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


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?
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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 more busy computation for its value. Specifically, the formula states that it will never be below 20 pesos. The minimum amount you online stockbroker can get from you is 20 pesos.

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 = 1000 pesos.
Stockbroker’s commission would then be = 0.0025*2000 = 5 pesos.
Since this is lower than 20 pesos, your broker will automatically get the 20 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.
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.
Even if we increase the shares you 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.

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 my blog, you know better now.

What you’ll do is to buy 4000 shares of MEG in one order and viola, you accomplish the same thing with just 20 pesos commission.
You could then use the 60 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. But of course, 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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