How to Sell Stock after 20 Years of Accumulating

I received an e-mail from Josef Gamboa asking me if after 20 years of buying and accumulating stocks, selling the stocks won’t be a problem. Well, the answer is selling the stocks 20 years from now is as easy as buying the stocks today. Why did I say that? The stock market has been here for decades already and it is still existing and growing. The history tells us that stock market is here to stay. So for all of those people out there, who have been asking themselves if selling the stocks twenty years from now is not a problem, just sit back and relax.

Peso Cost Averaging

What Josef wanted to do is that he will just keep on buying his favorite stocks every month. He doesn’t care whether the stocks are up or down because in the long run, the prices will have an average price that is not too high or too low. It sits right there in the middle of lowest and highest prices of the stock. This type of investing is called peso cost averaging. This type of investment is good for the Filipinos who don’t know much about the stock market. In fact, some of the great investors prefer this type of investing.

Do you know Warren Buffet? He is arguably the most popular investor of all time. He is still alive mind you. He is one of the richest men in the world. He will buy stocks that he believed are cheap and then sell it after a decade, or two decades or three decades or sometimes he doesn’t sell it anymore. One of his mottos is “buy and hold forever”.  I hope one of us will become like him. Warren Buffet doesn’t do peso cost averaging but the similarity between his investing style and peso cost averaging is that when you buy a stock, you sell it after a long, long, long, long years.

So to Josef, what you planned to do is actually good. I know most of us are busy with our day jobs and we have limited time to study the stock market. Thus, peso cost averaging will most likely work for all of us. The system is simple but effective.

Buy Blue Chip Companies Only

In order to sell your stocks immediately after 20 years of accumulating them, you need to buy blue chip stocks only. Buy solid companies which will last until the next 50 years or so. Yes, buy blue chip companies only and ignore the rest. These big companies like PLDT, Ayala Land, BPI, Metrobank, URC, etc have big market capitalization. If your chosen company has a big market capitalization, you have a bigger chance of selling it immediately, because you have a lot of buyers that will buy that stock which includes the foreigners.

So how can you determine these blue chip companies? The best way to get the list of these companies is to check the Philippine Stock Index. This is the list of the 30 biggest companies in the Philippines otherwise known as blue chip companies. Sometimes the composition changes because some companies have met the requirements meted by PSE.

4 Steps in getting those 30 companies included in the Philippine Stock Index

         1.  Go to www2.pse.com.ph (actually this is the old website of PSE, but I prefer to use it because of my familiarity with its functions).

         2.   Click Stock Quotes

   3.  Click PSEi

     4.   The list of blue chip companies will appear

 

Ripe old age, Sell the shares and enjoy!

Ok, after 20 years you have decided to call it quits and enjoy the hardwork you have toiled in your entire life. You are now ready to retire and sell your stock investments.

As I have said above, in order to sell your stocks immediately, you must own blue chip companies only. For illustration purposes, you bought Megaworld Corporation for the last 20 years and you are ready to sell it. How in the world can you sell those stocks?

Alright, if your stockbroker is Citiseconline which I am very familiar with, just click the sell button, type the current price and sell all your shares. Sometimes, in just a matter of seconds, not minutes, your transaction will be executed and voila, your shares are now transferred to you cash account. Just ask Citiseconline to transfer the money in your bank account.

              5 Steps When You Sell Your  Stocks on Citiseconline

1.     Click Trade/Portfolio

2.       Click Portfolio

       3.       Click Sell

       4.    Click Sell and Fill up the blanks

      5.   Enter password then click place sell order

After 20 years, enjoy your retirement, Josef. Give me a note when you reach those 1 million pesos in your stock transactions.

Real Example of Margin Loan

Last December 2, 2011, I borrowed money from Citiseconline and bought SCC shares. This kind of loan is called margin loan. I bought the stock at 209 per share and now the current price is 213 already. I plan to sell it on Monday so that I can take my profits from it.

Make no mistake about it, margin loans are too risky for investors and this is not for everybody. You need to seek the advice of your consultant before plunging into it. In fact, if you don’t know anything about stock market, I advice don’t do it. You need to know a lot of the seasonality of the stock market, the fundamentals, the technical and your own research.

I just wanted to share how the computation of the interest on this margin loan. Let me provide a real example on this. But before that, just remember these two things. Borrowed money + interest = Total cost. Just stick to that. Borrowed money + interest = total cost. My goal is to sell the SCC shares more than the total cost I borrowed and take the profit.

Computation of interest is like this: (Amount Borrowed * No. of Days * 18%) / 365 days) + 12%VAT.

OK, here is the real example of it. If you have an excel sheet and just copy the formulas I presented here, you will have a clearer picture when you do your own computation.

