If you’re planning to invest in stocks whether it be long term or short term, the main goal is to make money. Basically, there are two ways on how you can make profit investing in stocks. One is through Capital Appreciation and the other one is through Dividends.
Stock market has a lot of technical terms that scare away many people specially our fellow Filipino citizens. This is one of the major reasons why there’s only a low percentage of filipinos who engage in the philippine stock market. I’ll try to discuss this topic the easiest possible way so that average readers will be able to absorb concepts easily.
If you still don’t know what a stock is I’ll give you an overview..
In basic terms, buying a stock simply means you are owning a part of a company. Yes, you will become part of the companies like Jollibee, SM, San Miguel, and a lot more. Isn’t that nice? Imagine yourself being part of those big companies.
Yeah, yeah.. Owning a share of a company sounds cool! But how do I make money out of it?
This is what we’ll be talking about in this post. Again, there are two ways to earn on the stock market. One is the so called Capital Appreciation and another one called Dividends.
Now let’s start with capital appreciations..
Earn Money through Capital Appreciation
In a regular sari-sari store business, you buy goods at a lower price, then you set your own selling price which is of course a higher price. Usually, sellers add around 5-10% of the original price. The profit for every goods you sell is fixed and is set by you.
In stocks, capital appreciation or capital gains is the profit you get after buying stocks at low price and selling it at higher price. The thing here is that you need ample time for the stock to gain more value (appreciation). It can be as quick as couple of seconds or maybe minutes, hours or days, weeks, months, and so on.
selling_price – buying_price = profit
The formula above is the most basic way to calculate the profit you earn. In an actual stock trade, you will find that there are other deductions such as tax and broker commissions.
Just remember, what we want from our stocks is to gain value, to appreciate and not depreciate. Don’t just dive in to stock trading as you don’t want to lose your money buying the wrong stocks.
Earn Money through Dividends
A dividend is a payment made by corporations to their shareholders, usually as a distribution of profits. As an owner of a company, you might share in the company’s profits in the form of a stock dividend which is taken from company earnings.
To receive a dividend, you must own the stock by the ex-dividend date, which is four business days before the company looks at the list of shareholders to see who gets the dividend. The day the company looks at the list of shareholders is called record date.
Again, for you to earn through dividends, you need to own the stock by the ex-dividend date. That is the deadline where you will be included in the list of shareholders. Past that date, you will not be included in the list.
The company decides how much the dividend will be per share. The amount that will be deposited into your brokerage account is simply the number of shares you own multiplied by the dividend per share. So if you own 10,000 shares and the dividend is P0.40, the company will deposit P4,000 on the payment date. Simple right?
Stock Market Investing Tips:
Whatever business model you want in the stock market, whether it be day trading or long term investing, one of the best advice I can give you is to not enter the market without doing any deep research and study.
We need to understand that the market can either go up or down and we’re not exactly sure of what the market is going to give us. Because of this, we need to be emotionally stable and prepare plans to protect our capital.
Many people play the stock market like gambling that’s why most people lose money. But professional and profitable stock traders and investors approach the market very systematically and they know how to manage the risk involved in every trade.
If you think you’re ready to get your feet wet in the jungle of the stock market, you can start your journey by opening an account in COL Financial. This is the most popular stock broker in the Philippines and is used by most of the Filipinos trading and investing in the stock market.