Information about invest in the stock market philippines

In its effort to educate and increase public awareness, the Philippine Stock Exchange has come up with a series of Investors Primers that will provide simplified answers to all inquiries related to the history, structure, components, operations and procedures of the Philippine securities industry.

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Investing in the Philippine Stock Market is the third of a series which hopes to guide readers on the basics of investing and participating in the Philippine stock market. We hope that the information provided herein will result to a better understanding of the Philippine securities market and, in turn, encourage local and foreign investors to take part in our stock market.

President and Chief Executive Officer. Philippine Copyright by the Philippine Stock Exchange, Inc. PSE Training Institute and. Research and Public Information Department Philippine Stock Exchange, Inc. Philippine Stock Exchange Centre Exchange Road, Ortigas Center Pasig City. A Guide for Investors.

Investing in the Philippines Stock Market. What are stocks and equities? A share of stock is evidence of a fractional ownership in a corporation. Buying a share of common stock is in fact buying a share of a business. An individual who owns shares in, say, Petron or PLDT has an ownership interest in that company and is called a stockholder or shareholder.

This ownership is also referred to as having equity in a company, hence, stocks are also called equities or equity securities. What are stock certificates? Ownership of a business is represented by stock certificates. The difference is important to know since without notice form the investors all stock certificates will be issued in street name, i.

Stock certificates that are in the street name facilitate the transactions by brokers. When the investor decides to sell his shares, the street certificate simply be endorsed by the stockbroker.

When shares are bought and sold frequently, it is advisable to have them issued in street name since it will facilitate the quick transfer of ownership.

What type of stocks can you buy or sell? There are different types of stocks that you can buy or sell at the Philippine Stock Exchange PSE: The difference depends on the right and privileges which you receive as a stockholder. The majority of securities traded in the PSE are common stocks. Common stock holders are 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 liquidation. Common shares can be classified into class A and class B shares. Class A shares are reserved to Filipino investors, while Class B shares are open to foreign investors as well as Filipinos. Thus, Filipinos can own both classes while foreigners can only avail of Class B shares. Both classes have the same privileges and rights, and receive the same amount of dividends.

Preferred stocks are another type of securities issued by corporations. Its name is derived from the preference given to the holders of this stock over holders of common stocks. Cumulative preferred stocks are special preferred stocks that accumulate unpaid dividends for future payment. Cumulative preferred stock has prior rights to dividends over common stock; therefore the omitted cumulative preferred dividends must be paid before the common stock dividends can be paid.

Convertible preferred stocks are preferred stocks which are exchangeable into common stocks at the option of the holder under specified terms and conditions. The conversion ratio specifies the number of shares the holder receives upon surrender while the conversion price is effective price paid for the common stock when conversion occurs. Warrants are another type of investment which you can buy or sell in the stock market. By definition, a warrant is a security which grants the holder the right but not the obligation to buy in the case of a call warrant or sell in the case of a put warrant , a stated number of underlying shares of stock at a specified price during a specified period of time.

Underlying shares are the shares, unissued or issued as the case may be, of a corporation which may subscribed to or purchased by the warrant holder upon the exercise of the right granted under the warrants. The exercise price is the stipulated stock price at which the holder can buy or sell the underlying. Warrants can be issued in a number of ways: Instead, the Issuer normally adopts hedging strategies to provide for its obligations during the life of the Non-collateralized Warrant.

Even if the trading of warrants is relatively new in the Philippine stock market, it has gained some popularity. Currently, there are eight 8 warrants listed at the PSE. The warrant holder has the chance to have the same exposure in the market, as with buying the stock itself, using lesser amounts of money and the advantage of having more time, i. Where can you buy or sell stocks? The stock market is the place where shares of stock are traded while the stock exchange is the organization that provides the facilities for the buying and selling of securities.

The trading floor is the place where member-brokers trade daily. The Philippine Stock Exchange PSE is the only operating stock exchange in the Philippines and has two trading floors located at the PSE Centre in Pasig City and at the PSE Plaza in Makati City.

Trading at the two trading floors or PSE is electronically linked by a computerized trading system, the MakTrade System, which uses the single-order-book system where all the orders are posted and matched in one computer.

