Investing word of the day: Stock Market Index

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source: www.pse.com.ph

Many of you may have read in the business section of newspapers or maybe in the business news like CNBC, Bloomberg, Reuters  and others about stock market  index. In the Philippines the main index is the PSEi, so what does stock market index or "index" mean in the stock market?

I searched the PSE website and I got this: a medium used to denote trends in securities market. 

Unsatisfied with that, because it seems to deep and hard to understand, I relied to our friendly Wikipedia.com which gives this definition: A stock market index is a method of measuring a section of the stock market.

And then I stumbled into a great definition from www.abcsofinvesting.net which says:

An stock market index (or just “index) is a number that measures the relative value of a group of stocks. As the stocks in this group change value, the index also changes value. If an index goes up by 1% then that means the total value of the securities which make up the index have gone up by 1% in value.

Also got this video from Youtube.com
 

In layman's term: An index is a grouping of stocks that reflects a section or a part of the entire market. It is a measure the general investing public refer to as an indicator of the economy or the trend in stock market.

If you are trading stocks online or doing some stock index trading it would be great to have some form or tool that you use as your guide. As I have mentioned in my previous post, the general investing world has looked at the Dow as an indicator. In the Philippines we usually follow the Dow's movement. The PSEi mostly follows the Dow. So I assume that the investing public here in the Philippines use the Dow as their guide in investing. The PSEi has also been used by investors as an indicator on how healthy our economy is. Recently the PSEi has gone a rollercoaster ride and now as of this writing it is on its upward trend again.

An update regarding NTS with PSE

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A buzz regarding the new system is out.

The PSE is moving to a new trading system leaving behind the Maktrade system. To read more on this new trading rules please visit the PSE website at www.pse.com.ph or click here.

The question now is how would this new trading system affect investors. In reality the entities that are directly affected by these changes are the stockbrokers. They need to update themselves as well to able to follow the PSE trading. On their part they must see to it that the investing public will be able to seamlessly use their online ordering system without much hassle on the side of stock traders like yo and me.

The PSE is on its final stage of transferring its operations in the Makati trading floor. The move was to operate wisely by only having one trading floor. Though the PSE has been earning cutting cost is one way of boosting bottom line. For the mean time he PSE will trade at the Makati until such time they find a new place for their main floor and office.

Are you ready to invest in the stock market?

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 source: http://www.google.com/imgres?imgurl=http://lgimages.s3.amazonaws.com/data/imagemanager/

I have been posting things on how to get the information you needed in your stock investing decision. Also I discussed how could your small savings accumulate and be invested in stock. I hope you have also chosen a stockbroker and on the process of opening an account, the question now is are you ready?

An interview was made on Warren Buffet, one of the world's richest man, on what regrets he has in life. And I think you will be surprise on his answer. He told that his greatest regret was that he did not start earlier in investing. 

Yes stock investing may be scary at first. You keep on looking in the trading result the next day and you always zoom in the last traded price of the stock you bought. You are praying that it is not in the red and when you see its value went down you are as if gonna get a heart attack. You think you made the wrong choice or maybe you are telling yourself "I told you, you should have bought the other stock." But in reality you never lost anything yet. It has been a wrong notion of many new investors that when your stocks market price is down you lost. We call that unrealized loss. That is why when investing always choose stocks of companies with great fundamentals or as what Warren Buffet's mentor, Benjamin Graham,  term it intrinsic business value. Prices may go up or down but companies with intrinsic value will always be there. Buy them when their prices are down, which are surely temporary that may be due to market reaction to certain news or events, and sell them when they rise up.

Many say stock investing is like gambling. I don't think so. It is one of the wrong move of some people who sell their stock when it is already way below their cost. They never computed what was their investment's book value and also they haven't included their expenses when they purchased their stock investment thus they end up selling at a lost.  Always remember to sell beyond your breakeven which can be computed. 

One last thing is that you wont be able to start unless you make the first step. Buy your first stock investing only about Php 5,000.00. Yup just buy any stock you think is a good buy. When its price goes down be happy because you have made your first investment taking away that jitter that stops you from doing it. I guess the next buy will be better, and the next one will still better. Why better? of course nobody would like to lose money so your first loss will drive you to be better and be an earner.

Take a deep breath, click your mouse and make that first buy.

PSE website: Board Lot Table Part 5

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We're back again at investing in Philippine Stock Exchange. It is worth knowing what this table is. Below is a screen shot of the table I got from PSE's website:

This table is a guide on how much one can buy depending on the stock price thus it follows also how much money one needs to buy stocks. 

Let say you want to invest in Bank of the Philippine Islands with the stock symbol BPI which is currently at Php 43.00 so based on the board lot the minimum number of shares you can buy is 100 shares and thus you need Php 4,300.00 to buy BPI shares.

How about PLDT with the stock symbol TEL which is currently at Php 2,380.00? Minimum shares you can buy is 10 thus you need Php 23,800.00 to buy 10 shares of TEL.

Or how about United Paragon Mining with the stock symbol UPM which is at Php 0.01 per share. The minimum share is 1,000,000 thus you need Php 10,000.00. Also if you notice the second column says minimum fluctuations. This is a guide for the stock trading prices either you are buying or selling.

To learn more go to  http://bit.ly/EXPERT-STOCK-SCREENER

When you are buying you are said to be bidding. And in the stock quote the number of fluctuations allowed is three starting from the last trade. So for example BPI's minimum fluctuation is Php 0.50 thus the possible bid prices you can bid is 43.00, 42.50, and 42. On the other hand if you are selling you are asking. The asking price starts from the next increment as per the boards fluctuation. So for BPI the ask price are 43.50, 44.00, and 44.50.

Cost Averaging

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Ok I believe you already heard this term and you are wondering what it is really.

Well if you understand the word "average" from your investing online activities which was brought about by your interest to trading stocks online probably you know what it is. But let us assume we don't know. The term started as dollar cost averaging which originated in United States and then applied locally to the Philippines as investing advice of some stock brokers. From then on the concept was being taught to newbie investors as a investing tip

Basically cost averaging is buying stock with sound fundamentals on a period of time taking advantage of the stock markets bull - bear cycle. In the end the average cost of the stock is lower and when the time is right and the value of the stock is up one can sell all the stocks thus gaining profit. You don't worry when the stock is down all you do is buy on a regular basis, let say monthly, at a regular amount. Stocks are not always at high price there are times that they are low and sometimes very low that stock investors term it undervalued. Don't be tempted to buy a lot when its really low but buy according to plan. Always allocate your excess funds to other stocks as well so that your portfolio is diversified. A disciplined stock investor will be the perfect example of a practitioner of peso/dollar cost averaging. 

Discipline and time are the key components of a sound stock market investment strategy. Probably you have no excess money today. But if you save some little by little this little savings of yours can accumulate into the minimum amount of investment that you can place. From there don't stop saving. Every time you reach that savings amount place or add it to your investment. In the long run you would have save enough funds and built your portfolio.

Always remember that the stock market has the element of risk but with knowledge, discipline, and time such risk could be managed and sometimes can be use to your advantage