Investing in the Philippine Stock Market Tip #2 – Make your transaction worth at least 8k

Investing in the Philippine Stock Market Tip #2 – Make your transaction worth at least 8k

(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)

If you really want to get the most out of every peso you put in the Philippine Stock Market, then this stocks investing tip can help you in your strict measures.

Our Tip #2 is this: Make your transaction worth at least 8000.

This second tips only rests on maximizing what you can get from other fees and commissions charged to you aside from the gross amount of your transaction.

If you remember, we have discussed in this blog the costs of trading and found out that you can actually own your first company with even just less than 5000 pesos.

But how do you make sure that you’re optimally invested? That you’re not wasting any centavo in your investments which could otherwise work hard for you?

Photo credit
For discussion’s sake, let’s take once again a look at the basic fees involved in all stock trading transactions in the Philippine stock market.
TYPE OF FEES
AMOUNT
Stockbroker’s commission
0.25% of the gross trade amount or 20 whichever is higher
Value-added Tax (VAT) on commission
12% of Commission
Philippine Stock Exchange Transaction Fee (PSE Trans Fee)*
.005% of the Gross Trade Amount
Securities Clearing Corporation of the Philippines (SCCP) Fee (or Clearing Fee)
.01% of Gross Trade Amount
ADDITIONAL FEE FOR SELLING
Stock Transaction Tax (or Sales Tax)
0.5% of Gross Trade Amount

 

During college, I remember in my Math53 class (Elementary Calculus I) one quite hard topic for many. It’s the area of Optimization. Optimization basically means looking for the maximum or minimum value of a variable under a specified set of conditions.

Its practical applications include for example optimum level of production in a manufacturing plant given some constraints on operating conditions and demand.

I know some of you might have your nose bleeding now, but we can actually use the same principle to optimize every hard-earned peso you invest in the stock market.

So here it goes.

If you’re going to closely examine the fees and the computations for each slice, you will notice that except for the stockbroker’s commission and VAT levied on it, all the others are fixed once you have fixed your Gross trade amount.

On the other hand, the commission has a busier computation for its value.

Specifically, the formula states that it will never be below 20 pesos. In other words, the minimum amount your online stockbroker can get from you in every transaction (buy or sell) is 20 pesos.

Case  Example

Let’s take as an example the story of Megaworld with stock sysmbol MEG.

Why MEG?
Nothing special, that’s just the first stock I bought in my stock investing career. HAHA[Related story here]

Let’s say the market price of MEG is 2 pesos per share. With that price, one board lot means 1000 shares.

That means the minimum number of MEG shares you can buy is 1000. [You can learn more info on board lot discussion here]

Imagine you’re buying 1000 shares.

Then your Gross Trade Amount (or GTA)  = 2* 1000 = 2000 pesos.

Following the formula above, your stockbroker’s commission would then be = 0.0025*2000 = 5 pesos.

Since this is lower than 20 pesos, your broker will automatically apply the 20 pesos minimum stockbroker’s commission.

Now you happen to know that Megaworld will benefit a lot from the coming increase of outsourcing jobs here in the Philippines since it has office building rent business, so you decide to increase your shares to 2000.

In this case, your GTA will then be = 2*2000 = 4000.

Stockbroker’s commission = 0.0025*4000 = 10 pesos.

Since this is still lower than 20 pesos, your stockbroker again charges you the minimum 20 pesos stockbroker’s commission.

Say you want to buy even more, and make it 3000 shares.

Your GTA will then be = 2*3000 = 6000.

Stockbroker’s commission = 0.0025*6000 = 15 pesos.

Since this is still lower than 20 pesos, your stockbroker again charges you the minimum 20 pesos Stockbroker’s commission.

Have you noticed it?

You were able to increase your buy shares yet the commission charge remains the same.

In fact, even if we increase the shares you want to purchase to 4000, the commission will remain at 20 pesos.

In effect, you’re able to maximize what the minimum 20 stockbroker’s commission can do for you.

If you increase even more, the commission will then start inching up above 20 pesos, and it will start to be actually dependent on the GTA and follow the exact formula. When this happens, there’s no more way to maximize the stockbroker’s commission.

