Do you gobble up stocks for breakfast and unload by lunch? If you do, this story is not for you.
This is for the average Juan and Juana who have more than enough money, but not content with letting them earn less than 1 percent interest in the bank. These basic tips are a good starting point for anyone interested in investing in the stock market for the first time.
But first, what is a stock?
A stock is proof of your interest or ownership in a business. When you “buy a stock,” it means you invested in a company and become a rightful stockholder of that company. This gives you the right to be invited to the company’s annual stockholders meeting, get paid with dividends, or vote for the company’s board of directors.
How can I buy a stock?
Stocks are bought and sold in a marketplace called the stock exchange. The minimum investment amount may vary — some stocks may be bought for as low as P500 while others require at least P10,000. For the First Metro ETF, for example, you can own a basket of shares comprised of 30 blue-chip stocks representing the Philippine Stock Exchange (PSE) index for as little as P1,000.
These stocks are sold in the PSE. However, you cannot just walk into the PSE trading floor and shop for a stock like in a supermarket.
Here are the steps to follow when buying a stock:
- Get a licensed stockbroker.
A stockbroker is a professional trader or a company that buys and sells shares on behalf of clients. There are also online stock brokers that you can tap to execute orders on your behalf. All you need to do is to set up a trading account with your online stockbroker.
- Submit the required documents.
Your broker will advise you about the documentary requirements for opening a trading account. These include submitting a photocopy of at least one government-issued valid ID and your tax identification number. The account activation process takes 2-3 days upon submission of all the requirements.
- Fund your trading account.
Once you have activated your trading account, your broker will ask you to make a minimum initial deposit. You will also be required to pay some charges, fees, and taxes when you trade. These are the typical charges.
- Get access to a trading platform.
Once you have received an email confirmation from your broker that your account has been activated, you will receive log-in credentials to access the trading platform. This allows you to see the shares you can trade.
- Place your order.
Indicate the stock ticker, price, and a number of shares in the order pad that your broker provided. Before you buy a stock, however, make sure you have read up on the listed company you are investing in. Bear in mind, too, that stock trading in the Philippines is done by board lot or round lot system. This means the minimum number of shares you can buy or sell depends on the market price of the stock at the time you place your order.
To play it safe, you may also want to consider buying shares in mutual funds or invest in index funds instead. A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio.
Index funds are popular because they allow you to own a wide variety of stocks but entail lower risk as the index tracks companies of established profitability and stable earnings through the years. These companies are called blue-chip stocks.
If you are unsure and want to learn more before placing your hard-earned money on a stock, you may be interested to subscribe to First Metro Securities’ Philippine Stock Market Weekly podcast on Spotify or to its YouTube channel (https://www.youtube.com/channel/UCZb09lY56CM_axEQ7jyTvQA) for free how-to tutorials on stock market investing.
FirstMetroSec and First Metro Asset Management, Inc., both subsidiaries of First Metro Investment Corp., the investment banking arm of the Metrobank Group, offer webinars on stock investing.