Build Your Wealth Thru Stocks The Truly Rich Club Way By Laurent Dionisio, CPA, RFP
Many of us Filipinos are struggling in our daily financial status. Some of us are born rich- either continue being rich or ended up being poor. There are also some that are born poor - either stay poor or strived to succeed. However, only a few of us are enjoying the benefits of being wealthy through investing in stocks. Did you know that there are only less than 1 million individual Filipinos who are investing in the stock market? Are you one of them? If not, why? I wondered why there are still many of us who are skeptical about the subject of stock. Did you find this subject “so good to be true”, “too abused” or “undermined”? Well, let’s take a deeper discussion about it and see how you can build your wealth through it. First, let’s see if you can answer these sets of 5 questions.
Based on your answers, you will know if you are qualified to invest in the stock market or not. So, let’s see: 1. Are you already satisfied with your current regular income? Do you find a way to expand it? 2. How much money do you have in the bank? Is is enough for an emergency situation? 3. How about an investment, do you have any? How much money have you already earned from it in the past 6 months? 4. How many years are you willing to work to earn a living? Are you young enough to do it? 5. Are you familiar with stock investment? Do you want to take a risk? Now, it is up to you if you will build your wealth through stocks. To give you a wider understanding of stocks and the things that you are curious about, let’s discuss it one by one.
Definition of Stocks The term stock referred to as the ownership of an individual to a corporation. The individual is called as a stock investor or a stockholder. A corporation can be owned by many stockholders that are unknown to each other. Types of Stocks Stocks have two types, the common stock, and the preferred stock. These two are different to each other. A common stockholder has the right to vote at a corporate meeting plus he can also practice his preemptive rights. In case a company declared bankruptcy, a common stockholder is the last one to receive the share or what is left. On the other hand, a preferred stockholder doesn’t have the right to vote, but he has a higher claim than a common stockholder. Unlike a common stockholder, a preferred stockholder is the one who is first in line when a company is on bankrupt status.
Common Names of Stock You may hear a lot of unfamiliar terms referring to stock such as equity, equity interest, shares, common stock, stake, ownership and ownership interest. These terms are being used in the stock market. To have a better understanding, take a look at the examples below and see how these terms are used. 1. Ana has a 5% stake in a fast-food chain so Ana owns the 5% of all outstanding stock. 2. Juan has a 10% equity position in company XYZ. The company has 1500 shares. Therefore, Juan owns 10% of all stock in company XYZ. He owned 150 out of 1500 shares of stock. 3. Maria owns a 20% ownership interest in a famous salon chain. This means that Maria owns the 20% of all stock outstanding in this salon chain. The Stock Market Defined The stock market is similar to a typical market, there are sellers and buyers as well as the middle man.
The place where buying and selling of stocks take place is called as the stock market. On the other hand, the buying and selling of a stock known as a stock trading. The place where stock trading is being executed is referred to as the stock exchange. The national stock exchange in the Philippines is located in the Metro Manila, which is known as The Philippine Stock Exchange or abbreviated as PSE. The most popular and largest stock exchange in the world is the New York Stock Exchange. People in the Stock Market There are three types of people in the stock market. The stock buyer, which is you in this instance. The stock seller is the one who sells the stock. Lastly, the stockbroker who acts as a middleman. The stock buyer needs a stockbroker in order to buy stocks. It is very important that you do your research on stock brokers first and if possible do an extensive research. As a new stock buyer, you should only buy stock, according to what you can and avoid borrowing. A stock buyer can also be a stock seller if you decide to sell your stock.
The stock broker can be any of these two types: the full-service broker and the discount broker or also known as the online broker. The fullservice broker is a little bit expensive than the second type, but they provide financial analysis and planning as well as financial advice. The discount broker earns through commission rates, which is usually low. This type of broker also provides some financial advice but only limited. The IPO When a private company becomes a public company, this is where the IPO takes place. The IPO stands for Initial Public Offering wherein referred to as the beginning point of stock. It is also sometimes referred to as the stock market launch. This is the very first time when a stock is being offered to the public wherein stock buyers can buy the stock through a stock exchange. After an IPO, a public company can revert as a private company.