So the point is to make all your transactions worth at least 8000 so that you’re able to maximize the 20 pesos minimum stockbroker’s commission fee automatically charged. It only follows from the fact that 0.25% of 8000 is 20 pesos.

Note that we didn’t take care to compute for other charges like PSE Trans fee and clearing fee since they’re both always proportional to the GTA without a mandated minimum amount like that in commission. Lastly, it follows that if the minimum stock commission is 20 pesos, then the minimum amount VAT can take is 0.12*20 = 2.40 pesos.

How this affects you

To make it more evident for you, imagine if you’ll buy 4000 shares of MEG in four separate orders with 1000 shares each. Here’s what will happen:

  • Order 1 will charge you a commission of 20 pesos.
  • Order 2 will charge you a commission of 20 pesos.
  • Order 3 will charge you a commission of 20 pesos.
  • Order 4 will charge you a commission of 20 pesos.

Just for the stockbroker’s commission, you will have incurred 80 pesos for the four transactions.

But since you read this blog, you know better now.

What you’ll do instead (if you have the cash power) is to buy 4000 shares of MEG in one order and voila, you accomplish the same thing with just 20 pesos commission.

You could then use the 60 pesos difference to buy yourself a yum burger meal in Jollibee.

If you do this several times, then you treat yourself several times too.
Wouldn’t that sound great?! HAHA

Note that if you’re eyeing a long-term approach to investing in the Philippine Stock Market, then this should not be really a big deal for you. The difference will be very itsy-bitsy-weensy tiny compared to your expected upside.

Also, those who have to wait for some time before buying to complete this 8k (like those who can only allot 2k a month on a regular basis)  may need to consider the opportunity cost involved as a result of the decision to delay to buy. (Will share some figures on this in the future).

But either case, who wouldn’t want to squeeze the most out of one’s money?

Put that stocks investing tip in your heart!

Have fun investing! (at least 8k per transaction)
-oMeng

 

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This Post Has 5 Comments

  1. Omeng Tawid

    Hi George, yes that’s true. it’s part of the risk should you want to wait every two months to do your buying routine.

    1. George

      So, i should prefer on investing monthly na lang po?

  2. George

    Hi, i have a question. Diba kpag po kasi bumili kayo ng maliit lang ang share lumalaki ang ave. price.
    kung 10share ng 83php na CEB = 852.52php ang total. magiging 85.25245 ang ave. price nyo +charges pa kasi
    kung 100share ng 83php na CEB = 8324.49php ang total. magiging 83.24485 ang ave. price nyo for that? And since na tackle nga dito yung commission fees, would it be better if quarterly or every two months instead of per month ako maginvest? say for example, 15k per quarter or 10k every two months instead of 5k a month? What if nga rin po if ang gagawin niyo is quarterly or every two months, pano po if sa month na to saka mababa and presyo then next month kung kailan ka na magiinvest, tumaas naman ang price. Paano po kaya? Thanks in advance for replying!

  3. BigProfitbuzz

    Dear Visitor,
    Would like to appreciate the effort of the webmaster for creating such a wonderful blog which is very helpful for the visitors.
    Would like to add few notes here like if we are trading in Share market tips specially in NSE and BSE which are one of the most popular stock exchanges of the world then we need to take care of the few things like
    1. Always trade in limit
    2. Do not make tade on emotional basis
    3. Always try to get professional support before taking risk in stock market
    4. Rely on professional research rather than speculation.

    This is for sure if we follow above 4 points then we can always stay in good profit.
    Regards
    BIGPROFITBUZZ TEAM

  4. Kamal Bajaj

    In all stock market tips conditions there is always some way for turning losses into profit but stock market traders tend to ignore what is called smart trading techniques. Alert stock trader faces losses very less so be a alert trader and start enjoying daily profit from share trading.www.way2profit.com.

Leave a Reply to Kamal Bajaj Cancel reply

Investing in the Philippine Stock Market – Tip#1: Have your reserved cash

(If you want a quick guide for beginners how to start investing in the Philippine stock market, you can download your free ebook here.)
Investing in the Philippine Stock Market – Tip#1: Have your reserved cash
In my last blog, I gave you a hint of the importance of what I call a reserved cash
So let’s have a short discussion on that now.

