The Stock Market, An Introduction

When talking about investment, one for the first things that comes up when we read online forums or posts on Facebook is the stock market. Given the technology and the amount needed to start (more or less P5, 000), the stock market is quite accessible compared to other investment options. Some brokers can open your trading account thru online application, and funding it is just one click away from your mobile device. But what is the stock market? And what is a stock?

What is a stock?

A stock represents ownership in a business. The corporation is like a whole pizza, and the slices are the stocks. Some people would buy significant number of stocks so that they can influence or even control the direction of the business, most of us affords to buy small portions of the business and we do it for different reasons. To most individual investors, we go to the stock market to purchase stocks.

What is the stock market?

The stock market is basically like any other types of market; a mall, bazaar, supermarket, etc. It’s a place where a buyer looks for a willing seller to exchange an asset (for this case, a stock) at an agreed price. A buyer will put a buy order (bid), specifying how many shares he is willing to buy and at what price, same goes for a seller, he will put a sell order (ask), indicating how many shares he is willing to sell and at what price. If a match is found, the stocks from a seller will be transferred to the buyer.

Why people buy stocks?

People invest in the stock market for one reason, to earn money. It provides individuals the opportunity to make their money at work. By putting capital into stocks gives them the chance to (1) have a piece of the earnings (dividends) of the company; and/or (2) sell the stock at a higher price (capital appreciation).

How to identify what stocks to buy?

Stock market players use different methods and strategies to identify great investments to increase their chance of earning higher returns. Some use computer software that is capable of processing huge amounts of data, while others put emphasis on current events.

How Condor identify what stocks to buy?

We use the strategy called Value Investing. We invest in a stock because we believe in the company that it represents. Our method is divided into two: qualitative research and quantitative analysis.

Qualitative research involves understanding of the nature of the business. Some questions we ask are; what are the products or services offered? How is the company doing compared to its competitors? Understanding the business gives us some insight on how well the business will do in the future. This

also involves knowing the risks that might affect the company, better technology, availability of substitute, entry of new competitor, etc.

Quantitative analysis is the process of identifying the value of the business. Value is defined by the amount of money an investor is willing to pay for the business, based on a reasonable rate of return. By reading the financial statements (FS) of a company, and using the insights derived from the quantitative research, we are able to identify relevant items in the FS to compute for the value.

Once we have all the relevant information we need, we set our entry price and compare it to the market. If the current market price is significantly lower, we buy the stock, if not, we wait until the market offers the price we want.

Value investing requires a lot of patience and discipline. The success of this strategy (and any others) depends on the willingness of the investor to consistently follow its principles.