When can you buy or sell stocks? Trading at the PSE is from 9: Who can buy or sell stocks? As the organization that facilitates stock trading, the PSE is not directly involved in the buying and selling of securities. As an intermediary, the stockbroker executes orders for clients, purchasing or selling the stocks on the stock exchange.

Each Member is entitled to one seat which can be bought from an existing Member or from the Exchange.

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How can you buy or sell stocks? In choosing a broker, you must also see to it that the broker person or corporation is a member of good standing at the Philippine Stock Exchange. A complete listing of the PSE member-brokers can be found in various publications or from the PSE Membership Department. Once the investor has chosen his brokerage firm, a brokerage account has to be opened.

Opening a brokerage account is relatively easy to accomplish and takes not longer than opening a bank account. A specimen signature card needs to be filled out, containing the: Frequently, bank and professional references have to be submitted. Once an account has been opened, the client may buy or sell immediately according to the trading instructions between the investor and broker.

All transactions are handled confidentially and the broker will not reveal to any person the details of any purchases or sales done for his client. After opening the account, a trader will be assigned to the investor.

A trader is a licensed salesman who is authorized to buy and sell securities at the PSE. The assigned trader will be your contact person for all the transactions. Thus, when placing an order to buy or sell, you have to call your trader and give the details of your order.

The trader need to know the following specifications: Buying and selling transactions are settled by book-entry. This means the ownership of shares and cash is transferred electronically to the brokerage account, without the stock certificates and cash being handed over physically. The account is credited when buying shares, and debited in the case of selling shares. The paperless or scripless trading, now in place, has eliminated the physical handover of stock certificates when buying or selling.

The system replaced the scrip-based system where stock certificates are handed over for transfer for the next owner, which may take more then 3 to 4 weeks.

The book-entry system clearly advantages over the paper-based system. It has dramatically reduced paper work, facilitated the trading and eliminated the loss or forgery of shares.

Be sure to always verify the settlement deadline with your broker for future developments. What is the minimum amount you can invest in the stock market? The minimum amount of money needed to invest in the stock market depends on the minimum amount of shares to be traded for the stock. This minimum amount will be determined by the prevailing market price of a particular stock.

For each stock the minimum amount of shares to be traded is fixed and depends on the price range of the stock, as shown in the table below otherwise known as the Board Lot Table.

To determine the minimum amount of shares, the investor takes the market price of the wanted stock, looks for the price range in the table below reads the minimum amount of shares in the same row.

For example, an investor wishes to buy a stock whose market price is P This price is in the P In this case, the minimum amount of the investor needs is just about P10, For shares in the lowest range from P0. If the share price is P0. What charges will you incur in buying and selling stocks? When buying and selling listed securities, the brokerage firm always acts as an agent between you, the buyers and sellers.

For the services rendered, the brokerage firm charges its clients a commission.

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When you buy stock, the brokerage firm adds the commission to the value of the shares bought. When you sell shares, the commission is deducted from the proceeds that you receive.

The maximum fee is 1. A transfer fee of P The transfer agent maintains the ledgers for each issuer the company showing the details about each registered stockholder. It also has the responsibility to cancel the old certificates and change the name when the shares have been sold. Philippine Central Depository PCD fees.

For the book-entry-settlement system, buying and selling transactions are subject to an ad valorem rate of 0. If the client buys a PCD-eligible issue and still wants a stock certificate issued to his name, he must pay the PCD ad valorem charge, a P Also, if a client sells a PCD-eligible issue and still has the stock certificate for delivery to the broker, he is charged with the PCD ad valorem rate and a cancellation fee.

The documentary stamp tax is charged to the buyer on every purchase transaction at the rate of P1. It should be noted that these tares are subject to changes.

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Please ask your brokerage firm for the current tax rates and charges. If we assume that an investor buys 2, shares of stock at a market price of P5. This computation will be reflected on the Confirmation of Purchase which contains the details of the buying transaction and which will be delivered by the broker to his client. For an investor who sells shares at a market price of P20,00 per share, the computation is as follows: This computation will be reflected on the Confirmation of Sale which contains the details of the selling transaction and which will be delivered by the broker to his client.

What are your rights as a stockholder? As part owner of the corporation, stockholders are granted several rights. However, shareholders cannot claim dividends when the company decides not to declare any. For example, a corporation decides to issue additional shares to the public and gives the right to all of its stockholders to subscribe to the new shares at the ratio of 1: For every 2 shares owned, present shareholders have the option to buy one additional share, if they so desire.

