The Stock market explained in simple terms

Many have already asked me about the Stock Market, Stock trading, and stock investments. And many really is confused about it. Some say it is only for the rich and affluent people or thus who are learned men and women in the business district of Makati City.
But your wrong. Stock investing or trading is for everyone. In the Philippines one can open a stock brokerage account with the nine accredited brokers allowed to carry on online stock trading. Of the nine 2 which are also the stock investing arms of a bank, First Metro Securities of Metrobank (have no maintaining balance) and BPITrade of BPI(requires a 500 pesos maintaining balance) according to my friend Jerry who has both accounts to maximize the potential of stock trading in the Philippines.
So how will a layman or a normal Juan or Maria understand the stock market and stock investment so that the Filipino population will not be afraid to try investing in stock in the Philippines?
 source: feudart.com
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I have two analogies that I always use. The first one is the one I use  to explain to a friend what is a stock market in general. As the name says it is a market. So I want you to imagine yourself in the middle of a wet market or probably imagine yourself walking in Divisoria. What would you normally see? I guess you would see at least two types of people there. One are the buyers like you and second are the sellers who keep on doing all sorts of ways to get your attention. Why are you in Divisoria? You are in Divisoria to buy something at a bargain. You might be able to buy the same item in SM Department stores or in Cubao but at a higher price so you go to the market like Divisoria. 
You went to Divisoria to buy, same as you going to the Philippine stock market to buy. The only difference though is that instead of you buying stuffs, in a stock market or bourse you buy shares of stock of a company. And you buy it only at a bargain. Who in the world would buy a kilo of mango for 10,000 pesos that would be insane right. On the other hand you also sell stocks so you take the place of the sellers. You will always be on the look out for potential buyers by making your voice heard by giving a buyer a good price on your stock.
Now one more thing, in the wet market sellers and buyers interact directly but in the stock market a buyer or a seller interact through a broker which is accredited and certified by regulatory bodies. In a way it is a safeguard to protect the interest of participants in the stock market.
Another analogy I use is the bouncing ball. The stock market is like a bouncing ball. It goes up and down. It is never steady. This analogy explains the theory of Supply and Demand. When demand for a stock rises a rise in price is also seen. As a ball is given force, the force given to it reflects by the height it goes. When the ball is way way up the tendency is for it to go down  losing the upward force. The ball’s weight becomes the indicator that the market is overbought making the ball heavy thus gravity pulls it down. When all the stocks are bought it is normal for those who bought it to sell at again so as the price go down they try as much as possible to take profits by selling their stock holdings before it reaches their cost.
 

And as the ball touches the ground it bounces again thus continuing the cycle. So when stock prices are on the rise investors like you and me try to buy it while it is still low to profit when it peaks and before it goes below our cost. When stock prices starts to go down after enjoying a high price we wait for it to reach the bottom and buy stocks when it is about to rise again.
Financial Freedom Advocate About the blogger

Louis Delos Angeles is a Certified Public Accountant, blogger behind Investing in Philippines, and author of Investing in Stocks: Preparing for the future small amount at a time. Check him out in Google+ Learn more about Louis and his financial freedom advocacy here.

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5 comments for “The Stock market explained in simple terms

  1. September 12, 2010 at 4:57 am

    To those who has questions dont be shy to ask the likes of BPItrade, First Metro Securities and Citiseconline. You can send them and email to inquire about their services or you can visit their website for more information:

    BPItrade
    http://www.bpitrade.com/trade/online_tour/onlinetour_signin.htm
    # 89-100 for Metro Manila
    # 1-800-188-89100 for domestic toll-free calls (where available)
    # International Access Code + 63 + 2 + 89 – 10000 for international calls or through their International Toll Free Numbers*

    First Metro Securities
    https://www.firstmetrosec.com.ph/login.asp
    Phone: (+632) 8590600
    Fax: (+632) 8590699
    Email address: customerservice@firstmetrosec.com.ph

    Citiseconline
    http://www.citiseconline.com
    Tel: (632) 6-333-777
    Fax: (632)636-3512
    helpdesk@citiseconline.com

  2. April 13, 2012 at 8:47 am

    Stock Market shows the rank of a country if it is Rich or poor country..

