Lesson 2 Theoretical Framework for Investment Analysis

OBJECTIVES OF INVESTMENT
 pure and simple WEALTH MAXIMIZATION
 the selection of assets – which have the maximum level of return at a given level of risk

Other Objectives of Investment

1. Protection of Capital or capital preservation -Investing in blue chip companies or risk free
government securities
2. Liquidity of Investment -Ability to exit an investment at a reasonable time without disrupting
the price of the asset
3. Regular Income Stream (dividends/coupon payments) - Supplementary source of cash flows
4. Capital Appreciation - The probability of buying an asset cheap and turning it around for a profit
after a reasonable holding period
5. Tax Shelter -Different assets are taxed at various rates (e.g., interest income -20% withholding
tax; dividend income - 10%

Defining Risk
• The variability of returns from those that are expected
• The chance that the actual return of an investment differs from what is expected
• The more variable the range of possible return for a given asset, the higher the risk and vice-
versa

• Cost of participation = P1.00

• If you flip a HEAD = P1.01
• If you flip a TAIL = P0.99
Illustration 1 Even though there is a fairly high probability of the unfavorable event (50% chance of tails),
the outcome is so minor (you lose P0.01) that this would be a low-risk event.

Illustration 2 Slightly different coin flip: This time flipping the coin 3 times.
• If you get 3 heads, you receive P10,000. If you flip 3 tails, you owe P10,000. Anything else you
get your P1.00 back.
• Even though the probability of the bad outcome is much smaller (there is only a 12.5% chance of
flipping 3 straight tails), this is a much riskier event due to the bad outcome being &
substantially worse.

In finance terms, actual return < (less than) expected return

SOURCES OF RISK
1. General Economic Conditions
a. Inflation
b. Recession
c. Interest rates
2. Company Specific Factors
a. Business Risk Factors
• Volatility of Sales
• Volatility of Input Prices
• Strikes and other Labor Situations
• Product Lines
• Fixed vs. Variable Costs
b. Financial Risk Factors
• Degrees of Debt Financing

Sources of Risk
• Business Risk
- The risk that the company's profit margin may be lower than expected due to inefficient
management, bad trading policies and changes affecting that industry
• Financial Risk
- The risk of partial or complete loss of invested capital in the event of the failure of a company or
scheme due to an unsound financial structure
• Market Risk/Volatility
- The risk of capital loss and instability of invested capital, as well as variations in the return from
that capital.
- It is caused by market cycles and movements in the market.
- It can mean the value of capital can vary, both positively and negatively.
- These variations can be daily or less frequently
- They can vary significantly or not much at all
- They can be sudden and unexpected or it can be slow and predicted
• Market Timing Risk
- Economists often use economic cycles
- To try and predict when a market will rise or fall
- However, this is extremely difficult, as economic cycles are never exactly the same with the
same timing
• Economic Risk
- Risk relating to changes in inflation rates, interest rates, etc..
• Political Risk
- Changes in government and government policies
• Interest rate risk/Re-investment risk
- Some investors attempt to avoid volatility by investing in fixed rate investments.
- Than they face the risk that when the investment matures the money may have to be reinvested
and interest rates could be significantly lower
- Thus, relying on interest as income - this income could dramatically decrease
• Credit Risk
- When money is places with banks and companies through term deposits and debentures they
use it in their businesses and pay an interest rate for doing so.
 - The risk here is the financial ability of those institutions to be able to pay the interest and/or
repay the capital on the due date
• Mismatch risk
- This risk means that although a chosen investment may be considered a good investment for
certain investors, it may be a poor one if it does not suit the needs and circumstances of the
investor
• Inflation risk
- Whether inflation is high orlow, the cost of goods has always increased overtime.
- If the chosen investment does not at least grow at the same rate then the real purchasing power
of the money is being eroded.
• Liquidity Risk
- Considerable problems can occur if money is required for unforeseen expenses and the
investments cannot be turned into cash quickly or without costs
• Legislative Risk
- Long-term investment strategies can be selected based on current tax laws and regulations.
- If these should be changed later then the result required could be badly affected.
• Risk of not diversifying
- Diversifying investment means spreading the capital across various areas