Borrowed Money	100,615.95
No. of Days of Borrowed Money	(Dec 11 minus Dec 2)                                  9 days
Interest	18% per year
No of Days in one Year	365
Interest	(100,615.95 x 9 days x 18% ÷ 365 days)      446.57
VAT	(446.57 x 12%)                                             53.59
Total Interest Cost	101,116.11

My total interest cost for 9 days is 500.16. When you sell, you incur tax again. My previous computation on selling transaction cost is 0.795% of the stock value. So, that is another cost to consider. If I will sell my 480 SCC shares at 213, the total value is 102,240. Selling cost would be 812.80 (102,240 x 0.795%).

Stock Value - Total Interest Cost - Selling Cost = Profit

102,240 – 101,116.11 – 812.80 = 311.09

My profit for 9 days is 311.09 without spending any pesos. Not bad. My prepaid card for the week is covered because of this. Wink.

If you are not prepared to go through the emotional roller coaster ride just in case the stock go down, ignore this margin loan.

“There are risks that you cannot afford to take, but there are also risks that you cannot afford not to take”.

Real Example of Cash Dividend

Today, I received a notification from Citiseconline, my online stockbroker saying that the cash dividend declared by Security Bank will be credited in my account at the end of the day. Wunderbar!

Please take a look at the notification of the cash dividend I received from Citiseconline. I received around 1,000 pesos from SECB. Taxes already deducted.

December 6, 2011   Attention: RANDY XXXXX

 This is to inform you of your cash dividend entitlement with details as follows:  

Account No. : XXXXX

Stock Code : SECB

Cash Dividend (Php) : 1.00 / share

Ex-Date : November 3, 2011

No. of Shares Entitled to Cash Dividend : 1,080

Gross Amount (Php) : 1,080.00

Less Withholding Tax (Php) : 108.00

Net Amount (Php) : 972.00

Cash dividend is money paid to stockholders, normally out of the corporation's current earnings or accumulated profits. All dividends must be declared by the board of directors and are taxable as income to the recipients.

Before I received my cash dividends, there are four dates that a cash dividend must walk through. These are the declaration date, ex-date, record date and the payment date.

Let us take a look at the declaration of cash dividends by Security Bank last October 21, 2011 taken from www2.pse.com.ph.

Date : 10/21/2011

Content : Please be informed that we received the BSP approval of the regular semestral cash dividend of P0.50 per share and special cash dividend of P0.50 per share of Security Bank Corporation. The record date for SBC's P1.00 per share cash dividend is on November 9, 2011, while the payment date falls on December 6, 2011.

CASH DIVIDEND (REGULAR): CASH - P0.50 per share

EX-DATE - November 3, 2011

RECORD DATE - November 9, 2011

PAYMENT DATE - December 6, 2011

CASH DIVIDEND (SPECIAL): CASH - P0.50 per share

EX-DATE - November 3, 2011

RECORD DATE - November 9, 2011

PAYMENT DATE - December 6, 2011

1.     Declaration date – the date when the directors of the company announce that a dividend will be paid to stockholders. Also called the “announcement date”.  

a.     In our example above, the declaration date is October 21, 2011. Dito inaanunsyo na may dibindendong paparating sa mga investors.

2.     Ex Date – this is the cut-off date in which the sellers are still entitled with the dividends. 

a.     In our example above, the ex date is November 3, 2011.             Kung bibili ka ng SECB stocks sa Nov 3, 2011, hindi ka na kasali sa bibigyan ng cash dividends dahil nga ang cut-off ay Nov 3, 2011 o ang tinatawag na ex-date. Pero kung ikaw naman ang nagbenta ng stocks noong Nov 3, 2011, kasama ka pa rin sa listahan ng mga makakatangap ng dibidendo.

3.    Record Date – The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.

a.     In our example above, the record date is Nov 9,2011. Dito tinitingnan kung sino ang mga may hawak ng SECB stocks as of November 3, 2011 para malaman ng kumpanya kung sino ang mga dapat bayaran ng cash dividends.

4.    Payment Date - The date on which a declared stock dividend is scheduled to be paid.

a.    In our example above, the payment date is Dec 6, 2011. Dito sa araw na ito, babayaran ang cash dividends. Tulad ko, ngayong araw ako binayaran ng cash dividends dahil yun ang nakasaad sa kanilang cash dividends declaration.

Cash dividends are one form of generating income from the stock market as a stock investor. The other one is through capital appreciation. If you like to have a layman’s perspective on cash dividends and capital appreciation, I am recommending that you read How The Stock market Works!. In that article, I laid down the principles of cash dividend and capital appreciation in its simplest form.

Dividends are also important in picking stocks. The higher the dividend yield your chosen stock is, the better for you.