cumulative common stock, you no longer get the pending dividend. In the end, it really matters what type of stock you purchase, because it will determine things like whether you will receive dividends or not, and when you will receive these.

THE PHILIPPINE STOCK EXCHANGE

The Philippine Stock Exchange (PSE) is the only Philippine marketplace for stock buyers and sellers. It was established in 1927 and is headed by a Board of Directors now led by Jose T. Pardo. On the following pages, you will see the list of companies and corporations listed in the Philippine Stock Exchange. The fact that they are listed on the PSE means that these are big enough to earn millions of money and are definitely investor-friendly.

Familiarize yourself with the symbols and the companies they stand for so that you can know which companies you want to invest in.

PSE Symbol Organization

2GO 2GO Group, Inc.

AAA Asia Amalgamated Holdings Corp.

AB Atok-Big Wedge Company, Inc.

ABA AbaCore Capital Holdings, Inc.

ABG Asiabest Group International, Inc.

ABS ABS-CBN Corporation

ABSP ABS-CBN Holdings Corporation "PDR"

AC Ayala Corporation

ACE Acesite (Phils.) Hotel Corp.

ACPA Ayala Corporation Preferred Class "A"

ACPB2 Ayala Corp. Class "B" Series 2 Pref.

ACR Alsons Consolidated Resources, Inc.

AEV Aboitiz Equity Ventures, Inc.

AGF AG Finance, Incorporated

AGI Alliance Global Group, Inc.

ALCO Arthaland Corporation

ALCPB Arthaland Corp. Perpetual Pref "B"

ALHI Anchor Land Holdings, Inc.

ALI Ayala Land, Inc.

ANI AgriNurture, Inc.

ANS A. Soriano Corporation

AP Aboitiz Power Corporation

APC APC Group, Inc.

APL Apollo Global Capital, Inc.

APO Anglo-Philippine Holdings Corporation

APX Apex Mining Company, Inc.

AR Abra Mining and Industrial Corp.

ARA Araneta Properties, Inc.

AT Atlas Cons. Mining and Dev't Corp.

ATI Asian Terminals, Inc.

ATN ATN Holdings, Inc. "A"

ATNB ATN Holdings, Inc. "B"

AUB Asia United Bank Corporation

BC Benguet Corporation "A"

BCB Benguet Corporation "B"

BCOR Berjaya Philippines, Inc.

BCP Benguet Corporation Conv. Pref. "A"

BDO BDO Unibank, Inc.

BEL Belle Corporation

BH BHI Holdings, Inc.

BHI Boulevard Holdings, Inc.

BKR Bright Kindle Res. and Investments, Inc.

BLFI BDO Leasing and Finance, Inc.

BLOOM Bloomberry Resorts Corporation

BMM Bogo Medellin Milling Company

BPI Bank of the Philippine Islands

BRN A Brown Company, Inc.

BSC Basic Energy Corporation

CA Concrete Aggregates Corp. "A"

CAB Concrete Aggregates Corp. "B"

CAL Calata Corporation

CAT Central Azucarera De Tarlac

CDC Cityland Development Corporation

CEB Cebu Air, Inc.

CEI Crown Equities, Inc.

CEU Centro Escolar University

CHI Cebu Holdings, Inc.

CHIB China Banking Corporation

CHP Cemex Holdings Philippines, Inc.

CIC Concepcion Industrial Corporation

CIP Chemical Industries of the Phils.

CLI Cebu Landmasters Inc.

CNPF Century Pacific Food, Inc.

COAL Coal Asia Holdings, Inc.

COL COL Financial Group, Inc.

COSCO Cosco Capital, Inc.

CPG Century Properties Group, Inc.

CPM Century Peak Metals Holdings Corporation

CPV Cebu Property Venture and Dev't Corp."A"

CPVB Cebu Property Venture and Dev't Corp."B"

CROWN Crown Asia Chemicals Corporation

CSB Citystate Savings Bank

CYBR Cyber Bay Corporation

DAVIN Da Vinci Capital Holdings, Inc.

DD DoubleDragon Properties Corp.

DDPR DoubleDragon Properties Corp. Pref.

DFNN DFNN, Inc.

DIZ Dizon Copper Silver Mines, Inc.

DMC DMCI Holdings, Inc.

DMPL Del Monte Pacific Limited

DNA Philab Holdings Corp.

