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Saturday, September 30, 2006

Franchising Investing in stocks, securities and bonds

STOCKS 101
(from the book Learn to Earn by Peter Lynch)

Stocks – are shares sold by a company that goes public. A “public”company is owned by the shareholders while a “private” company is usually owned by a small number of individuals or a family owned company. Stocks are used to increase the company capitalization to be able to produce more services and products . You don’t have to be millionaires to invest in one. Anybody can be a shareholder as long as you have the money to buy the stocks: teachers, bus drivers, doctors, carpenters, students etc. They don’t care about your religion, race, nationality , social status, academic achievements , etc. The playing field is levelled here for all those who have the capacity to buy.

Stocks are likely to be the best investment you’ll ever make, outside of a house. You don’t have to feed stock, the way you do if you invest in horses or prize cats. It does not break down the way a car does, nor does it leak the way a house can. You don’t have to keep it moved the way you do it with real state. You can lose a baseball card collection to fire or theft but you can’t lose a stock. You can lose the certificate that proves you own a stock but the company will send you another one.

When you buy a bond, you are making a loan, but if you invest in a stock, you are buying a piece of the company. If the company prospers, you will share in the prosperity. If it pays dividends, you will receive it and if it raises the dividends, you will reap the benefits.

Buying stocks is not similar to gambling . When people consistently lose money in stocks, it’s not the fault of the stocks. You just need to do your homework and have a plan if you want to invest in stocks. Due diligence is needed, to study the financial status of the company you want to invest in and because they are a public company, financial records are publicly available , in the internet in publications, in company offices. You don’t need to be a math wiz to be a successful investor in stocks. You don’t need to be an accountant although the basics of accounting may help.

If you want to have a better financial future , long term stock investment is the best thing to do. Ten, fifteen or twenty years is a good time frame. Buy shares in solid companies with earning power and don’t let go of them without a good reason. The stock market usually goes up and down , but stocks in general goes up in value over time. You would be surprised to know that your P10,000 stocks investment now will have multiplied in a much higher value 10,15, 20 years from now. source: 2TradeAsia

WHAT ARE STOCKS? SECURITIES?

Stocks are shares of ownership in a corporation. When you become a stockholder or shareholder of a company, you become part-owner of that company. Securities, on the other hand, are proof of one's ownership or indebtedness in a company. Examples of securities are treasury bills and commercial papers, which are considered as short-term and are traded in the money market; and stocks and bonds, which are long-term and traded in the capital market. Securities are easily bought and sold in the stock market.

WHAT ARE THE TYPES OF SECURITIES THAT I CAN BUY IN THE STOCK MARKET?

Most of the issues listed in the PSE are common stocks. Other types of securities such as preferred stocks, warrants, PDRs and bonds are also traded.

  • Common Stocks - These are usually purchased for participation in the profits and control of ownership and management of the company. Holders of common stocks have voting rights. They are also entitled to an equal pro rata division of profits without preference or advantage over another stockholder. However, they have the last claim on dividends and are the last to collect in case of corporate liquidation.
  • Preferred Stocks - Its name is derived from preference given to the holders of these stocks over holders of common stocks. Holders of preferred stocks are entitled to receive dividends, to the extent agreed upon, before any dividends are paid to the holders of common stocks. However, preferred stocks usually have a specified limited rate of return or dividend and a specified limited redemption and liquidation price.
  • Warrants - A corporation can also raise additional capital by issuing warrants. A warrant, normally issued on a detachable basis, allows its holders the right, but not the obligation, to subscribe to new shares at a set price during a specified period of time. It is usually provided free of charge and traded separately in the securities market.
  • Philippine Deposit Receipts (PDRs) - A PDR is a security which grants the holder the right to the delivery or sale of the underlying share, and to certain other rights including additional PDR or adjustments to the terms or upon the occurrence of certain events in respect of rights issues, capital reorganizations, offers and analogous events or the distribution of cash in the event of a cash dividend on the shares. PDRs are evidences or statements nor certificates of ownership of a foreign/foreign-based corporation. For as long as the PDRs arenot exercised, the shares underlying the PDRs are and will continue to be registered in the name of and owned by and all rights pertaining to the shares shall be exercised by the issuer.
  • Small-Demominated Treasury Bonds (SDT-Bonds) - The SDT Bonds are long-term and relatively risk-free debt securities issued by the Bureau of Treasury (BTr) of the Republic of the Philippines. The bond is a certificate of indebtedness of the Republic of the Philippines to the owner of the SDT-Bonds.

WHERE CAN I BUY OR SELL SHARES OF STOCKS AND/OR BONDS?

In the Philippines, the only operating stock exchange is the Philippine Stock Exchange (PSE). Its main function is to facilitate the buying and selling of stocks and other securities through its accredited trading participants.

The PSE has two trading floors - PSE Centre in Ortigas, Pasig City and PSE Plaza in Ayala, Makati City - where trading participants trade daily - from 9:30 a.m. to 12:10 p.m. except Saturdays, Sundays, legal holidays and days when the Central Bank Clearing Office is closed.

