MANILA, Philippines - Bull or bear? Red, orange or green? Dovish or hawkish? These are the terms you will need to learn if you decide to start investing in the stock market.
This year, the Philippine stock market broke benchmark records and attracted many first-time investors. Of late, the market has become bearish, causing concern among these same individuals.
When you purchase a share of stock, you actually become a fractional owner of the corporation. Of course, the percentage of your ownership depends on the number of stocks you purchased. Let’s say you bought 5,000 shares of common stock in a corporation with 100,000 outstanding shares. This means that you have a five percent ownership interest in it.
While stocks have consistently outperformed other forms of investments in terms of profitability, it is decidedly the riskiest of the lot. Most want to enter at the best time – but as many have discovered, it’s time in the market that counts, not timing it.
If you are considering buying stocks and playing the market, here are some things to watch out for:
1 Are you stock-market ready?
Because of its volatile nature, make sure you use only your extra money when trading in the stock market. Investing in the market should not affect your current lifestyle and future plans; nor should you resort to borrowing just to get in the game. Manage your expectations of returns and be realistic. It is also advisable to set a limit to the amount of money you are willing to risk, and accordingly, get out as soon as you have reached your investment cap.
2 Know your stocks.
There are different classifications of stocks trading at the Philippine Stock Exchange (PSE). Common stocks are the most popular with shareholders entitled to partial ownership, profits, and voting rights. There are two types of common shares: Class A shares are for Filipino investors and Class B for both Filipinos and foreigners. As its name implies, preferred stocks are a class above common stocks with shareholders entitled to a fixed minimum amount of dividends as declared by the company. Cumulative preferred stocks are even more special as its shareholders have prior rights to dividends over common stock holders. The stockbroker is your agent, buying or selling upon your advice. Be sure yours is of good standing at the PSE.
3 Do your homework.
Don’t invest in a firm just because of an unconfirmed rumor from an undisclosed source. Study the firm’s fundamentals. What is its share of the market? What is its significance in the industry? What are its development plans and its growth opportunities? How is it performing financially?
There are a number of ways by which you can get the answers to these questions. Read the stock market coverage of the newspapers. Watch relevant programs on television and access the Internet for the latest stock market information. Go to the company’s website and look at its annual reports, reviewing its financial statements, past achievement, and future plans.
4 Manage your risks.
As a stockholder, you can expect returns in the form of dividends or capital gains. Dividends depend on the company’s profitability and may be paid in the form of cash or stock. Capital gains pertain to the increase in the market value of your stock. As previously mentioned, investing in the stock market can be a risky proposition. Dividends are not fixed; nor are they automatic. They may be declared or not by the company. Capital gains, meanwhile, depend on the movement of the price of your stock, its value going up or down at any given day.
Such are the risks that investors have to deal with. Manage your risk by investing in different stocks from different industry sectors. Resist the temptation of putting everything you have in one stock – even if that one stock seems to be experiencing an upward trend. It is also a good idea to determine the maximum level of loss that you can incur. Once that level is breached, get out.
5 Keep a steady eye on your investments.
Watch the movement of the market carefully. Keep tabs on your stocks, noting any upward or downward trend in trading. Watch also for developments in the industry as well as the economy in general for issues or events that might affect the performance of the company or your stock. If the company consistently registers poor performance with low profits, it may be time to evaluate your ownership of it.
source: www.abs-cbnnews.com