DNL D and L Industries, Inc.

DWC Discovery World Corporation

EAGLE Eagle Cement Corp

ECP Easycall Comm. Phils., Inc.

EDC Energy Development Corporation

EEI EEI Corporation

EG IP E-Game Ventures Inc.

ELI Empire East Land Holdings, Inc.

EMP Emperador Inc.

EURO Euro-Med Laboratories Phil., Inc.

EVER Ever Gotesco Resources and Hold'gs, Inc.

EW East West Banking Corporation

FAF First Abacus Financial Holdings Corp.

FDC Filinvest Development Corporation

FEU Far Eastern University, Inc.

FFI Filipino Fund, Inc.

FGEN First Gen Corporation

FGENF First Gen Corporation - Preferred

FGENG First Gen Corporation - Series G Pref.

FJP F and J Prince Holdings Corp. "A"

FJPB F and J Prince Holdings Corp. "B"

FLI Filinvest Land, Inc.

FMETF First Metro Philippine Equity ETF

FNI Global Ferronickel Holdings, Inc.

FOOD Alliance Select Foods Int'l, Inc.

FPH First Phil. Holdings Corp.

FPHP First Phil. Holdings Corp. Pref Series B

FPI Forum Pacific, Inc.

GEO GEOGRACE Resources Philippines, Inc.

GERI Global-Estate Resorts, Inc.

GLO Globe Telecom, Inc.

GLOPA Globe Telecom, Inc - Preferred "A"

GLOPP Globe Telecom, Inc. - Perpetual Pref.

GMA7 GMA Network, Inc.

GMAP GMA Holdings, Inc. "PDR"

GPH Grand Plaza Hotel Corporation

GREEN Greenergy Holdings, Inc.

GSMI Ginebra San Miguel Inc.

GTCAP GT Capital Holdings, Inc.

GTPPA GT Capital Non-Voting Perpetual Pref "A"

GTPPB GT Capital Non-Voting Perpetual Pref "B"

H2O Philippine H2O Ventures Corporation

HI House of Investments, Inc.

HLCM Holcim Philippines, Inc.

HOUSE 8990 Holdings, Inc.

HVN Golden Haven Memorial Park, Inc.

I I-Remit, Inc.

ICT Int'l Container Terminal Services, Inc.

IDC Italpinas Development Corporation

IMI Integrated Micro-Electronics, Inc.

IMP Imperial Resources, Inc.

ION Ionics, Inc.

IPM IPM Holdings, Inc.

IPO iPeople, Inc.

IRC IRC Properties, Inc.

IS Island Information and Technology, Inc.

ISM ISM Communications Corporation

JAS Jackstones, Inc.

JFC Jollibee Foods Corporation

JGS JG Summit Holdings, Inc.

JOH Jolliville Holdings Corporation

KEP Keppel Philippines Properties, Inc.

KPH Keppel Philippines Holdings, Inc. "A"

KPHB Keppel Philippines Holdings, Inc. "B"

LAND City and Land Developers, Inc.

LBC LBC Express Holdings, Inc.

LC Lepanto Consolidated Mining Co. "A"

LCB Lepanto Consolidated Mining Co. "B"

LFM Liberty Flour Mills, Inc.

LIHC Lodestar Investment Hldgs Corp.

LMG LMG Chemicals Corporation

LOTO Pacific Online Systems Corporation

LPZ Lopez Holdings Corporation

LR Leisure and Resorts World Corporation

LRP Leisure and Resorts World Corp.-Pref

LRW Leisure and Resorts World Corp.-Warrants

LSC Lorenzo Shipping Corporation

LTG LT Group, Inc.

MA Manila Mining Corporation "A"

MAB Manila Mining Corporation "B"

MAC Macroasia Corporation

MACAY Macay Holdings, Inc.

MARC Marcventures Holdings, Inc.

MAXS Max's Group, Inc.

MB Manila Bulletin Publishing Corp.

MBC Manila Broadcasting Company

MBT Metropolitan Bank and Trust Company

MED MEDCO Holdings, Inc.

MEG Megaworld Corporation

MER Manila Electric Company

MFC Manulife Financial Corporation

MFIN Makati Finance Corporation

MG Millenium Global Holdings, Inc.

MHC Mabuhay Holdings Corporation

MJC Manila Jockey Club, Inc.