Reasons Why Companies Issue Stock There are many possible reasons why a company issue stock, here are some: 1. To allow expansion 2. To acquire another company or business 3. To acquire assets through other investors 4. To decrease debt and liabilities 5. To develop new products and services 6. To present more jobs and add more employees 7. To provide value to the company 8. To pay for new buildings instead of loaning 9. To buy more equipment and technology 10. To offer for an acquisition or merger
Advantages of Investing in Stock Unlike other forms of investment, investing in stocks is very beneficial. As a stockholder, you have a claim on the company’s assets. For examples, you owned a 1 % share in the company then technically, you owned the 1% of the equipment and other things in the company. You also take part of the branding and contracts that the company has. You can either take hold of your share or sell it anytime you want. When the value of your stock increases, it is up to you if you will take hold of that or sell it. The company will not control your share. The higher the potential of the company you belong, the greater your capital gains will be. You can also earn through dividends, which will be discussed later. Disadvantages of Investing in Stock Aside from its advantages, investing in stock can also be risky sometimes. Actually, there are risks in any investment. It is up to you where you put your money. One of the possible disadvantages of investing stock is when it decreases its value or when the company declares bankruptcy. This may refer to as capital loss.
Finding the right time of buying stock Today is the right time to invest in a stock. If you are young, the best time you have to invest. Timing the stock is just a myth. The stock market has its ups and down, what’s important is you make your first step in your wealth. Also, take note that you should control your feelings when it comes to investing in stock, do not let your emotion interfere That is why there are stock brokers that will help you analyzed the market. To Sell or To Hold Selling or holding the stock may be the hardest decision you will make. You need to analyze the market and avoid getting into conclusion. When the stock price decreases, most investors think of selling because the company is not doing fine. This may be just a minor setback. It is still up to you if you will sell or hold the stock. Selling can also be expensive due to taxes and broker’s fee. Holding the stock can also be risky.
Ways to Make Money from Stock There are two ways to make money from stock, the first is called as capital gains and the other one is dividends. Capital Gain When you sell a product, you will have a profit. In stock, it is referred to as the capital gain. This profit can be realized once the stock is sold. To have a better understanding, let’s take a look at this example: A month ago, Juan bought a share from the XYZ company. He bought 100 shares, each share costs $10 so he spent $1000. Today, the current value of this stock in the stock market is $15, so technically he gained $5 each share so with the total of $500 capital gain. However, this is not yet the actual capital gain because it is only on paper unless Juan sells his shares. Once Juan sold his shares, he will get $1500 from it and the capital gain is $500. If the value decreases and Juan sold it at a lower rate, then it is called as a capital loss. Each day, the value of stocks fluctuate.
Dividend If the company performs well, it will declare a dividend to all of its stockholders. The dividend is known as the payment of the company to its stockholders. The amount of payment depends on your share, if you have a bigger share then you will get a bigger dividend. The dividend will be divided accordingly to the shares of all stockholders. To have a better understanding, let’s take a look at this example: In the XYZ company, Juan has 100 shares. The company declares a 20 cents dividend to all shareholders. Juan will get 20 cents on each share as dividend payment from the XYZ company. Steps in Getting Started With Stock You need to follow these 5 simple steps so you can start with stock. Each step is completely discussed below: Step #1: Open an Online Stock Trading Account As discussed earlier, you cannot buy your preferred stock alone. You need the help of a stockbroker.
The stockbroker is a firm in which will buy or sell stocks on your behalf. The firm will be the one who is going to participate in the Philippine Stock Exchange. There are two types of a stockbroker, the online and the offline brokers. You can make all your transactions through an online broker, except for opening an online stock trading account with a stockbroker firm. It is like opening a savings account in a bank wherein you have to present yourself as well as some documents. Opening an online stock trading account requires the following: • Photocopy of 1 valid id, it can be any of the following o Voter’s ID o Passport o Postal ID o Driver’s License o PRC ID o SSS ID o Company issued ID (plus birth certificate) • Duly filled up form(s) • Proof of billing under your name (if not available, under one of your parents' name, should not be later than 3 months) • Miscellaneous requirements (depending on your preferred stockbroker’s list of requirements)
After opening an online stock trading account, you can now do all your transactions through online. You can do the following transactions: • Funding of account • Buying of stock • Selling of Stock • Withdrawal of money It is easier to have an online account wherein you can monitor anytime, anywhere. As a member of Truly Rich Club, I learned a lot about stocks and how things work around it. There are many online stock brokers that you can find, you just have to be vigilant. If you are a newbie, you can check COL Financial which is the recommended stockbroker of Truly Rich Club. It is easy to open an online stock trading account with COL Financial. This stockbroker accepts newbies, OFWs, professionals, as well as students, but no younger than 18 years old. They even accept non-Filipino residents. The service provided by COL Financial is so competitive. You can always compare the rates and services such as financial analysis and planning. On the other hand, if you want to do it offline then you need to be presented to the stockbroker’s office every time you will make a transaction.