HOW ARE SHARES AND SDT-BONDS BOUGHT OR SOLD?

If you wish to buy shares of stocks or SDT-Bonds, you must have a stockbroker who will do this for you. A stockbroker is a person or a corporation authorized and licensed by the Securities and Exchange Commission (SEC) and PSE to trade securities.

Investing Procedures:

  • Choose a stockbroker. The PSE has a complete list and information about all its trading participants who are authorized and qualified to trade either equity or debt securities for you. This list is also available on the Exchange's website and the PLDT directory's Government and Business listings yellow pages under the category of stock and bond brokers.
  • You shall be required to open an account and fill-out a Reference Card and to submit identification papers for verification. The stockbroker will then assign a trader or agent to assist you in either buying or selling any listed security. Discuss with the trader what stocks to buy or sell.
  • Give the order to your broker/trader, and then get the acknowledgement receipt.
  • For equity transactions: Deliver the Stock Certificate if you are selling or pay within the settlement date (3 days from date of transaction) if you are buying. Some brokers may require you to pay with post-dated checks upon ordering.
  • For SDT-Bonds transactions: Selling investors must open a RoSS account under his broker's sub-account and instruct his bank-underwriter to transfer the share to this account. Buying investors must also open an account with a BTr accredited bank and pay the appropriate amount of transaction to the settlement bank on the trade date.
  • You shall receive from your broker either the proceeds of sale your stocks (after 3 days for equities and on the date of trade for SDT-Bonds) or proof of ownership of stocks you bought (confirmation receipt and invoice). If you wish to have a physical certificate of the equities you bought, just give instructions to your broker and pay the required upliftment fee. Buyers of SDT-Bonds will only be given a confirmation slip in lieu of the bond certificates.For table illustrations and other info, continue reading here

POINTS TO CONSIDER BEFORE INVESTING

Investors should only invest extra money. Avoid borrowing money to purchase more shares. Stock market investment carries a certain amount of risk and stock prices vary day to day.

Identify the purpose of your investment. Determine whether you plan to be a short-term or long-term investor.

Be realistic about the returns of the stock market. Don't expect extraordinary gains.

Each individual should set a "limit loss" and be prepared to liquidate stock position when the limit is reached.

TIPS FOR INVESTING

Investigate before investing
Spend time and effort in studying investment opportunities for selecting stocks. Market share and sectoral weighting, financial performance of the company (via financial/ annual reports), management's development plans as well as growth opportunities, are some of the issues that need to be considered before investing.

Diversify your portfolio
Diversification means investing in different issues. In theory, diversification should offer less risk and protection for the investor. In short, "Don't put all your eggs in one basket."

Don't rely on rumors, check the facts
Rumors circulate in the stock market everyday. Consider the source and the motive behind the information and never act on the basis of a rumor that cannot be verified.

Monitor your investments
Keep track of the stock price and the company developments on a regular basis. Be up-to-date with that particular industry as well as the economy.

Don't be greedy
The principle of making a profit in the stock market is BUY LOW, SELL HIGH. Set objectives in terms of expected return and act accordingly.

Limit your risk
A maximum level of loss should be set and liquidate stock position when this level has been reached. Further loss of capital is prevented, which can be used for other investment opportunities.

Stay ahead of the information curve
The experience begins when one can stay ahead of the information curve and devote time to learn appropriate financial and technical analysis tools to stretch their hard-earned savings.



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  • 6 Comments:

    At 5:37 AM, Anonymous Mabel said...

    Hi there! I have also read Peter Lynch book and it was so enlightening It was nice of you to filipinize some of related information. Nice one!

     
    At 8:29 AM, Blogger cool_78 said...

    Thanks very much Mabel :-)

     
    At 1:49 AM, Anonymous Anonymous said...

    hello good day! i appreciate so much the insights you posted here in the net. actually im planning to invest or buy some shares but i need some informations. i just want to know how much is the minimum start up capital if one is thinking of investing his or her money. appreciate so much of you feedback.

    thanks,
    Connei

     
    At 1:50 AM, Anonymous Anonymous said...

    hello there thank you so much for the insights. i just want to ask how much is the minimum amount of money if one is thinking of investing on stocks in buying commons shares/preferred shares or bonds. thanks!

     
    At 4:55 PM, Blogger cool_78 said...

    Thanks for reading my blog :-) You can go into stocks for as little as 5,000.00 pesos. I would recommend an online broker like https://www.philstocks.ph or https://www.citiseconline.com

    You can sign up for a free account with them to get a feel of what stock investing is like and they also provide tips and articles on what current stock picks are worth buying. Something that a brick and mortar brokerage firm does not provide, especially to small investors.

     
    At 10:47 AM, Blogger jaYmE said...

    Wow! can i just say that I love this site. This is the perfect site I have been trying to find. This is an answered wish. thanks for sharing all these.

     

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