What is reserved cash?

Very simple – it’s cash that you reserve for surprises in the stock market.
What kind of surprise? A surprise just like what the Philippine Stock Market had last May 16th.
Majority of the stocks are down.
And worse, even giant good companies did slide its way down big time, ranging from 5% to 10%.
If you’re in the Philippine stock market for some time, you know that it’s quite seldom that good companies go down by that much.

Now you use this reserved cash for opportunities like that.

Yes I call them opportunities, rather than a curse.

(I realize that successful people always see opportunities everywhere, but that’s a different topic)

In other words, you have this as your free cash, ready to be tapped under extreme conditions.

You have a separate wallet for your regular investments, and a different purse for your reserve cash.

And when the stock market gives its surprises, you open this purse to buy at low prices.

Specifically, you use this reserve like when giant fantastic companies have dropped big time in one day.

Why Risk Doing This

There are basically two ideas on which this strategy rests:

  1.        If good companies dropped big time in series of trading days, then it’s highly probable that it will bounce the next trading day.
  2.       The higher the drop, the higher the bounce.

Now we use that reserve cash to leverage on that expected bounce.

So what you do is to buy at the red day’s closing phase (or the next day opening phase), and you sell it once it bounces enough at the next few trading days.

You see, this is actually more as a trading strategy, since this has a shorter time frame, and caters more to those folks who can afford to monitor more closely the stock market.

It’s important that you sell the next trading day (or the next few trading days after that) to get your profits out of the table. Doing so also gives you back your reserve cash you can then use for other future market surprises. If you see that the uptrend is still intact, you can keep it there a little bit longer. The important thing is to have your reserve cash back again, with some profits made in the side.

Take note that I used highly probable for the bounce scenario above, which means stocks prices may still keep going down even more. But from experience, with such a big drop, it’s usually the bounce that’s more often the case for these giant fantastic companies.

Why do we risk doing that?
Because we believe that there’s nothing wrong with these companies.

We recognize it’s only some bad external news that had driven people crazy that pulled the prices down.

But they remain fundamentally sound. And because everyone still knows this fact, others start buying again and these companies start to bounce.

You can see below the green pasture bounce I’m talking about, as the Philippine Stock Market closed today from a recent nightmare it had. ( I also shared again this nightmare picture where it bounced from)

In the above scenario, you can see upside attained by  several companies dragged down like

URC: 3.11% from -6.29%
MEG: 5.26% from -8.21%
MPI:  5.45% from -8.11%
AGI:  4.34% from  -2.60%

and others.

As a last note, take serious time to realize that you use this free cash under extreme conditions – like an unacceptable big-time drop that dragged giant sound companies.

Forgetting this rule can hurt you in the end.

There you have it.

Have fun investing! (and be ready for trading!)
Omeng 🙂

PS. Do you want to invest and earn in US stocks like APPLE, FACEBOOK, AMAZON or GOOGLE?

Join us in our FREE Global Investing Walkthrough webinar!

Investing in global stocks means checking stock markets of other countries, which allows you to practically diversify in your portfolio.

It's very similar to investing in local stocks, but since we're expanding on geography and other asset classes, we now have more stocks to choose from.
Click here to register. It's FREE. Tribe

Do you want to receive STOCK PICKS and other lessons on money management & business ideas?

Check out Truly Rich Club and receive 14 incredible gifts for FREE, including the opportunity to earn passive income every month!
Click here to learn more.

Did you like this article?

If you are stilll a new investor, you would not want to miss watching this stocks investing practical guide for newbies. Make sure to Subscribe to my YouTube channel for more.
Click here.

Get your quick guide for beginners how to start investing in the Philippine stock market and more practical trading tips and tricks. Simply sign-up below (it's FREE!)

This Post Has 4 Comments

  1. Omeng Tawid

    hi @leo in my case, i already have it as part of my cash balance in my trading account. 🙂
    you can also just park it in your bank and deposit to your stock account if opportunity arises. 🙂

    your call

  2. Leo Rubia

    Very informative post! Thank you… I might consider as well, reserve cash (but, are we going to fund it to our account? or just with us and deposit immediately during these opportunities?) Tnx

Leave a Reply to Kamal Bajaj Cancel reply