However, you can also make a call if it is not convenient for you to be present in their office. This is what we called a traditional trading account. The requirements are almost the same with an online stock trading account. It is up to you which type are you going to open, but an online stock trading account is highly recommended. Step #2: Fund your Online Stock Trading Account Now that you have an online stock trading account, the next thing to do is to fund it. You can choose which type of account depending on the stockbroker’s available accounts. The minimum amount required in funding your account is 5,000php. You have 2 options to fund your account, these are as follows: • Online transfer This is my favorite means of funding my account, especially if I am always on the go. If you hate long lines and going to the bank makes you uncomfortable, then you should do an online transfer. It is easier, faster and more convenient to transfer money via online banking.
• Bank deposit If you prefer the traditional way of funding your account, you can go to the nearest bank which is compatible with your stockbroker’s bank account. After depositing the money, you need to scan the bank slip and send it to the email of your stockbroker for confirmation. Once you fund your account, you can now go to the next step. For sure, this is exciting for first timers. Step #3: Buy Your Very First Stock Let’s get this part more exciting and try not to be overwhelmed. I have to warn you, this part is a little bit tricky (because you are a first-timer). However, do not be easily discouraged as this thing is very easy to understand. So, what will you expect? You have to expect that you will see a lot of numbers, figures and unfamiliar menus. Don’t worry, your stockbroker will help you with this. You need to choose which stock to buy, this is a little bit challenging at first. These are some guidelines that will help you in choosing which stock are you going to buy: • Invest in mutual funds than in individual funds, it is like putting your eggs in many baskets.
• Fund only what you can and avoid borrowing for the first time • Consider buying international funds and see its potential • Buy stocks from companies which are familiar to you • Do not buy stocks based on the message board as there are some people that might mislead you • Check the company’s balance sheet • Research, research and do extensive research • Ask the experts, it is always better to ask Step #4: Sell Your Stock After some time, you will see the changes in the value of your stock. It will either decrease or increase. If you see an increase, then it is time for you to sell your stock. To have a better understanding, refer to the example below: Juan invested in XYZ company for 1000 shares. Each share costs P10, so he invested a total of P10,000. After a month, the value of a stock of XYZ company goes up to P15 from P10. Juan can have a gain of P5,000 if he will sell it now. So, he decided to sell it. Now, Juan has P15,000 and his profit gain is P5,000.
In this case, the selling price is P15 higher than the buying price that is why Juan has a capital gain. When Juan invested, the buy price is a little bit low and when he sees the growth on his investment he then decided to sell it. You can either sell it or take hold of it. However, for a first timer- it is a joy to have your very first sale. The increase in the stock doesn’t happen always, there are also times that you will experience capital loss. It is important also to have your target price so when that time comes, it is easier for you to sell your stock. There are times that the price of a stock goes up, but because of greed, some stockholders are hesitant to sell it and wait for the time it will go up again. You should learn how to separate greed in making decisions about your stock. The value of stocks fluctuate from time to time, a stock can worth P1 dollar yesterday, P20 today and becomes P10 tomorrow. The stock market can be a complicated world, but it pays when you have patience with it. It takes a lot of patience, deeper understanding, experiences and a high tolerance of risks to stay in the stock market. If you have a capital gain, then congrats on your first sale!
Step #5: Enjoy Your Profit Filipinos always like to enjoy their fruits of labor so enjoy it. You can withdraw your funds to your bank account, you need to make a request from your stockbroker so they can make the transaction. You can also leave your money in your online stock trading account and treat it as your investment, so you can always buy a new stock. In buying a new stock, you just have to repeat the whole process and be a wiser investor now. After reading this, have you already make up your mind in building your wealth with stocks? I know how skeptical you are right now, I’ve been in that situation too! You have some doubts and that is totally normal. However, I wanted to help you achieve what I did... Stocks are just a combination of numbers, numbers that can have a higher value if you will only allow it...
