Beginner Stock Market Investing Guide

Posted by Fitz Villafuerte under General Information, Investing on November 20, 2010

Most of the things I know about stock market investing, I learned by reading various resources online.

The internet has a lot of them, but I know, from experience, they can be quite hard to understand specially if you’re a beginner.

That’s why I’m now writing for you this straightforward, no nonsense explanation of how the stock market works and how you make or lose money from it.

Are you ready?

Almost a year ago, I tried to explain how the stock market works to a 12-year old. If you haven’t read those posts yet, then I urge you to go there now. Yes, it’s mandatory that you read them first. 😛

stock-market-philippines-1

So now, you know what the stock market is and why it exists.

Now, how do you make money?

The two most basic ways are:

1. Getting dividends

  • When the company makes money, they may choose to share the income to those who own their stocks.
  • Dividends can be in the form of cash or additional stocks.

2. Selling the stock shares you bought at a higher price

  • This is the concept of “buying low and selling high”.
  • Last December 2009, Jollibee (JFC) was selling at P53 per share. Then on November 2010, the price is around P90. If I bought JFC shares last year and sold it in November 2010, my money would have grown by more than 69% in less than a year!

How do you lose money in the stock market?

The most basic reason why people lose money is because they sold their shares at a price lower than they bought it.

  • On October 26, 2010, you bought shares of Cebu Pacific (CEB) at P132 per share. Then on November 15, a financial emergency came up and you needed money. You have no savings and no one to borrow money from, so you sold your shares. At that time, CEB was selling at only around P125. You effectively lost around 5% of your money.
  • Stock prices go up and down and there’s no absolute way to know when it will do so. When a stock price goes down, it can take days, weeks, months and even years before it goes up again.

So what makes the stock prices go up or go down?

To make things simple enough for you to understand, I’ll say it’s because of one basic reason – people’s emotions.

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The stock price goes up when people wants to buy them.

  • Business is doing good for the company;
  • … and many other factors

The stock price goes down when people wants to sell them.

  • Economy is doing bad and people need money;
  • … and many other factors

Are there ways to know when a stock price will go up or go down?

Yes, but they’re not always reliable. You can choose either one, or both ways.

Fundamental Analysis

  • Studying the company’s financial conditions, future plans, etc.
  • Learning about economic and industry conditions of the country.
  • … and many other factors

Technical Analysis

  • Evaluating the value of the stock prices, trading volume, etc.
  • Identifying trends in the price charts to determine direction
  • … and many other factors

stock-market-philippines-2

I tried to make everything as simple as possible and I hope I was able to give you a good understanding of how the stock market works as an investment. If you have any questions, do ask them below.

Do note however that these facts are just the tip of the iceberg and to fully understand the stock market – one will need to dedicate time to learn them.

But the good news is, it’s not as hard as it seems to be unless you’re planning to make a career out of being a stock broker or you’re a rich tycoon who wants to buy and sell companies. 😛

That means as an investor, having the basic knowledge on business, finance and economics will already help you a lot in making the most out of your stock market investments.

This article is part of the series, How To Invest in the Stock Market. Be sure to continue your learning by subscribing to Ready To Be Rich.

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Photo credits: scion_cho and DonnaGrayson


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20 Responses to “Beginner Stock Market Investing Guide”


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  4. jonas says:

    Good afternoon!:-) can i ask about on when to sell or buy in stock market? what are the indicators? is investing in blue chips stocks good? can i do stocks even if i have a regular job?

  5. Enzo says:

    Hi Jonas,

    I suggest that you will join the Truly Rich Club of Bo Sanchez.

    I am a member of the Truly Rich Club and it has already blessed me in so many ways. Part of the blessing is Bo will help you choose what companies to invest, at what price you should stop buying and what price you should start selling and reinvest the profit to other giant companies (he has a group of financial analysts doing this stuff, so he is just sharing to us what he learns from his mentors). This method is called Strategic Averaging Method (SAM) and the potential growth in this method is exponential compared to the purely passive way of investing. If you want to learn more, you may visit this website:

    http://bosanchezmembers.com/amember/go.php?r=29147

    I hope you will also find this really helpful in attaining your goal of financial freedom.

