Chapter 2 of 7 · 6 min read
The only two ways a stock pays you, worked through in pesos, and the three kinds of risk that decide whether you keep the gain.
What you'll learn
Key terms in this chapter
In one sentence: a stock pays you by rising in price or by paying a dividend, and both of those are uncertain, which is exactly why time in the market and spreading your money around matter more than any single pick.
There are only two ways a stock puts money in your pocket. Here's what each one looks like with real, round numbers: hypothetical examples, not a forecast or a real stock's actual history.
Buy 1 board lot (100 shares) of a ₱120 stock for ₱12,000. A year later it's ₱132 (up 10%). Sell, and your shares are worth ₱13,200: a ₱1,200 gain, before fees and tax. The same stock could just as easily have fallen to ₱108 instead, a ₱1,200 loss. That two-sided swing is the core trade-off of owning a stock.
Some companies pay a cash dividend, a slice of profit paid straight to shareholders. Say a company pays ₱3 per share once a year and you own 100 shares: you'd receive ₱300 in cash, on top of whatever the shares themselves are worth. Not every company pays one, and the amount isn't guaranteed year to year.
Instead of one lump sum, invest a fixed amount on a regular schedule (say ₱2,000 every month), buying more shares when prices are low and fewer when they're high. This is dollar-cost averaging. PSEye's DCA calculator shows what a specific monthly amount would have grown to, historically, for any tracked stock.
These two effects build on each other over time. A dividend that gets reinvested buys more shares, which can then earn their own future dividends and rise in price too. That compounding effect is slow at first and easy to underestimate, which is part of why long holding periods and steady contributions, the idea behind dollar-cost averaging, tend to matter more than trying to time any single trade.
Put ₱2,000 a month into something that happens to return 8% a year. After 5 years you have contributed ₱120,000 and hold roughly ₱147,000. After 10 years you have contributed ₱240,000 and hold roughly ₱366,000. The contributions doubled, but the gain grew more than four times over, because the second decade is earning on the first decade's growth as well as on your new money. This is also why the same 8% over 2 years is unremarkable. Compounding is not a trick that makes small money big quickly; it is a reason not to interrupt it.
All figures above are illustrative round numbers, not a prediction, backtest, or recommendation for any specific stock, and 8% is an assumption rather than anything the PSE guarantees. To see a real company's actual price history, open its page from the full stock list, or run your own numbers in the DCA calculator.
Every stock carries risk, and no page on PSEye, including this one, can tell you how much risk is right for you. Three ideas are worth understanding early, and the third is the one beginners almost never hear about.
Volatility and beta. Volatility is how much a stock's price swings day to day, in either direction, and beta is how much of that swing tends to move together with the overall market. A stock with high volatility and a high beta can lose a large chunk of its value quickly in a downturn, and gain it back just as quickly in a rally. PSEye's analytics page computes both for every tracked stock, alongside correlation between stocks.
Diversification.Buying more than one stock, across more than one sector, is the most common way individual investors manage risk without trying to predict which single company will do best. The important detail is that it only works when the stocks don't all move together: six banks is far less diversified than it looks, because a rate change hits all six at once. That is what correlation actually measures, and it is why the sectors page is a more useful starting point than a list of popular tickers. Note too that a company's market capitalization says nothing on its own about how safe it is, only how large it is.
Liquidity. The least obvious risk. A stock with a small free float or low trading value can be hard to buy or sell at a reasonable price exactly when you want to, since there may simply not be another investor on the other side of the trade. A quoted price of ₱4.00 means very little if only ₱200,000 of the stock trades all day: selling a ₱50,000 position could itself push the price down. Checking a stock's typical trading volume before buying is a habit worth building early.
Good to know
Two ways: selling shares for more than you paid for them, and cash dividends some companies pay out of profit. Neither is guaranteed. A stock can also fall in price or never pay a dividend. Run the numbers in the DCA calculator →
This guide is general information, not personalized advice. More on what PSEye is and isn't.