Now how can you invest effectively? Follow the Strategic Averaging Method (SAM) of Truly Rich Club What is SAM? This is extracted from the Stocks update Report introducing SAM. Meet Your New Friend, SAM. By SAM, I don’t mean Uncle Sam. By SAM, I mean Strategic Averaging Method. There Were Only Two Ways of Getting into the Stock Market, Until… In my mind, there were only two ways to invest in the stock market: (1) passive investing and (2) active trading. With SAM, I’m introducing a third way. (I didn’t invent SAM. My mentor did. He’s a billionaire who has done all three methods with incredible success. The stock market has been his playground for the past 38 years.) Before SAM, I taught people to be passive investors, not active traders. Reason? Eighty five percent of people lose money in the stock market. That’s a fact. And most of those are active traders. Active traders buy
and sell stocks every day. I have friends who are successful active traders, and believe me, they’re very rare. They trade fulltime, they study every day, and they follow very strict rules. Without these rules, active trading is gambling, period. Passive investing is long-term. Active trading is short-term. Passive investing only looks at the quality of the companies. Active trading only looks at their share price. Passive investing comes by many names. Many people call it “money cost averaging”, or “peso cost averaging”, or “dollar cost averaging”. Citiseconline, our preferred online broker, calls it the Easy Investment Program (EIP). So what is SAM? SAM is in between passive investing and active trading. SAM is semi-passive investing. SAM uses the 4 Rules of Passive Investing, tweaks them, and adds a 5th rule. To refresh your memory, here are the 4 Rules of Passive Investing:
Rule 1: Invest Monthly for 20 years or more. Buying stocks each month using your small monthly savings. It’s really making the stock market your piggy bank. You do this long-term—for 20 years or more! But in SAM, we tweak this rule. If you use SAM, there’ll be times when you don’t invest, and choose to stay away from the market. These are times when we believe the market is overbought and is going down. We’d rather wait for the market to go down and buy when the prices are cheaper. Rule 2: Invest even When There’s a Crisis. Passive investing means disregarding if the prices are up or down, if there’s a tsunami, earthquake, coup d’etat, or recession. You just keep buying month after month after month. In SAM, we tweak this rule too. If possible, we try not to buy on the way down, we try to buy when it’s already down.
Rule 3: Invest only in Giants. Passive investing means buying only established, enduring, blue chip companies that we believe will be there for the next 50 years. We don’t dabble in penny stocks. Because we believe in people who buy penny stocks will become penniless. In SAM, we tweak this rule too. Generally, we don’t buy penny stocks. At rare times though, we find gems among them. And we make an “intelligent speculation”. Because of its volatility, we only put “extra funds” in these gems. Rule 4: Invest in many Giants. Passive investing means not buying one Giant but a handful of Giants. Why? There’s such a thing as “Black Swan” in the stock market—when an unexpected event happens. We don’t want all our money to be in one company—and tragedy hits that company. If you’re doing passive investing, we recommend 10 Giant companies or more. If you’re doing SAM, we recommend five to six companies only, because we’re able to move from one company to another.
I repeat: SAM uses all 4 rules, although tweaked a bit. But it adds Rule 5. And Rule 5 is the magic sauce that makes SAM more profitable than passive investing. The 5th Rule of SAM What is the Rule 5? Rule 5: We buy when the price is beneath our “Buy Below Price” and we sell when the price is near our “Target Price”. In my Stocks Update Report, I’ll provide both the Target Price and the Buy Below Price for you. Remember, SAM is in between passive investing and active trading. In one sense, it is semi-passive investing. Passive investing never use timing. Active trading is all about timing. SAM uses a little bit of timing. Passive investing looks only at how good the companies are. Active trading looks only at the share price. SAM looks at both: companies and share price. Passive investing never sells. Active trading always sells every day or every week. SAM sells after a few months. We’ll give you the “Buy
Below Price” and the “Target Price” of each of our recommended Stocks. Here Are 4 Big Advantages Of Sam 1. Faster Giants As I write this, Citiseconline is recommending 16 stocks for its Easy Investment Program (EIP). They’re fantastic, enduring companies that will most likely be there 50 years from now. But from experience, having so many stocks to choose from can cause confusion. And confusion causes inaction. For SAM, we’ll narrow down the list to five to six stocks only. Lesser choices mean lesser stress for you! Why narrow down the list to five to six stocks? Because not all Giants are created equal. Some Giants are so gigantic, their growth may be slower. Some Giants are in a mature industry, so the growth will be minimal at best. So we’ll choose the Giants that we believe will rise faster. Obviously, we don’t have a crystal ball with 100 percent accuracy. So we could be wrong in one or two of our selections.
But we’re hoping that our right picks will be enough to make your money grow faster than if you were doing totally passive investing. 2. Lower Prices Just like in passive investing, you’re to buy a particular stock each month. But in SAM, you only buy when its price is beneath our “Buy Below Price.” Here’s a secret in making more money in stocks: You make your money when you buy, not just when you sell. What do I mean? If you buy it at a cheaper price, your earnings increase many times more. How does SAM do this? I’ll give you a “Buy Below Price” for each of our recommended stocks. This will prevent you from chasing a rising stock all the way to the top. 3. Secured Profits In passive investing, you never sell. In SAM, we’ll tell you to sell after a few months—when our recommended stock hits our Target Price. By selling, you lock-in your profits. You take your profits off the table.