    Virtual Office

  3. April 14, 2012 at 11:08 am

    Thanks Anna! The stock market does not entirely indicate a country’s status, it is a mere index of what really is going on.

    From time to time even rich countries have their bourses crashing like those in Europe and United States, even Japan’s stock market do dip and at times laggard but in general the country is rich.

    Learning from these countries will help us really how to direct the direction of the Philippine economy, I hope Philippines will reclaim its title as one of the Tiger Economies in Asia

  4. iza
    March 29, 2013 at 5:30 am

    Good day Sir, It’s 5:20 am in the morning and believe it or not I have not sleep for hours researching about the stock market and investments. I recently attended first metro sec seminar and the thought of investing itch me to the core but I told myself not to release a cent unless I fully understand the basic of investing in stocks. Salamat naman at napadpad ako sa blog mo you have written your blog in a manner where even stock market ignorant, like me could easily understand it. I have several questions though I’m thinking of buying a book about stock trading, financial freedom and investing can you recommend a good one? second what is the difference investing with First metro sec and bpi trade? Third If I have secured an emergency fund enough to sustained my family for 6 months just in case something unexpected happen. will it be wise to invest my kids saving accounts on medium or high risk investments at anu ano po ang ma su suggest niyong investment for their money my son is 7 he might be using it 9 years from now for college and my younger daughter might need it 15 years from now. Thank you so much for a wonderful and informative blog.

    • March 31, 2013 at 7:27 pm

      Hi Iza! Thank you for dropping by my blog. Looking at your comment I sense that you are a responsible mom having setup an emergency fund and a savings account already for your kids. Let me try to answer each of your questions.

      1. A good book for stock trading, financial freedom, and investing.
      – though madaming sources online I guess as a resource for financial freedom you can read Bo Sanchez’s Simplify books. The two books has been one of the books that push me
      to really achieve financial freedom by changing my mindset about money and lifestyle. After those two again its by Bo Sanchez titled 8 Secrets of the Truly Rich. For stock
      trading I really don’t have a particular book because stock trading/investing is a broad topic. But nonetheless you can check High Heeled Traders by Charmel Delos
      Santos here http://highheeledtraders.com/?page_id=2635 and if interested you can check my book Investing in Stocks through my site or my fiancee’s book as well at
      http://fireupyourfinances.weebly.com/

      2. Difference between First Metro and BPI Trade
      – there is no difference. Only that they are two different online stockbrokers accredited by the Philippine Stock Exchange. The difference probably lies on their site
      platform they use or the data/reserach their staff brokers have that you get to read as one of their clients. Unfortunately I use First MEtro and COL Financial so I
      really cant make an apple to apple comparison.

      3. Investing your kids savings account.
      – to tell you the truth I also don’t know. Well let me put it this way: put your children’s savings where it is low risk and with a bigger return than the savings account
      interest. My fiancee and I open up a stock account for our future kids and my fiancee is better at looking at stock charts thus she is able to place the small money we
      put together in a good set of stocks that gave a considerable return to date. I advice her to cash in our profits and re-invest to another set of stocks so that we can
      maximize the small amount we set aside. You could probably do this but again it is up to you. It is good that at an early age they get introduce to financial
      stuff(unlike our generation 🙂 ) . You may also consider looking for a trust worthy educational fund or a mutual fund which has a proven track record and does not have
      a history of running away with the funds. The key here is as long as it earns better than the savings account and it sure that it wont get stolen by scams and the likes
      mas maganda kung habang maaga pati sila nakikita nila kung saan napupunta ung savings nila at nakikita nilang lumalago.

      I hope this answers our queries Iza…. and again don’t hesitate to ask. Thank you for the opportunity to help you in your financial inquiries.

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