What is the 'Stock Market'

The stock market is the market in which shares of publicly held companies are issued and
traded either through exchanges or over-the-counter markets. Also known as the equity
market, the stock market is one of the most vital components of a free-market economy, as
it provides companies with access to capital in exchange for giving investors a slice of
ownership in the company. The stock market makes it possible to grow small initial sums of
money into large ones, and to become wealthy without taking the risk of starting a business
or making the sacrifices that often accompany a high-paying career.

BREAKING DOWN 'Stock Market'

The stock market lets investors participate in the financial achievements of the companies
whose shares they hold. When companies are profitable, stock market investors make
money through the dividends the companies pay out and by selling appreciated stocks at a
profit called a capital gain. The downside is that investors can lose money if the companies
whose stocks they hold lose money, the stocks' prices goes down and the investor sells the
stocks at a loss.

The stock market can be split into two main sections: the primary market and the secondary
market. The primary market is where new issues are first sold through initial public
offerings. Institutional investors typically purchase most of these shares from investment
banks. All subsequent trading goes on in the secondary market where participants include
both institutional and individual investors.

Stocks are traded through exchanges. The two biggest stock exchanges in the United
States are the New York Stock Exchange, founded in 1792, and the Nasdaq, founded in
1971. Today, most stock market trades are executed electronically, and even the stocks
themselves are almost always held in electronic form, not as physical certificates.
What are stocks?

Stocks are shares of ownership in a corporation. The stock market is a place where stocks are bought
and sold. The Philippine Stock Exchange (PSE) is the corporation that governs our local stock market.
People buy or invest in stocks to benefit from a company's tremendous value potential over time.

Once you buy or invest into a stock you now become part owner or a shareholder of that particular
corporation.

How to make money in stocks?

As a Shareholder, you can now participate in the company's growth and success through stock Price
Appreciation and by earnings Dividends.

Capital or price appreciation is an increase in the market price of your stock over time brought about by
an increase in its potential value and the demand to buy its shares. The faster a company can grow, the
faster its price can appreciate.

Profitable corporations can also issue dividends, whether in cash or in additional shares of stock as a
means for shareholders to share in their distributed profits.

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Why Invest in the Stock Market?

History has proven that investing in quality stocks can provide greater returns than most investment
instruments. This offers you the best chance in achieving your financial goals and gives you the ability to
later enjoy the benefits of your money working for you.

The track record of the stock market also shows that a good basket of stocks climb more often than
decline - reducing risk over the long-term.
Another reason why stocks can outperform other asset classes is because it can compound the value of
your investment. Companies can reinvest the profits they make to generate even more profit. Moreover
any dividends you receive can also be used to buy more shares and thereby enlarging your overall value
as well.

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The 4 Golden Rules

Discipline and the right methodology is the key to a successful stock investment program. Understand
and adopt these four essential rules of thumb to keep you on track.

1. Invest EARLY
2. Invest REGULARLY
3. Invest LONG TERM
4. Invest using DIVERSIFICATION

Invest EARLY

Invest early to take advantage of compounding over a greater period of time.

If I invest Php 25,000 at the age of 25 and I manage to have my investment grow by 8% a year, 40 years
later my investment will be worth Php 543,000.

Investing for your Retirement

Invest P10k at the age of 25 35 45 55

Investing for how many years* 40 30 20 10

Total value of investment at 65 P543k P215k P116k P53k

* Assuming an annual rate of return of 8% per annum (the PSEi has averaged about 10%+)

Invest REGULARLY

Now instead of investing just once, every year I regularly add the same amount into my investment. Look
at the significant difference this can affect my portfolio:

If I invested Php 25,000 at the age of 25, allowing this to also grow by 8% a year, plus adding another
Php 25,000 every year thereafter until I retire, I will eventually retire with an estimated Php 7 Million.
Compounding and regularly adding to your investment is the key.