    More power to you! Enzo

  6. java says:

    Greetings Mr. Fitz:

    For example I buy 1000 shares from a GEMMS Company like JFC and decide if I will sell after 5 years depending on the price of the stock or its trend, will that be fine?

    The reason I ask is that I’m interested in investing in stocks but I can only monitor the stocks perhaps once every month to see the trends, and can only add additional shares once a month…

  7. Fitz says:

    Hi java.

    Yes, everything you said is totally fine. GEMMS companies such as JFC is expected to grow through the years, and if you do long-term cost averaging, you don’t need to monitor your investments as often and once a month is okay.

  8. bernard says:

    thank you very much. this help me a lot about the stock market. I am planning my career now to switched to being a broker, unfortunately though I have no knowledge about it, thanks to this. very very helpfiul.

  9. Fitz says:

    Hi Bernard. What kind of broker are you planning to be? If you want to be a stock broker, you have to have the formal financial education to be able to join an stock investment firm.

    As an alternative, if you don’t have the educational background, you can always join the IMG Wealth Academy and earn from being a broker of their partner investment products.

    You can learn more about that HERE. Attend their free seminars, talk to Dr. Jaime Lorenzo about your plans, and he’ll help you get started. Just tell him I referred you.

  10. java says:

    Greetings Mr. Fitz:

    May I know your take on these company if they are good investment for a long time say 10yrs or more:
    1. RFM
    2. Trans-Asia Oil & Energy Development
    3. House of Investments
    4. ANSCOR (A. Soriano Corp.)
    5. D & L Industries

    Thank you and hope to hear from you investment mentor

    Rdgs;
    java

  11. Nilo Reyes says:

    Mr. Fitz,

    Good evening, may I know how long will it take to know the result of stock sold. My Petron share I entrusted to broker up to now has
    no result which was almost 3 wks when I submitted to it them.

    Thank you and hope you can give me clear idea on this since I am new in stock market.

    Regards,

    Nilo

  12. Fitz says:

    Hi Nilo. Go to the office of your broker. It should not take more than 3 weeks.

  13. Sumer says:

    Sir Fitz,

    Ive been reading your blog for more than a month really helpful sir. By mid next year Im planning to engage in stock market. Now im preparing by reading PSE materials as much as I can. I just have one question sir fitz WHAT IF WHEN THE TIME COME I WANT TO SELL ALL MY SHARE and NO ONE WILL BUY MY STOCK? is that possible sir?

    Thanks in advance..

  14. Fitz says:

    Hi Sumer. Yes, it is possible that no one will want to buy your shares, but it is also highly improbable, especially if you have stocks of a good company – there will almost always be someone who would want to buy it.

  15. Sumer says:

    Sir fitz, this could also mean that,it is possible that there are also times there is no available share to buy-in when I want to buy?

    I will ask some advice to you sir maybe by 2nd qaurter of this year after i could tell how much is the value of my saving account before i leave my current job. So that I could give time to start in investing while looking for my next job opportunity.

    Morepower to you sir fitz. Your blog give me an insight on how i become a millionaire in five years time.:-)

    Regards,

    Sumer

  16. Jan says:

    Im a student and i just want to know what are the requirments on buying out stocks? Where else could i see businesses sellings stocks? Thanks

  17. Rosalyn says:

    Hi Fitz,

    I live in korea and just wondering if you have any idea on how to invest in korean stock market, if they have uitf and if they also do cost averaging. I know this is a bit silly question but I am just trying my luck hoping that you know anyone who is investing in korea. Mejo mahirap kc maginquire because they don’t speak english. Mostly. Thank you so much and more power! 🙂

  18. Jezer Dahuya says:

    Hi Mr.Fitz

    im just a student im just curious if how much money do i need to buy a stock??

  19. cris says:

    I am an OFW and start reading about Stock Market, How to start into Stock Market? Is it possible to buy a stock while I was out of the country? I was planning for a long term investment for my retirement.

  20. sinned says:

    Sir, me and wife are really interested to invest in stock market, but we are working in another country. What help you can offer to us? Thank and more power!

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