It never fails, whenever people hear that I’m into stocks trading, I usually get questions on how much I invest, what stocks I buy, what my strategy is, and how to buy and sell stocks to begin with.
How to get started?
Much has been written on investing in stocks in general, and a lot more sites talk about Philippine stocks and how to join the crowd who make and lose money through stocks trading.
Still it never fails, whenever people hear that I’m into stocks trading, I usually get questions on how much I invest, what stocks I buy, what my strategy is, and how to buy and sell stocks to begin with. So below are my two cents on the topic (or rather a first of a series of entries), hopefully to guide others as well on how to get started.
Also called shares are sold by listed companies and those who hold stocks (those who bought them) are actually called shareholders, part-owners of that company whose stock they’re holding. Though most stockholders may be considered part-owners, the amount of shares they usually own are very small to begin with to have a big influence and ownership in the company. Nonetheless, this ownership actually becomes crucial for big shareholders, who fight to the last % just to acquire controlling share of the company.
Take MER (Meralco) for example. When the Lopezes decided to lessen their ownership of the company (divest?!?), two business giants engaged in a bid and price war to get majority ownership: San Miguel’s Ramon Ang (RSA) and PLDT‘s Manny Pangilinan (MVP). The stock price had a roller-coaster from I think 80s to 40s then up to 140s, 170s and now in the 240s. Can’t imagine how much people made and lost as they joined in the sidelines of this war.
In the end, MVP won the majority and a few more % owned was all that mattered. Well MVP holds it, at least for now.
Anyway, this few % does not mean it’s easy to acquire. A few % ownership of a big company such as MER actually costs millions and billions of pesos… Anyway, going back
Stocks are sold in the primary market
when the company itself is selling stocks such as in IPOs or in additional offerings. Stocks are sold in secondary market
when the sellers are former buyers as well, such as in the daily trading in PSE. Stocks are generally traded (bought and sold) in the stock market and for our case, we have the PSE (Philippine Stock Exchange). We used to had two stock exchanges – Manila Stock Exchange and Makati Stock Exchange, eventually merged into PSE during the Ramos administration.
Brokers and Online Trading Sites
Brokers usually dominate the transactions in the PSE, and they do this for internal and external clients (corporations). But individuals like us who are interested to join the mad crowd, can actually do so. Here’s how:
There are two online trading sites that I’m familiar with: BPI Trade (their website has a new look by the way) and COL Financial (formerly CitisecOnline). I think Metrobank also has it’s own (First Metro Sec) but I don’t use it. Or, if you’re an employee of a company listed in PSE, then chances are you have Employee Share Ownership Plan (ESOP). But through ESOP, you can only buy your company’ shares.
To open an account, you need Php500 initial funding. This is ON TOP though of a BPI Deposit account that you have to open (minimum Php3k) which will serve as your depository account — you can deposit and withdraw funds from your BPI Trade account through this depository account. If you already have a savings account with BPI, then you’re a step closer.
So in total, minimum amount you need to open a trading account with BPI will be around Php3.5k. Add Php1.5k more and you can actually buy your first stock. More on this later.
Buying and selling with BPI Trade is easy to do. My only concern here is that upon selling, proceeds will not be readily available to do some buying again. Proceeds will only be available 3 working days after, once the funds have gone through some sort of clearing. (Jan2013 Update: Per my last transaction via BPI Trade, sell proceeds are now available immediately for new purchases). Funding the account is easy: just transfer funds from your savings account, or deposit via over the counter (OTC). You just need to observe some cutoffs. Withdrawal maybe done online as well, then the withdrawn funds will be credited to your savings account, again after 3 working days of clearing.
For me, BPI trade is good for long term placements and for those who do not have much issues with liquidity (i.e. those who have lots of cash for stock trading). Day trading via BPI trade will mean you have lots of liquid cash not tied into any stock, since for every sell transaction, you will only get the funds back, ready for use, after 3 days.
Formerly CitisecOnline (COL), this is a separate company and is not related with Citibank though I think they had some naming issues before.Opening an account is fairly easy, just go to their website for the account opening forms and you will even get your own Account Officer (contact me if you want to get in touch with my account officer). You need Php5,000 (it used to be 25k) initial placement to open an account but you need not maintain a separate savings account unlike BPI Trade. You can easily fund your COL online trading account via BPI, BDO and MTB (OTC or online transfer).
COL has more add-on services compared to BPI Trade such as daily market tips, interactive graphs and recommendations for newbies and pros alike. You can also view the brokers who’s buying and selling which stock, how much and how many. Liquidity will not be an issue with COL as well since proceeds from your stock sale may already be used to purchase new stocks. Immediately.
As soon as you sell, proceeds are already available for you next bargain hunting or speculative investment. Funds withdrawal though is not as easy as that of BPI. You need to fill-up a form, fax it to COL and pick-up a check from their office. At least that’s the written policy based on their site. Alternatively though, you can fill-up a withdrawal form, sign and scan it, and email to COL. You can also instruct COL to deposit to your account the proceeds. Better than the first one huh?Though sell proceeds may already be used for new purchases, withdrawn funds will only be available after 3 working days similar to BPI.COL works best for day traders, those who have limited funds but like to buy and sell a lot within the day or week. Funds withdrawal is a bit more tedious but if you have a savings account, it will be a lot easier. It’s just that there’s writing, faxing or scanning that you need to do, for BPI the online form will do.
So how much?
How much spare cash do I need to join stock trading? I’d say Php6.5k will do, 5k for the account opening and maintaining balances, 1.5k for you first stocks!
You might ask, what are the trading norms/jargons? Some are as follows:
Stock prices move up and down day in and day out. A company’s ultimate goal is to increase shareprice (aka shareholder returns) which means the company’s value (and shareholder wallet) is increasing, becoming more and more valuable. So an individual stock trader makes money via capital appreciation (buy low, sell high) and through dividends (some stocks declare [regular] cash and stock dividends] and the dividend income depends on how much stock you are holding and what periods you are holding it.
Board Lots and Odd Lots
Stocks have designated board lots which means the usual trade should be in multiples of this board lot. Lots are usually 10s, 100s or 1000s and transactions are usually a multiple of this. So for example, a stock price of MWC is P19 and its board lot is 100, the usual transaction is to buy or sell 100 MWC shares worth 1900+. If you have more funds then you can buy or sell 2 lots, 3 lots, 10 lots etc.
Some buy and sell what we call odd lots (tingi/butal) like 3 shares, 21 shares or any number not meeting a board lot’s multiple. But this is more of a rarity than a common occurence, usually happens when company declares a stock dividend instead of cash dividend. It’s also more difficult to buy and sell odd lots when the rest of the market is buying and selling board lots. So who do you trade to right? Gets?
As stocks reach certain price levels, the board lots adjust accordingly. Anyway, it’s easy to see what a board lot of a stock is. So let’s say you have 1.5k to purchase a stock, you might want to consider a stock priced at Php15 and has a board lot of 100, or a stock priced at Php1.50 and a lot of 1000. Note though, like most things, there are footnotes here and hidden charges such as taxes (of course!), commissions, brokerage fees, etc for EVERY transaction, whether you buy or sell.
So in reality, buying Php1.5k worth of stocks will cost you around Php1,550. And selling the same value will give you proceeds of only around Php1,450. So for small-timers, these charges need to be considered into the frequency, timing and size of transactions.
Well I hope that through this novel part 1, you get the drift of how it’s done. There’s still a lot to share so watch out for my next entries.