MJIC MJC Investments Corporation

MPI Metro Pacific Investments Corporation

MRC MRC Allied, Inc.

MRP Melco Resorts and Entertainment (Phils.)

MRSGI Metro Retail Stores Group, Inc.

MVC Mabuhay Vinyl Corporation

MWC Manila Water Company, Inc.

MWIDE Megawide Construction Corporation

MWP Megawide Const. Corp. - Perpetual Pref.

NI NiHAO Minerals Resources Int'l, Inc.

NIKL Nickel Asia Corporation

NOW Now Corporation

NRCP National Reinsurance Corp. of the Phils.

OM Omico Corporation

OPM Oriental Pet. and Minerals Corp. "A"

OPMB Oriental Pet. and Minerals Corp. "B"

ORE Oriental Peninsula Resources Group, Inc.

OV The Philodrill Corporation

PA Pacifica, Inc.

PAL PAL Holdings Inc.

PAX Paxys, Inc.

PBB Philippine Business Bank

PBC Philippine Bank of Communications

PCOR Petron Corporation

PERC Petroenergy Resources Corporation

PF San Miguel Pure Foods Company Inc.

PFP San Miguel Pure Foods Preferred

PFP2 San Miguel Pure Foods Perpetual Pref. 2

PGOLD Puregold Price Club, Inc.

PHA Premiere Horizon Alliance Corporation

PHEN PHINMA Energy Corporation

PHES Phil. Estates Corporation

PHN Phinma Corporation

PIP Pepsi-Cola Products Philippines, Inc.

PIZZA Shakey's Pizza Asia Ventures, Inc.

PLC Premium Leisure Corp.

PMPC Panasonic Manufacturing Phils. Corp.

PNB Philippine National Bank

PNX Phoenix Petroleum Philippines, Inc.

PNX3A Phoenix Petroleum - Non-Voting Pref. 3A

PNX3B Phoenix Petroleum - Non-Voting Pref. 3B

POPI Prime Orion Philippines, Inc.

PORT Globalport 900, Inc.

PPC Pryce Corporation

PRC Philippine Racing Club, Inc.

PRF2A Petron Corp. - Perpetual Pref. Series 2A

PRF2B Petron Corp. - Perpetual Pref. Series 2B

PRIM Prime Media Holdings, Inc.

PRMX Primex Corporation

PSB Philippine Savings Bank

PSE The Philippine Stock Exchange, Inc

PTC Philippine Trust Company

PX Philex Mining Corporation

PXP PXP Energy Corporation

RCB Rizal Commercial Banking Corp.

RCI Roxas and Company, Inc.

REG Republic Glass Holdings Corp.

RFM RFM Corporation

RLC Robinson Land Corporation

RLT Philippine Realty and Holdings Corp.

ROCK Rockwell Land Corporation

ROX Roxas Holdings, Inc.

RRHI Robinsons Retail Holdings, Inc.

RWM Travellers Int'l. Hotel Group, Inc.

SBS SBS Philippines Corporation

SCC Semirara Mining and Power Corporation

SECB Security Bank Corporation

SEVN Philippine Seven Corporation

SFI Swift Foods, Inc.

SFIP Swift Foods, Inc. Conv. Pref.

SGI Solid Group, Inc.

SGP Synergy Grid and Dev't Phils., Inc.

SHLPH Pilipinas Shell Petroleum Corporation

SHNG Shang Properties, Inc.

SLF Sun Life Financial, Inc.

SLI Sta. Lucia Land, Inc.

SM SM Investments Corporation

SMC San Miguel Corporation

SMC2A San Miguel Corporation Series 2-A Pref.

SMC2B San Miguel Corporation Series 2-B Pref.

SMC2C San Miguel Corporation Series 2-C Pref.

SMC2D San Miguel Corporation Series 2-D Pref.

SMC2E San Miguel Corporation Series 2-E Pref.

SMC2F San Miguel Corporation Series 2-F Pref.

SMC2G San Miguel Corporation Series 2-G Pref.

SMC2H San Miguel Corporation Series 2-H Pref.

SMC2I San Miguel Corporation Series 2-I Pref.

SMPH SM Prime Holdings, Inc.

SOC SOCResources, Inc.

SPC SPC Power Corporation

SPM Seafront Resources Corporation

SRDC Supercity Realty Development Corporation

SSI SSI Group, Inc.