You take your money from a company that’s already gone up and put it in another company that still has room to go up. This multiplies your earnings nicely. 4. Nice Jackpots And then there are jackpots. Lepanto (LC) was our jackpot stock this year. My mentor mentioned it to me last December 2010—and I wrote about it right away. If you bought when I recommended it last December, you would have earned 157 percent by now. I warned people that it’s a volatile stock. It may go up or down. So this isn’t our bread and butter in SAM. But I told you that if you had extra money (that you’re willing to lose if things go wrong), you can buy Lepanto (LC). My mentor calls these calls “intelligent speculations”. I repeat: As a rule, we don’t speculate with penny stocks. But every once in a while, he finds a gem among the penny stocks. It’s very rare. But when he finds one, he’ll tell me—and I’ll tell you. The risks are higher, that’s why I ask you to put your “extra money” only.
So what do you think? For me, I follow this method for my long term investments. =) So here are the SAM House Rules 1. Invest Small and Slowly Invest comfortable amounts. Don’t invest big chunks of money all at one go. Invest small amounts regularly to get good opportunities to buy at low prices when stock prices are down. In other words, invest small amounts to get good average prices overtime. This concept is known as Cost Averaging. Like Bro. Bo suggested before, if your money is smaller than P300,000, divide your money into 6 parts, and invest each part for the next 6 months. On the other hand, if your money is more than P300,000, divide it by more than 6 parts. Perhaps by 12 parts and invest each part regularly.
2.Buy at Buy Below prices For each SAM stock we recommend, we have what we call a ‘Buy Below Price’. This tell us when to buy that stock. As long as the price of that stock remains lower than our Buy Below Price, we continue to buy regularly (every month, every quarter, or every week). You can check the Buy Below Prices of our SAM stocks below. For example, one of our SAM Stocks is Ayala Land Inc. (ALI) and it’s Buy Below Price is P16.73, while its current market price is P15.90 (As of November 9, 2011). This means that as this price we can buy shares of ALI. 3. Stop buying when prices go beyond our Buy Below price. When the price of a SAM stock goes higher than our Buy Below Price that means we should stop buying. However, if the prices of our SAM stocks go back lower than our Buy Below Price this gives us a signal to start buying again.
We want to be buying at Buy Below prices because we want to buy at attractive prices or valuations. On the other hand, we stop buying when prices go beyond our Buy Below Price to avoid buying at high priced valuations. Going back to our example earlier of ALI with its Buy Below Price at P16.73, if at one point the price of the stock goes up to P16.76. This would signal us to stop buying such shares for it has crossed beyond our Buy Below price. However, if ALI’s price goes back to P15.80, then this means it once again below our Buy Below price. This means, we can buy again shares of ALI at that price. 4. Wait for the Target Price. Sell when the Target Price is hit. The Target Price is a projected future price of a stock that we believe the stock will go to or go close to given the performance of the company. This price is used by Brokers to estimate the potential growth of a company considering a 1-year point of view.
So after accumulating shares at Buy Below prices, all we have to do now is wait. Like tea that we steep, or wine that we store over time, we wait patiently and let time coupled with the company’s consistent good performance drive up the price to our Target Price. As soon as the market price of our SAM stock hits or gets close to our Target Price, we sell. This means that we’re selling our shares and we’re locking in our profit. By this time, we’ve already made money! We’re one step closer to becoming millionaires! Now using the same example of ALI with its Target Price of P19.75, if the current market price goes up to P19.75 or close to that price, then this would raise our sell flag signifying that we should already sell. 5. Reinvest to other SAM stocks. Use the money you made from selling a SAM stock at our Target Price and reinvest it, buying shares of our other SAM stocks that are still priced below are Buy Below Price.
By doing this you’re compounding your previous profit with the potential profit you’ll be making with this new SAM investment. It’s like rolling-over a time deposit in the bank. I’ll talk about the concept of Compounding on our next issue. This is another key to making our millions in the Stock Market. Stick to SAM’s System This is our treasure map to the millions in store for us. We just need to follow it, follow it to the dot. Follow the system and you’ll make money. It’s that simple. The only thing challenging about it is the discipline it requires. So choose to be disciplined and stick to the system, stick to SAM’s system no matter what, even in times of crisis. One day your discipline will be rewarded.
Example of a SAM Table
So are you now convinced? Here are the top winners of Truly Rich Club in the previous years.
So what are you waiting for? Start investing now! Join us now at www.TrulyRichClub.ph See you inside! God bless! Laurent Dionisio, CPA, RFP www.PinoyFinancialPlanning.com Got questions? Email me at [email protected]