Neither the corporation, the banks from which it borrowed money, nor the bondholders to which it owes money have any claims on your personal assets. How can you make money in the stock market?

Dividends are periodic payments made by the company to its shareholders from its current and past profits. It is paid in either of two ways. The first and most common method is cash; the second method is known as stock dividend. For example, if a company declares a P0. This stockholder now owns 12, shares. Dividend payments are not automatic.

But if the Board decides not to declare a dividend, the common stockholders receive nothing. Common stockholders cannot demand dividend payments even if the company is profitable. For example, an investor buys 10, shares of stock at P2. After several weeks, the market price of the stock increases to P3. Thus, capital gains are profit made due to an increase in the market price of a stock form the purchase price.

The combination of the dividend income and the capital appreciation made constitutes the total return. The nominal rate of return is calculated by assign up the cash dividend income and the capital gains pr losses and dividing the sum by the purchase price. For example, a company declares a cash dividend of P5. In the meantime, the stock price reaches P How do you collect information about stocks?

Having placed an initial amount in stocks, the next step is to keep track of the stock price and to follow closely the developments of the company. It would not be wise to put your stock certificates in a safe and have them locked away for years.

It would be too bad for an investor to discover after years that the shares have little or no value anymore. This way, an investor is able to foresee possible consistent poor performance and low profits as well as consequently low stock prices.

One of the most important factors influencing the amount of success achieved by an investor is the quality of information used to make investment decisions. Investors should therefore spend some time and effort in studying their investment and keeping up-to-date with the developments in the company, the industry and the economy.

Daily quotation of stock prices can be obtained from your stockbroker. Investors can call their broker any time to inquire about the status of the stock market which includes stock process, closing and opening prices, bid and asked prices, and traded volumes.

Usually brokers can also provide you with reports on the company and industry analyses which give you an in-depth look into the performance of a particular corporation, industry or sector that will lead to an advice to buy, hold or sell.

Stock price information can likewise be obtained from the Philippine Stock Exchange. It also keeps a copy if all corporate statements that have to be disclosed to the public and the PSE as part of its disclosure requirements.

Annual, semi-annual and quarterly reports have to be submitted to the PSE on a regular basis by every listed company. These reports and other financial statements are kept in the PSE library and are available to the public.

In addition, the PSE Research and Public Information Department issues statistical Weekly and Monthly reports and Fact Book in a regular basis. These contain among others, trading statistics, the composite index and sectoral indices, market capitalization of listed companies, volume and value traded. These publications are available at the PSE Library.

The Library is open daily form 8: Also, these publications are on sale at he Public Information and Assistance Center in Pasig City. Most leading daily newspapers cover the stock market and publish the previous days closing prices and traded volume.

For more in-depth news about the stock market, investors can turn to TV programs which gives updates about the company, the various industries and particular companies while stock price information is shown simultaneously. Those who have a computer can access the World Wide Web for the latest stock market information.

Numerous brokerage houses provide closing prices as well as the composite index and the indices of the different sectors.

And give background information about the stock market along with the market recommendations. You can visit the PSE at http: The following sources of information can be consulted for company analysis: The annual reports of a corporation are probably the best source for facts about a company.

The most valuable information contained in these reports are the financial statements, the company overview, the achievements and developments, and future prospects.

Particularly, the prospectus must mention how the raised funds will be used and attributed, This report is generally detailed and contains accurate information since it has to be approved by the Securities and Exchange Commission before the company is allowed to issue the shares. A copy of the annual report and the prospectus can be obtained from the issuing corporation or from the underwriter. Copies are also available at the PSE Library or form your broker.

Full-service brokers regularly analyze listed companies and consolidate their findings in a report which is usually available to their clients. What do you need to do before you invest?

Before making any investment, you must first evaluate your current and potential means, and determine the goal or purpose of making the investment. Every investor should ask himself the following questions before making the first purchase: It is true that the bigger your investment, the bigger the possible capital gains.

If you had invested P, you would have gained a profit of P20, But an investment of P, would have yielded P, Therefore, it might be tempting to put as much money as possible in the stock market to get rich quickly.

Butt investors should only invest extra money; they should not borrow to be able to purchase more shares. Remember that stock investment carries a certain risk. Stock priced can very substantially from day to day.

