Philippine Stock Market – Know the Rules of the Game

Imagine yourself to be part of a game. Each contestant was given a piece of blank paper and a pen.

Excited kayong lahat.

You were told to write anything on that piece of paper to win the game. But no specific instruction were given on how to win.

What will you do?

One of the contestants started to write his name. Another started to draw lines and circles. The other one created a paper plane and start throwing them up in the air. Ikaw naman you started drawing your favorite cartoon hero, Superman.

At the end of the time limit, the criteria was given. The person with the dirtiest paper wins. End of the story.

rules of the game

If only the rules of the game were clearer, your chances of winning is higher. True for life. And yes, it is true for the stock market.

The first important step in winning in the stock market is to understand how the stock market investing works.

Sabi nga nila, kung may papasukan ka, dapat alam mo. Paano ka mananalo kung hindi mo alam ano kalakaran dito?

So how does the Philippine stock market works?

What are the things you need to know before investing in the stock market? What are the rules of the game?

 

What You Need to Know About the Philippine Stock Market


Rule #1: Stock investment is not just an abstract idea with prices that go up and down. Buying stocks is buying a part of the company.

Money to buy stocks

Year 2000, was the year when the whole financial world fall in love with the dot com companies. Dot com companies are usually start-up companies traded in the stock market related to internet and computers.

The stock prices were moving so high and so fast.

Lahat masaya kasi tiba – tiba. Bumibili ang lahat ng stocks nito kasi pataas ng pataas ang presyo.

Everybody was laughing at Warren Buffet (the best stock investor who ever lived) since he did not buy any dot com company stocks. His reason, he does not understand them at all. He only invests in companies and industries that he is familiar with.

Dot com companies stocks were so expensive and most of those companies has not even shown few profits. Walang kita ni isang kusing.

Sabi ng mga stock analayst, si Warren Buffet napag-iwanan ng panahon. Masyadong makaluma.

Fast forward, the dot com stock prices plunges down. Many people have lost their retirement funds. It was a sad day for many.  Warren was right.

Remember rule no. 1, buy only the shares of the company that could withstand even the most difficult economic down turns.

Rule #2: The price of the stocks goes up and down whether you like it or not


 

Stock Price Go Up and DownOne of the reasons that people in year 2000 continued to buy stocks of dot com companies even if the prices are so high is the thought that it will continue to go up and sustain its price.

Stock prices like waves in the sea go up and down. It is a cycle.  That is how the stock market works.  Philippine stock market (PSE) have its share of ups and down.

There are many factors that affect the stock prices – economy in the country and around the world, industry performance, peace and order, political conditions, bank interest rates, foreign exchange rates, company financial and profit, public sentiments and opinions and many others.

The goal is to buy the shares when the prices are low and to sell your shares when the stock prices go up. That is where money is made.

Do you need to be a fortune teller to time the buying and selling of stock shares from Philippine Stock Market? Nope.

Kung totoo sana yan, mayaman na si Madam Auring.

Rule #2: When the stock prices are down and when people are fearful to invest, that is the best time to buy. And when the stock prices are high and every body jumps into the band wagon to buy and profit in the stock market, that is the best time to sell.

In financial world, they call that a contrarian investor. 

Incidentally, truly rich club teaches you how to think like one.

By the way, to know more about the truly rich program, I create a comprehensive truly rich club review here.

Rule #3: The price of the stocks is independent of the profitability of the company


 

Best Price

Question: If the company profit is high, does the stock price of the company go up? If the company profit is negative, does the stock price of the company goes down?

Answer: Possible but not all the time. In fact, they are almost independent with each other.

If you remember, the dot com companies in early 2000, their stock prices were high but they have no profit to show yet.

Mas madaling ma explain kung may example tayo.

Scene 1: You found a genuine armani suit being sold for sale in Greenbelt 5 for only 1,000 pesos. This is the same as good company, low stock price.

Scene 2: You found a fake polo sports perfume with a price of 2000 pesos. This is the same as bad company, high stock price.

Naloko na. Peke pala.