SSP SFA Semicon Philippines Corporation

STI STI Education Systems Holdings, Inc.

STR Starmalls, Inc.

SUN Suntrust Home Developers, Inc.

T TKC Metals Corporation

TAPET Trans-Asia Petroleum Corporation

TBGI Transpacific Broadband Group Int'l. Inc.

TECH Cirtek Holdings Philippines Corporation

TEL PLDT, Inc.

TFC PTFC Redevelopment Corporation

TFHI Top Frontier Investment Holdings, Inc.

TUGS Harbor Star Shipping Services, Inc.

UBP Union Bank of the Philippines

UNI Unioil Resources and Holdings Co., Inc.

UPM United Paragon Mining Corporation

URC Universal Robina Corporation

V Vantage Equities, Inc.

VITA Vitarich Corporation

VLL Vista Land and Lifescapes, Inc.

VMC Victorias Milling Company, Inc.

VUL Vulcan Industrial and Mining Corporation

VVT Vivant Corporation

WEB Philweb Corporation

WIN Wellex Industries, Inc.

WLCON Wilcon Depot, Inc.

WPI Waterfront Philippines, Inc.

X Xurpas Inc.

ZHI Zeus Holdings, Inc.

HOW TO INVEST

Before the internet, the only way for you to invest is to consult a stockbroker in person, come up with some sort of agreement about your investments, pay him the broker’s commission, and inform him of all your investing decisions. Each time you want to buy or sell a stock, you need to make a phone call to your broker and tell him what to do, how many stocks you want to buy or sell, how much to sell your stocks for, and so on. Today, you can also do the same. You can go to a stock brokerage firm, see a stockbroker, and make an agreement. Now in the age of the internet, however, you can already trade online. This is more convenient and allows you to be an independent and financially free investor. Here are the steps by which you can start investing:

1. You must first open a trading account with a firm. You can opt to open an ordinary account, one that requires calling a stockbroker, or an online account, which allows you to invest on your own terms. With an online account, you can carry out your transactions online and be

your own investor. Examples of prominent and trusted ones include COL Financial (formerly Citisec Online), AB Capital Securities, Inc., BPI Trade, FirstMetroSec (of Metrobank), and Philstocks. Opening a trading account has almost the same requirements as in opening a bank account. They vary from firm to firm but generally require proof of identity, application forms, valid ID’s, and other documents that the brokerage firm might require. You organize all the documents that are required and submit them in the branch nearest to you. For more information about opening a trading account in your chosen brokerage firm, just go to its respective website and make a quick search, or go to your bank for instructions.

2. Next, you must fund your account. Of course, in investing, before you gain access to the massive returns you can potentially get, you first have to set aside some money (minimum of 5,000 pesos) to be able to purchase stocks. Different brokerage firms cater to different amounts of initial investment. For example, COL Financial offers a starter account for those who wish to invest with 5,000 pesos. Don’t worry about not having too much money at first. Slowly accumulate investment money from your investment activities and then invest more.

3. Wait for the confirmation message from your bank or brokerage firms to ensure that all your deposits will go through to your account. This is very important so that your money is not 33

compromised. In many ways, this confirmation message is like a go signal from your firm or bank to start investing. Without it, you must not touch your account in any way yet. In investing, it always pays to be careful.

4. Start investing! You can do this better by choosing your first company wisely. Choose one that earns well and has a history of doing great in the industry. Usually, these are the big and famous names like SM, Jollibee, Ayala Corporation, and many others. Then, constantly monitor your stocks to see if you stand to earn from capital appreciation, or, if the company wills it, dividends.

How exactly do you go about investing? Find out in the next chapter.

CHAPTER 2

Trading

Strategies

INVESTMENT PORTFOLIOS

In simple terms, trading refers to the actual buying and selling of stocks or shares. Buying and selling stocks can pave the way for the diversification of your investments. You must never put all your eggs in one basket. This poses a risk to your long-term investment venture. What you need to do then, is to invest in different companies and create an investment portfolio. An investment portfolio is a compilation of various investments. Actually, it is not only stocks you can invest in, but also in things like bonds, which you can learn from in advanced investing courses. For now, your understanding of an investment portfolio may be limited to the inclusion of stocks from various companies of different industries. Diversify, diversify, diversify. I cannot stress this enough: do not put all your eggs in one basket. Choose differing companies, provided that they will help you reach your investment goal. There are various strategies you can adopt in investing as a beginner. These include active trading and position trading.

