This is a repost with minor editing from my 2013 article in another blog.
Looking for higher yields
After several years of work, I was able to save around some hard-earned money. All of my savings were parked in savings accounts, and I was looking for an investment with a higher yield. For some time now, I've been hearing about the Philippine Stock Exchange (PSE) in the news. Most of it were about the market's record highs. I then became interested in investing in the stock market.
Most savings accounts in the biggest banks in the Philippines only fetch a measly 0.25–1% annually, while time deposits usually yield 1–2%. Government and corporate bonds can give somewhere between 3–5%. Stocks however can give a yield of around 10% or more. And most investment knowledge resources say that investing in stocks is a great guard against inflation.
How to profit from stock investing?
Income from stocks are generated from dividends and capital appreciation. As businesses grow, corporations share a percentage of their income through dividends, and the price of their stock rises almost proportionally to their growth rate. The high yield from stocks however comes with additional risk. Businesses can also suffer losses. Not all companies give dividends to their stock holders, and if the company went through tough times, prices of its shares can go down. You can both earn and lose money in stocks. One should have an emergency fund before investing in bonds or stocks. And one must always take a medium to long-term investment plan when going into stocks. Highly speculating in stocks prices to make a quick buck is an easy way to lose your money.
Where to start?
So given that you have some savings to spare and you got interested in investing in stocks, you now ask "How do I buy shares of a publicly-traded company in the Philippines?" The first thing to do is to look for a broker. Brokers facilitate your purchase or sale of shares, and they get a commission for their services. I am currently using the services of COL Financial since they charge the minimum commission fee and you can buy and sell stocks online through their website. You may also take a look at BPI Trade, another online broker.
After getting a broker, the next thing you should do is to look for good companies with attractive share prices. One way of gauging if a stock is appropriately priced is by looking at its price-to-earnings ratio (P/E). According to Wikipedia, a company whose shares are being traded at P/E ratio of 15–17x may be considered fair priced. Those being traded at more than 17x their earnings may be considered overvalued, or "expected" to have significant growth. Investing in "growth" stocks can be very risky if you do not know how to valuate a company according to its past earnings, present holdings, and future prospects. For safety, I suggest you pick fair-valued large-capitalization companies with 5-10 years of continuous, preferably increasing, dividends for your first few stocks before venturing to growth territory.
Buy and sell
Once you have picked the companies you like, fund your broker account to be able to buy their shares. Buying and selling through COL's website is easy. The site gives you live quotes when the market is open (9:00am–12pm, then 1:30–3:30pm). To buy shares, you simply indicate the number of shares you want and the highest price you wish to purchase each share (bid price). To sell, you enter the number of shares you want to sell and the lowest price for each share (ask price). I must warn you that buying and selling has corresponding fees. If you trade frequently, your earnings, according to Benjamin Graham, will easily be "sandpapered" by commissions and taxes. Those who do their investing patiently, buying regularly and selling rarely, reap the most.
Cost of investing
As for the initial cost of stock investment, opening an account in COL Financial requires a minimum of P25,000 for a standard account. Having a standard account allows you to buy and sell any trading stock. They also offer Easy Investment Plan (EIP) accounts that require only a minimum of P5,000 for your initial investment. In EIP, you set a fixed amount to be used to buy a stock at regular intervals (like monthly or quarterly). For example, you can set aside P5,000 each month to buy shares of BDO. Whether the price of the stock is high or low, EIP buys P5,000 worth of shares. EIP allows you to do cost-averaging over time. If you do not have huge savings or if your investable fund every month is small, EIP can be a good tool for your long-term investment.
Well that covers some of the basics if you want to invest your money in PSE listed stocks. I'm no expert on the subject but if you have questions or comments, feel free to send a message. Happy investing!