Investing for your Retirement

Invest P1 at the age of 25 35 45 55

Investing for how many years* 40 30 20 10

Total value of investment at 65 P7.0m P3.0m P1.2m P391k

* Assuming an annual rate of return of 8% per annum (the PSEi has averaged about 10%+)

Invest LONG TERM

Long term investing solves the problem of short-term volatility (choppiness in price). On occasion some
issues may come up that may cause prices to swing up and down whether economic, political or natural
events. But you can see from the chart below that the PSE index always bounces back to new highs even
through problematic times.
After all companies need time to grow so prepare to sow your seeds in great businesses and let time do
the rest.

Invest using DIVERSIFICATION

The management of risk should always come hand-in-hand with your choice of investment. One way of
containing risk is through diversifying or by spreading investments around and away from one single
asset class.

As the saying goes, "Do not put all your eggs in one basket."

Moreover try to allocate your capital evenly to a number of stocks in different industries or sectors so as
not to put too much risk in one area; have a good balance in your investments.

What are stocks?

Stocks are shares of ownership in a company. When you buy stocks of a

publicly listed company, you become part owner of that company. As a part
owner, you participate in the companys growth and future profits.
Conversely, you may also lose if the company suffers a loss or performs
below market expectations.

What is a stock market?

The stock market is a place where stocks are bought and sold or a place
where people can invest in publicly listed companies through the Philippine
Stock Exchange, Inc. (PSE).

Why invest in stocks? How do I make my money grow in the stock

market?

Historical data has shown that investing in stocks over the long-term
provides superior returns. Stocks offer potentially higher yields compared
with fixed income instruments such as time deposits, government securities
and bonds. There are three (3) rationales for stock investing:

a. Ownership in a company
When an individual invests in the stock market, he automatically becomes a
stockholder of a particular listed company. As a stockholder, he is entitled to
the following benefits: a.1) voting rights; a.2) dividends to be declared by
the corporation; and a.3) share of the remaining assets of the company if it
is to be liquidated.

b. Liquidity of funds
A stock market investor has easier access to funds. Compared with banks
which require high minimum conditions for deposits and credit, an individual
can start an investment for as low as Php 5,000.00. He can cash in or out
his funds during trading hours, through his broker.

c. Make money
Investors in the stock market make money through dividends and capital
appreciation. When a listed company declares dividends, its shareholders
increase their investing power. An investor who buys into the company at a
low market price and sells it at a higher price will gain capital appreciation.

What are the different dividends given by publicly listed companies?

There are two types of dividends that can be given by companies:

a. Cash dividends - these are earnings for every share of stock declared by
the company.

b. Stock dividends - these are additional shares given to shareholders at

no cost which can be sold anytime.

View historical dividends / rights declared by listed companies.

Is there any risk involved in investing?

While it is true that a stock investment is the most volatile of all securities,
investors might well remember that uncertainty is a permanent feature of
the investing perspective. This means that risk is always a part of any
investment. A better attitude would be to limit and manage your risk. A
maximum level of gain or loss should be set, and calculated decisions should
be made when this level is reached.

How do I start investing in stocks? How much of my savings can be

invested in stocks?

Just like an ordinary savings account, an investor has to open an account

and present valid identification with a broker before he can actively trade
stocks on the Exchange. An investor would need at least the minimum
amount of investment to open a trading account which is Php5,000.00.

Getting started in the stock market is a simple process.

1. Choose your stockbroker or trading participant (view Stockbroker's

Directory).
2. Open a trading account with your stockbroker of choice.
3. Place your buy or sell order either online or through a phone call to your
stockbroker.
4. Monitor and keep track of your investments.

What is the minimum amount of initial investment?

The minimum amount of money needed to invest in the stock market

depends on the minimum number of shares to be traded for the stock and
the minimum amount required to open a trading account. The minimum
number of shares that can be traded will be determined by the prevailing
market price of a particular stock. The PSE has a Board Lot table which
shows the minimum number of shares that can be bought or sold given a
certain price range.

How do I choose a stockbroker?