ACTIVE TRADING

Active trading is taking advantage of short-term movements in stocks in order to earn from it or decide what to do. Active traders believe that profit can arise from day-to-day fluctuations in stock prices. If the stock price rises the next day, you can sell your stock and earn a profit. If it falls, you can have two options in

dealing with it. One is to keep in the meantime and wait until the price rises so that you can sell it a profit. The other is to buy more of that company’s shares so that you will have more to sell and more to earn from. For example, if you buy a stock worth 5 pesos per share today, and you buy 1,000 of that company’s shares, you spend a total of 5,000 pesos. Suppose that the next day, the price of that stock rises to 7 pesos. What you can do is take advantage of that price movement and sell your stock so that you can earn a profit of 2,000 pesos. Yes, that’s how you make money off of the stock market, and you can continually do that by constantly monitoring your stocks.

POSITION TRADING

This is best done when you see that the market for the stock is not volatile. This means that when you look at a chart of the stock’s activity, the high and low curves are far apart from each other. It takes a while for the stock value to rise, and it takes a while as well for it to plummet. In position trading, you watch out for consecutive highs and lows in the stock charts. This is the cardinal rule in position trading: “Buy when there is a low, sell when there is a high”. The logic behind this is simple. When you see that there is a downward trend, you will be compelled to buy stocks because you not only get to have access to these stocks at a cheaper price, you also get to have the opportunity to sell these at a high profit later on.

When you see that there is an upward trend, what you do is you sell stocks. This is because you stand to gain a huge profit from this upward movement. You need not worry about finding buyers for your stocks. The PSE actually matches buyers and sellers in the market. What it does is it finds buyers of stock at a certain price and matches them with sellers who put up a stock of the same price in the market. The transaction is done in a matter of seconds. And the market does all the job for you.

Stock chart sample from Online Stock Trading Guide

CHAPTER 3

Getting

the

Most from

Investing

MONITORING STOCK ACTIVITY

As an investor, you have to be responsible in constantly checking on how your stocks are doing. This is so that you know what to do with them, and

you can determine what the best strategy is for earning a profit from your investing stint. Stock charts are available online every single day and are there to help investors decide on the future of their stocks.

WHAT TO DO WHEN THE STOCK PRICE FALLS

Don’t panic when you see that the price of the stock you bought is constantly falling. Remember, investing is a high-risk, high-return venture. When the stock is high-risk, it means it can go both ways; its value can rise significantly, or it can fall drastically. This is a common occurrence in the stock market. What you can do is to assess your investment goal and figure out whether you want to profit from your stock on the short term, or earn a huge amount of money from it in the long term. If you see yourself reaping short-term benefits from your stock, then by all means, sell it as soon as the price drops. However, if you want to benefit from your stock in the long term, then hold on to your stock until the price eventually rises, which it always does after a heavy downward trend. One thing you must learn is that once the price of the stock falls, it rises soon afterward, until it reaches a maximum high point. Afterward, it then drops. That is the constant trend in stocks. You can take a look at the stock chart in the previous chapter to confirm this. So take advantage of these highs and lows whenever you can.

HOW TO MAINTAIN A ROBUST INVESTMENT PORTFOLIO

In the long run, make sure that you keep a robust and diversified investment portfolio. The future of finances might very well depend on this, so try to maintain a healthy one. You can do this in two ways. One is by active trading, and the other is by choosing the right companies. Through active trading, you stand to increase the number of stocks you own. It doesn’t matter if it’s from the same company or not, as long as you think it will be apt for your investment goal. Meanwhile, by constantly monitoring the performance of companies and choosing well among them, you stand to earn money from them. Remember, when your chosen company earns, you earn money, too. So only choose companies that have a reputation for success so that your finances are not compromised.

CONCLUSION

Investing might very well be the wisest decision you can make with your money. It constantly promises massive returns to your finances, if all goes well that is. And everything will go well if you employ well-thought-out strategies like the ones mentioned in the previous chapter. Always be a wise and careful investor, and financial freedom will soon follow. Happy investing!

SOURCES http://www.smartpinoyinvestor.com/beginners

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