Published August 29, 2016
Investing in the stock market is a great way to grow your money. However, IMG highly recommends that before going into such investment, we need to build a solid financial foundation. This is to minimize the risk of losing your investment because of sudden emergencies like loss of life or sicknesses.
IMG does not recommend also going into debt to invest your funds, as the interest in debt is usually higher than the interest in investments. Also, the interest of debts is guaranteed and the gains in investments aren’t. That’s why it is very important to build a solid financial foundation.
But when one has built a strong financial foundation, then one can venture into other types of investments like stock market investing or real estate investing. Today, let us tackle the basics of stock market investing.
|Invest in the stock market|
Here are three things we need to know about the stock market:
1. How the stock market works
2. Why invest in the stock market
3. How to make money in the stock market
Now, let us tackle each one in detail:
1. How the stock market works?
It comes from two words: stock and market. Market means a place where people can buy and sell. Stocks mean shares or ownership of a certain business. Thus, the stock market means a place where people can buy and sell shares or ownership of a certain business.
Initially, a corporation or a business is a private entity. The shareholders are limited to the owners. However, when a company decides to be a public entity whereby the public (ordinary people like us) can become part-owners of a certain business, then that company will go to the Philippine Stock Exchange (PSE).
After being listed in the PSE, they will then conduct an Initial Public Offering (IPO) where the public can then start to buy shares of that company.
|Process flow of a private business into a public company|
2.1. To patronize our own businesses
Let say for example you own a small eatery, would you rather eat from somebody else’s eatery? Of course you won’t.
It is the same thing in investing in the stock market. You buy shares of a certain business so that you can become a part-owner of that business. Thus, you patronize your own business.
Example: (1.) You buy shares of Jollibee. Because you are a part-owner of Jollibee, you would then patronize eating in Jollibee. (2.) If you love to travel a lot, you can buy shares of Cebu Pacific and patronize that company by always booking your flights through them.
2.2. You see potential in a company’s growth
Have you heard of the IPO of Double Dragon? It is the real estate company of Jollibee owners and Mang Inasal with their popular product CityMalls. People invested in this company because they see potential growth in their business. People see that it could become the next SM or Ayala in the years to come.
Thus we invest in the stock market because we can choose companies that we believe have potential to grow. It is just like investing in real estate esp. land, because over time, the value of land appreciates.
3. How to make money in the stock market?
Stock market investing is like buying a slice of cake. Let’s say for example there is a cake worth P1,000. The cake is divided into 8 slices. Therefore, per slice is valued at P125.
|Stock market investing is like buying a slice of cake|
Then since you are hungry, you bought two slices for P250. You ate one slice, but kept the other slice. Then you met your co-worker who is also very hungry and wants to buy your slice of cake.
Since your friend is very hungry, can you sell your slice for more than P125? Say P150? Yes you can!
It is the same in investing in the stock market. You buy shares of different companies, because by the time the demand on the market goes up, you can sell your shares for a profit!
It is like investing in real estate, you buy lots per square meter, and when the value appreciates, you can then sell it for a profit. In the stock market, you buy shares of stocks and when the value goes up due to demand, you can then sell for a profit!
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PS: Do you want to learn more & start investing in the Stock Market? Let Bro Bo Sanchez (one of our financial mentors in IMG) be your financial and spiritual mentor. Check out –> Truly Rich Club