PSEi climbed 1% or 65 points from yesteday’s close
This is a common news in today’s bullish market, and as the trend continuous (where everyone is very optimistic about it), you’ll be hearing similar news every now and then.
But, do you actually understand what it means?
With our goal to make investments within reach of the masses, let us explain these terms where everyone could easily grasp how it works.
What is the Philippine Stock Exchange Index (PSEi) anyway?
Wikipedia defines a Stock Market Index this way:
“A stock index or stock market index is a method of measuring the value of a section of the stock market. It is computed from the prices of selected stocks (sometimes a weighted average).”
There are three important keypoints in this definition, and these are:
- Method of Measuring of Value
- Section of the Stock Market
- Selected Stocks
Method of Measuring
The Philippine Stock Exchange Index or PSEi is measured every trading day. It actually moves dynamically as the whole Stock Market moves. Thus, for today’s trading, PSEi may have a value of 6,600 points, and tomorrow, it may read as 7,000 points. Thus, an increase of 400 points.
Let’s defer discussing the manner how this is computed. What’s important here is that the act of measuring the day-by-day activity of the stock market. This helps investors, fund managers, and other finance professionals to keep track of the market if it is growing or declining.
Section of the Market
Stocks listed in the Stock Market are categorized into different industries where they belong to. For the Philippine Stock Market, we use the following sectors (or index):
- Holding Firms
- Mining and Oil
Our main index is the PSEi where it contains a basket of 30 well selected companies in different industries. We call the companies included in that basket as Blue Chip Stocks.
The PSE index’s basket of stocks are carefully selected by the Philippine Stock Exchange to measure the overall movement of the stock market at any given trading day. These selected stocks, or Blue Chips, are representative of the sectors of all stocks listed in the market.
Investopedia defines Blue Chips this way:
Stock of a large, well-established and financially sound company that has operated for many years. A blue-chip stock typically has a market capitalization in the billions, is generally the market leader or among the top three companies in its sector, and is more often than not a household name. While dividend payments are not absolutely necessary for a stock to be considered a blue-chip, most blue-chips have a record of paying stable or rising dividends for years, if not decades. The term is believed to have been derived from poker, where blue chips are the most expensive chips.
There you go! The next time you hear news on record highs, you now know what they mean and finally enjoy it.
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