Borrowing money acts as leverage: But what if stock prices are declining and you are incurring a capital loss? Determining your capital available for investing should be considered first. For receiving dividends or for capital appreciation? For short-term benefits or long-term gains?

How much money are you able and willing to risk. Each individual should set a limit and be prepared to get out of his stock when the limit is reached. These are the questions you must answer before making any investment. Based on the answers, a particular investment strategy has to be designed to achieve those goals. These are the questions that your broker will ask in order to create your financial profile.

It becomes part of the information he or she considers when making investment recommendations and selecting specific financial assets. What are some investment tips which can help you while investing? It is not advisable to put your money into any stock without first looking at the corporation.

Issues that have to be looked into are: Please ask your broker for assistance in selecting the stocks. Although temptation of putting everything into one stock might be very great, especially when the price is moving upward, it should be avoided.

It is one of the basic rules in stock market investing. Diversification, on the other hand, is the investment strategy of investing in different industry sectors and if possible, different stocks from different reduce your risk considerably. Frequently, rumors circulate in the stock market, especially when there is heavy trading. At such times, people launch rumors as to where the stock price will go, often to make money out of it.

Rumors and hearsay should be carefully checked and verified by the investor. Consider the source and the motive behind the launching of the information and never act on the basis of a rumor that cannot be verified.

Only in this way you are able to foresee possible consistent poor company performance which will be reflected in low stock prices. Investors should therefore keep up-to-date with the developments in the company, the industry and the economy. The principle of making a profit in the stock market is simple: But investors should not try to buy at the bottom or sell at the top. It is difficult to foresee when the stock price has reached its bottom or top.

Even trained experts with the best tools cannot accomplish this feat frequently. Instead, investors should set objectives in terms of expected return and profit and act accordingly. When the stock is still rising and the investor feels that the price has reached the desired level yielding the expected profit, it is time to start selling.

He should not cling onto his shares for that extra bit of profit. For at the peak many investors will get nervous and start selling, pulling down prices sharply and quickly. When this happens, it may be difficult to sell, resulting in a lower-than-expected gain or profit. Greed in this case, will cause much disappointment. Investors should therefore sell according to the previously set profit objective and not wait for the very last moment.

Remember that stock investments are subject to risk. Very few people like to sell at loss and, consequently, hold on their shares, even when the stock price keeps falling. A better attitude would be to limit and manage your risk. A maximum level of loss should be set e.

In that way, a further loss of capital is prevented, which can be used for other investment opportunities. What are the risks involved in stock market investing? However, the risk characteristics are distinct depending on the type of investment instrument.

Fixed-income securities, such as bonds, preferred stocks and convertible securities, generally carry a low level of risk. The buyer of these assets know in advance how much interest payment he will receive at the end of each month. This is true for treasury bills, savings, and time deposits, and to lesser extent, also dollar deposits.

When a bank goes bankrupt, its assets might not be sufficient to pay all the debts, including the interest to the account holders. They will receive less, or nothing at all. Fortunately, private and government organizations have generally proven to be able to hold their promises and repay the money they borrowed. The returns from stocks, however, are less predictable.

Remember that stock provides potential income in the form of cash dividends and capital gains when the stock price appreciates. As outlined earlier, cash dividend payments are not fixed. It depends on the Board of Directors of the company if dividends will be paid out, the amount of it and the time. Therefore a stockholder is never sure of the cash dividend he will receive. This is the first type of risk he encounters when buying stock. Secondly, the capital gains an investor is entitled to depend on the price movement of the stock.

Since stock process can be very volatile, i. As history has shown, stock prices can speed up, but can also take a sharp dive. As stock prices go down, the capital gains decrease, or even result in capital loss.

Thus, this type of risk refers to the volatility of the capital gains. Together, the variability of the cash dividends and of the capital gains constitutes the total risk of stockholder. To summarize, stocks are by far the most risky of financial instruments, but also the most profitable. On the long term, they have proven to substantially outperform other financial assets, and be the best hedge against inflation and loss of buying power. Fixed-income securities generally provide less than half the return on stocks but exhibit substantially less risk.

Investment cost 2, shares x P5. Sale proceeds shares x P Total cost of the transaction. Stock transaction tax 10, Net amount to be received.