There are over 100 licensed stockbrokers accredited by the PSE. Your choice
of stockbroker should depend on the type of service you will require and who
will best suit your needs. The types of stockbrokers can be classified into:

a. Traditional those who assign a licensed salesman that take orders

through written instructions or phone calls
b. Online those whose main interface with the customer is via the
Internet

You can get a complete list of accredited stockbrokers by visiting the PSE
website, www.pse.com.ph, or contacting the PSE at (632) 819-4100.

How do I open an account?

Similar to the process in opening a bank account, you will be required to fill
out a form called Customer Account Information Form (CAIF), and submit
the following documents, namely:

a. Two (2) valid IDs;

b. Specimen signature cards; and
c. Proof of billing (although some brokers do not require this).

Depending on your stockbroker, you may be also asked to provide additional

pertinent documents and an initial cash deposit in order to begin investing in
stocks.

How can an overseas Filipino open a trading account?

For overseas Filipinos, the simplest and more convenient way of investing
directly in the local equities is to open a trading account with an online
stockbroker or apply directly with any overseas branch of Philippine banks
that are affiliated with any of the active stockbrokerage houses in the PSE.
Through the internet, overseas investors will be able to access the Philippine
stock market and trade stocks real-time.

Overseas investors can also participate in the Philippine stock market

through mutual funds, and index and variable-linked funds offered by
various financial institutions such as banks, mutual fund management
companies and insurance firms in the Philippines.

How do I place an order?

The conventional way of placing an order to buy or sell is through a phone

call to your stockbroker. However, online trading is now being practiced so
investors can place orders directly via the Internet.
How are settlement and clearing done? How long is the settlement
period?

Settlements of accounts are done through the clearing house of the

Exchange, the Securities Clearing Corporation of the Philippines (SCCP).
Stock market transactions are settled on the third day after the trade (T+3).
Transfers are based on trades done at PSE. Shares are transferred on
settlement date to the buyer, and the buyer pays the seller through the
clearing banks within the same settlement period. This means that
transactions done on Monday must be settled by Thursday.

Do I need to have physical evidence of my stock ownership?

The PSE through its central depository, the Philippine Depository Trust Corp.
(PDTC) uses the computerized book-entry system (BES) to transfer
ownership of securities from one account to another, thus eliminating the
need for physical exchange of scrip between buyer and seller. This system is
called scripless trading. However, you may still request for an upliftment of
your shareholdings to get a physical certificate.

What are my obligations to my broker?

1. Always update personal information provided to your broker, particularly:

a. clients residence or business address

b. contact numbers
c. e-mail address

2. Always settle your buying transactions on T+3 (settlement date).

What are the brokers obligations to its clients?

1. Your agent must confirm your securities transaction after trading hours.
2. Buying/selling invoices must be delivered to the client on T+1 (transaction
day plus one day).
3. Stockbrokers must send the clients statement of account on a monthly
basis.
4. Your stockbroker must send you information and correspondences
relevant to your investment.
1. Aman Futures. In 2012, this organization was able to dupe some 15,000 people in Visayas and
Mindanao with a staggering amount of Php 12 billion (US$ 295,000,000 est.), the biggest scam the
country has seen. The owner, Malaysian Manuel K. Amalilio, escaped to Malaysia but was later
arrested and jailed for the possession of fake passport. He has yet to be deported back .
To lure the public into joining the network, the group used the double-your-money scheme. There
were about 8,000 complaints filed against the company .Its thousands of victims include local
politicians, police and military personnel, government employees, market vendors, farmers, drivers,
retired employees and overseas workers. Among the people who were fooled were twenty one
police officers and two fire officers. The system collapsed when the said officers filed a syndicated
estafa complaint against the company. They said they were promised a return of their investment
within eight days and a 50 percent to 80 percent profit for 17 to 20 days.
2. Legacy Group. The BSP describes the Legacy Group as a swindling syndicate. The late owner,
Celso delos Angeles, allegedly misused depositors money leading to the collapse of 12 rural banks
and 3 pre-need firms. He siphoned depositorsmoney to finance his extravagant lifestyle and to pay
off government officials for protection.
As a lender, the group used the schemes Motorcyle Loan Program and Investments Loan
program to entice fake borrowers to sign loan documents in exchange for commissions. They
made it appear that funds were withdrawn by the fake borrowers but the proceeds were actually
deposited to another account controlled by Delos Angeles.
To attract depositors into the bank, the group offered the following :

