Avid readers of Palengkera have appealed for a series of posts about Stock Market. I said, “why not”, after all, this blog is all about Markets. And you know what, Marketraveler is now a year on the net, so hooray for this anniversary post. While I do not claim to be an expert, with my 7 years of trading, I am glad to write about my experiences and unassuming concepts about the stock market. My goal is to define it as simple as possible by comparing it to a Palengke/Public Market.
In many ways, the stock market and Palengke are the same.
- Both Markets have 2 role players: Buyer and Seller. The market helps carrying out trade thereby enabling both distribution and allocation of resources to a society. For consumer/physical goods, A Public Market will virtually help any tradable items bartered amongst buyers and sellers. My all time Palengke favorite so far is Farmers Market-Cubao. In the same way, the Stock Market helps in exchanging liquid assets (stocks). Those liquid assets can be easily converted to cash as long as there is a buyer and seller. Goal-oriented, consumer and producers of goods/services focus on satisfying one’s needs and desires. Parties barter or exchange goods or services in Markets. In a Public Market, a seller offers goods to a buyer with certain needs/desires. For instance, A Palengkera needs fresh fish (Tilapia) for her husband’s dinner, her best option is to go to a Palengke/Public Market where a seller is available (sells Tilapia for a profit), thereby completing the market. Both Parties needs and desires are met- buyer’s specific need (fresh fish), seller’s goal (profit). On a Stock market setting, to complete a trade, there 2 parties are involved –buyer and seller. The buyer desires dividend or a possible increment in his gains once a stock is bought. The seller- might want the money for his business or personal expenses, or maybe to buy a new stock he is eyeing. Once trade is done, both parties will satisfy their needs.
- They both adhere to the fundamentals of Supply and Demand. I won’t bore you with too much information about economics. But here’s a simple explanation. One of the most basic concepts of economics is supply and demand. Wherein, Supply is how much of something is available. Example: I have 5 ball pen on hand, and then my supply is 5 ball pen. While a Demand is how much of something other people want. So, if 10 people want ball pen, then the demand for ball pen is 10. Now, we put them together we have supply and demand. To show the relationship of the 2, we can use a third parameter- Price. So generally speaking, the price of a ball pen will go up if the demand goes up. Or the price will go down if few people needs it and many peoply offers it. Simple logic: If a seller has few products at hand and many people wanted it, she may think of getting more money out of it. If she has more supply (oversupply) than what people needed, in order for her to sell, she needs to lower down her price. In a Public Market today, garlic priced P15 a piece (imagine my face when I asked the lady selling it). The reason according to news is because supply is limited close to none. The same logic when it comes to the Stock Market. If PLDT declares increasing profit for the year, people would want to buy it at a higher price if the supply of stocks is lower than the demand (willing to buy). Meaning, if PLDT stock holders only has 10 shares that they are willing to sell, but buyers wanted 100, the seller will think of selling his other 90 stocks at a much higher price.
- Aside from being alike, they are linked. The stock market rises and falls based on commodities of producers or businesses. When consumers slow down spending on a particular commodity, businesses will slow down too, so in effect, their earnings will fall. Thereby, the price of the company’s stocks will fall too. On the same note, if people like the product/service (fads of instance– loombands), producer’s earnings increases which influence the rise in their stocks price.
- Only 1 ultimate goal. Buyers buy low, Sellers sell High. Buyers in a Palengke setting will want to make the most out of their hard earned money, therefore they want bargains. Those buyers can either be end consumers or retailers. On the other hand, sellers always eyes for profit and that is to sell goods at a higher price than the price when it was bought. Example: A Talipapa/steet vendor bought 10 kilos (P50/kilo) of Tilapia for re-sale, she may want to sell them for at least higher than the price it was acquired, say P80 per kilo. So, for every Kilo she earned P30 to compensate her efforts and to cover her costs of buying them. Same goes to the Stock Market, traders have the same logic. For instance, a buyer wanted a 100 share of PLDT at P100/share. In order for him to gain, he should sell it at a higher price that when it was acquired, be it after a day, months or years.
- They are both governed by an entity or organization for operational integrity. The Public Market is an organization with its own system and regulations. It has regulations on the prices of commodities, sections where products are offered (Wet/Meat Section, Dry goods, garments…) etc. DTI also monitors basic commodity prices in public markets. While The Philippine Stock Exchange (PSE) governs the peaceful, efficient and effective trading of stocks in the Philippines. Stocks are subdivided into categories like Financial, Industrial, Mining, Consumer, etc. PSE’s role is to regulate and monitor businesses listed and prices of stocks. Some of the famous international stock markets include New York Stock Exchange (NYSE), The London Stock Exchange (LSE) and NASDAQ.
- Diversity. Both markets offer diversity and choices. When in Public Markets, you may notice commodities/services on offer are in segments – Dry good, meat, fish, textile, fruits, vegetables etc. While in the Stock Market, stocks offered are according to business types- Mining, Industrial, Property, Financial, Oil and Gas, etc. They say, “the more choices, the better”.
- Risks. I am hesitant in adding this to my list but it is somehow relevant. For me everything involves risk. Whether you stay home or decide to go out, there is a possibility that you can be hit by a crashed plane (there is a slim chance but it’s still a risk). In a Palengke setting, sellers and buyers both have risks. A seller may risk losing money to fraud buyer, say bad debts. While a buyer may risk buying a fake goods and the like. In the Stock Market, risks are involved too for both the buyer and seller. An investor can lose his/her money when the company he bought bankrupt. Or the price of their shares fell. There is also this political risk which affects the market. Inflation risks. Emotional risks. Etc.
- Aggressive and Loud. Have you been to a Palengke? If yes, then you could be either overwhelmed with the noise of hawkers -the likes of “Suki”, “Sampu Sampu lng”, “mare” and what have you. Watch movies like Wall Street, Boiler Room, The Wolf on Wall Street or Rouge Trader, then you’ll know how rowdy a Stock Market is.
- Luck and Hard work. By now, passing the legal age, we should know what these means.
I can probably go on with my list but you see, there are many concepts that a Palengke/Public Markets and Stock Market share. Bottom line is, if anyone can go to the Public Markets (except for the squeamish), anyone can invest or trade in the Stock Market. Just like in the shopping mall and Palengkes, regardless of gender, age (of course within legal age), race, personality, preferences, there is always something for you in the Stock Market.
Maybe, just maybe, this can encourage everyone to learn more and possibly join the game. In the next topic “Stock Market: How and Where to Start”, I will detail the steps on how you go about joining the fun.