Scene 3: You found a genuine Samsung Note 4 being sold for 100,000 pesos. This is the same as good company, high stock price.

Maganda nga pero sobrang mahal naman.

Which one is the best scenario?

Remember rule# 3, Find good companies at the Philippine stock market with low stock prices and buy their shares.

Rule #4: There are 3 major players in the Philippine stock market – there are winners, middle men and losers


 

 

loser and winners

Stock market is sometimes called a zero-sum game.

Ibig sabihin, pag may kumikita, may nalulugi.

This simply means that your earnings / stock gain will come from the losses of other stock investors. The middle men are the stock brokers who facilitate the stock market transactions.

There are stock brokers who cater to big stock market portfolio and do the transactions over phone. There are also online brokers who facilitate stock transaction online.

The middle men get paid via commission in every buy and sell transaction.

Sarap maging broker. Malaki nga lang ang kapital.

As for the ratio of losers and winners, most experts estimate that 85% of the investors are losing money in the market. Only the 15% are earning from the stock market.

Would you rather be part of the losing team or winning team?

Of course, winner tayo.

Rule #5: Philippine stock market is risky but risk can be managed when you know what you are doing


 

stocks is like a bicycle

Is riding a bike risky?

Yes, babies and non-bikers can be hurt when they ride a bike. It is risky to ride a bike when you don’t know how to use it.

Stock market is unforgiving if you don’t know what you are doing. Remember, 85% of the investors loss money in the stock market.

But if you ask Warren Buffet, he will definitely tell you that stock market is the best thing ever invented in the world.

In fact, when he was asked what is the one thing that he regretted the most he said that his regret is that he started investing late in his life. He started investing the stocks at 11 years old. He could have invested much earlier.

If you ask a long-time truly rich club member if the stock market is risky, I have no doubt he will tell you No.  One way to lessen the risk is to increase your knowledge.

But aside from knowledge, there is one more way to lessen risk. It is through strategy.

Ika nga diskarte.

Going back to the example of biking, one strategy to lower risk is to choose your path. You can avoid the main highways. You can also add a balancing wheel to support you while riding.

Nakakalungkot pero usually ganito ang style ng mga nag iinvest sa stock market.

One of the most dangerous strategies in the stock market is buy and hope. People buy hoping that it will go up without understanding why. Buying and selling is based on gut.

Another dangerous strategy is buy and feel. People buy and invest out of their gut feel. They invest because their friend told them that this is a hot stocks.

Dito sa truly rich club, may sinusunod kami na strategy.

Truly rich club members uses SAM (strategic averaging method). TRC members are investors not traders.

Incidentally, Warren is a long term investor and not trader.

Truly rich club members choose blue chips reputable companies. We don’t invest on companies we don’t understand.

TRC members are also regular re-investors. We reinvest our dividends back to the Philippine stock market. We invest every single month without fail unless all the stocks in our portfolio are above their buy-below prices.

Rule #6: You only win (or lost) when you participate in the market.


 

stock market sign board

Investing in the Philippine stock market is like biking or swimming. You learn it by doing and not just by reading.

There are only 3 investment vehicles I know that can beat inflation. They are business, real estate and stock market investing.

Not everyone is cut out to be entrepreneurs. The odd of winning and having a profitable business after 10 years is around 1 out of 10.

Not everyone also can be a real estate investor. It is capital intensive and the learning curve is very steep.

But everyone can start earning from the Philippine stock market. With as low as 5,000 pesos, you can open an account in Citiseconline, one of the leading online brokers in the Philippines.

Lahat kayang maging investor.

Based on history, the average earning from stock market through the years is about 20% per annum. My stock portfolio started in 2011. My stock portfolio has earned around 60%. Its performance is lower the average.

But I am still happy and blessed to enjoy the 60% portfolio earnings. After all, 60% is still 60%. You can read more about my own story here.

Hope you like the article. Hope also to see you in the truly rich club. Kita kits. 

Got questions, comments, suggestions or clarifications about stock market or about TRC? Just drop them on the comment section below. I’ll do my best to answer you.

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