Double your money in three years

Double your money in five years
Double your money in six years
Hybrid five years
Hybrid six years
3-Year-Buy-Back

In the double your money schemes, the deposits would yield 100 percent after three to six years. It
was offered in all rural banks affiliated with the Legacy Group.
The hybrid five years scheme, offered 20 percent per annum interest. The initial 20 percent was
given upfront to the depositor. Then they were given monthly interests equivalent to 20 percent
interest per annum. On the fifth year, they get back their principal deposit.
For the 3-Year-Buy-Back scheme. deposits will double in three years and then the investors will
receive 12 quarterly post dated checks as payment of the investment in an amount that is double the
amount of the original investment. So attractive was the scheme that their bank in Leyte was able to
attract depositors even outside the Samar and Leyte areas.
As of September 30, 2008, the bank was able to accumulate P467 million in total deposits. But in
reality, the bank was already operating at negative net worth of P239 million. When it closed on Dec.
12, 2008, the bank only had about P1 million cash on hand.
As of October 2010, the Philippine Deposit Insurance Corporation said it has already shelled out a
total of P11 billion to depositors.
3. PDAF Scam. The Priority Development Assistance Fund scam, also called the PDAF scam or
the pork barrel scam, is a political scandal involving the alleged misuse by several members of the
Congress and Senate. The PDAF is a lump-sum discretionary fund granted to each lawmakers for
spending on priority development projects of the Philippine government. The scam was first exposed
on July 12, 2013, pointing to businesswoman Janet Lim Napoles as the mastermind. after Benhur
K. Luy, her second cousin and former personal assistant, blew the whistle. Luys testimony has
expanded to cover Napoles involvement in a wider scam involving the misuse of PDAF funds from
2003 to 2013.
It is estimated that the Philippine government was defrauded of some P10 billion of taxpayersmoney
with the money diverted to Napoles, and other government officials The scam has provoked public
outrage, and has demanded the pork barrel be scrapped. Presently Napoles and 3 Senators implied
in the scam are now under litigation.
4. Multitel Group. This group was run by Rose Baladjay and was registered with the SEC in 1998.
The group was able to attract investors by offering them 4 percent monthly interest of 48 percent per
annum, guaranteed for a minimum investment of P10,000. Investors were also offered an alternative
of double-your-money scheme for a lock-in period of 18 months. Baladjay also utilized counselors to
recruit investors. Each successful recruited investors earned the counselor one to 20 percent
commission.
The then chairperson Lilia Bautista that they have been receiving reports that Multitel had conduit
companies such as Everflow and One Heart offering investors 10 percent return per annum.
Alarmed by what Multitel is offering, the SEC issued a cease and desist order in March 2001.
Before the scam was busted, it was estimated to have victimized at least two million people including
politicians and cabinet members and the wealth damage is around 100 billion pesos,
5. PIPC. Just as the FrancSwiss scam was on the wane, another scam replaced the financial
sector involving a Singaporean and hundreds of wealthy Filipino investors. PIPC was a high-yielding
investment program that ran from March to July 2007. It was classified as an internet ponzi scheme
and promised investors 4.5% interest daily for their minimum investments of USD1,000., which could
be encash through Internet-to-bank transactions.
When the scheme was busted during an entrapment operation by the NBI, it was discovered that
FrancSwiss deceived investors to the tune of P1 billion. Among the victims were politicians, showbiz
personalities, OFWs, generals and retirees.
A popular showbiz couple invested in Francswiss but did not disclose the total amount invested. A
former PBA star also admitted to having invested USD3,000 in FrancSwiss.
When the scam was busted, Singaporean owner Michael H.K. Liew, has already fled the country
and disappeared, supposedly taking with him between US$140 million and US$250 million of
investors funds.