Basic Introduction To The Stock Market

Photo by Catherine Karnow

With the good economy that the Philippines is enjoying, I believe that it's important for Filipinos to learn how to ride and take advantage of the many investing opportunities available.

One of the most popular, and probably easiest investment to get into, is the stock market. Now I didn't say easy to understand, just easy to get into. But before I get deeper into that, here's a little basic information about the stock market.

A stock is basically a share in the ownership of a publicly listed company. It means you become become part owner of a company whose stocks you own. For example, you own a stock of Banco De Oro (BDO), then you are technically a part owner of that company and have a claim (a very small one) to the earnings of the company.

Owning a stock doesn't mean that you have a say in the day-to-day operations, or you can just walk in the company and make suggestions on how it should be run, or take any of the products for free. It just means that you have a share (depends on the number of stocks you own) in the company's earnings and a vote (one vote per share) in electing the board of director's during the annual stockholders meeting of the company (this doesn't usually hold any value, unless you own a big amount of shares in the company).

So what do you get then for owning stocks?

Well owning a stock in a company, entitles you to a share in the profits earned by the company. Profits are usually paid in the form of dividends (a small percentage of the company's earnings given to a class of shareholders, decided by the board of directors). You also get to grow your money as the company's value increases. For example you purchased the stock of BDO for P50. After a month, the mangement was able to increase the value of the company to P80. So your P50 then gets a P30 increase in value because of the increase in the company's value.

Of course you can also lose money in the stock market. If the management of BDO did a poor job and decreases the value of BDO instead to P30, then your P50 investment loses P20 in value. (There are a lot of underlying factors that determines how the price of a stock will move, company's earnings, market sentiment, and so on. That will be discussed in future posts).

So how do you get into the stock market?

Before, you purchase a stock through a stock broker. Then you get issued a stock certificate as a representation of the stock you own. But in today's computer age, you can now do things online. You just need to register an account with an online brokerage (I'm currently familiar with two, First Metro Securities [I use this] and COL Financial) and provide the necessary documents needed. Then you just need to deposit money (usually there's a minimum requirement for this, First Metro Securities requires P25,000 minimum deposit to those without Metrobank account). Once you have an account, you can now start buying stocks.

Now this is just a basic introduction to the stock market to give you an idea of what the stock market is and how you can get in. There's a lot more information and knowledge that you need to learn in order to understand how the stock market works and how you can benefit from it that I'll be sharing with you in a series of posts to follow.

P.S. Stock Brokerage companies also offer free seminars to help you understand more about the stock market. Just click the links above to learn more.

Source: Investopedia