“There are two kinds of forecasters: those who don’t know, and those who don’t know they don’t know.”
–John Kenneth Galbraith
Systematic Risk
• Acting according to a fixed plan or system
• Systematic risk is caused by system wide factors that affect the entire community.
 Change in economic conditions
 Change in political system
 Change in social system
 The effect of such system wide factors which are beyond the control of individual, business
establishments and which affect all the business establishments in the system is called
Systematic Risk

a. Market Risk
- This arises out of changes in demand and supply pressures in the markets, following the
changing flow of information or expectations
- The totality of investor perception and subjective factors influence the events in the market
which are unpredictable and give rise to risk, which is not controllable
- The basis for the reaction is a set of real, tangible events
 political, social or economic
- Intangible events are related to market psychology

b. Interest Rate Risk

- The return on an investment depends on the interest rate promised on it and changes in
market rates of interest from time to time.
- The cost of funds borrowed by companies or stockbrokers depend on interest rates.
- The market activity and investor perception change with the changes in interest rates

c. Purchasing Power Risk

– It is also known as inflation risk
- This risk is arises out of change in the prices of goods and services and technically it covers
both inflation and deflation periods
- Inflation: Rising prices on goods and services
- Deflation: Falling prices on goods and services
- Purchasing power risk= Inflation + Deflation

Unsystematic Risk
• Unsystematic risk emerge out of the known and controllable factors, internal to issuer of the
securities or companies.
• Factors such as management capability, consumer preferences and labor strikes can cause
unsystematic variability of returns for a company's stock.
• The uncertainty surrounding the ability of the issuer to make payments on securities stops
from two sources:
1. The operating environment of the business- Business Risk
2. The financing of the firm- Financial risk

a. Business Risk
- This relates to the variability of the business, sales, income, profits etc, which in turn depend
on the market conditions for the product mix, input supplies, strength of competitors, etc.
 - This Business risk is sometimes external to the company due to changes in govt. policy or
strategies of competitors or unforeseen market conditions
- They may be internal due to fall in production, labor problems, raw material problems or
inadequate supply of electricity etc.
- The internal business risk leads to fall in revenues and in profit of the company, but can be
corrected by certain changes in the company's policies.

b. Financial Risk
- This relates to the method of financing, adopted by the company, high leverage leading to
larger debt servicing problems or short-term liquidity problems due to bad debts, delayed
receivables and fall in current assets or rise in current liabilities.
- These problems could no doubt be solved, but they may lead to fluctuations in earnings, profits
and dividends to shareholders.
- Sometimes, if the company runs into losses or reduced profits, these may lead to fall in returns
to investors or negative returns.
- Proper financial planning and other financial adjustments can be used to correct this risk and
as such it is controllable.

EXPECTED RETURN AND STANDARD DEVIATION OF A SINGLE SECURITY

• The expected return of a security is based on the probability distribution of returns.
• A probability distribution is a representation of possible outcomes (states of nature) that may occur
and the likelihood (probability) of each outcome.
Probability must sum to 100%
Standard Deviation
- This measures the variability of possible returns and is represented by the lowercase Greek symbol
sigma.

Interpretation:
• The smaller the standard deviation, the more likely we are going to earn something “close” to
our expected return.
• The greater the standard deviation, the greater the chance that we may earn something far
more (good) or far less (bad) than our expected return.
INTERPRETING EXPECTED RETURN AND STANDARD DEVIATION
Expected return gives us an idea of how much we will make on the investment.
Remember:
• it is not how much we will make, but how much we would make on average if we could repeat
the holding period an infinite number of times
• the expected return is only an average return and not the return you will receive in any
particular instance
• focus on the process and not the result
- If you had the opportunity to play once for a cost of $2 and you lost, it still was a smart
decision to play and you should do it again if you got the chance
- If you had the opportunity to play once for a cost of $20 and you won, it was still a bad
decision to play and you should pass if offered the opportunity to try again.
Defining Return
- Income received on an investment plus any change in market price, usually expressed as a percent of
the beginning market price of the investment.

Total gain or loss experience on an investment over a given period

of time

• Returns are expressed in percentage figures rather than in actual money terms
• This allows investors to compare the rates of return on various assets of different levels of
investment

Importance of Rates of Return

• Measuring historical performance of managed funds
• Determining future investment decision
• Estimating cost of capital (cost of equity in capital budgeting decision)
Coefficient of Variation
• The coefficient of variation (CV) is a statistical measure of the dispersion of data points in a data
series around the mean.
• The coefficient of variation (CV) represents the ratio of the standard deviation to the mean, and
it is a useful statistic for comparing the degree of variation from one data series to another, even
if the means are drastically different from one another.

Understanding the Coefficient of Variation

• In finance, the coefficient of variation allows investors to determine how much volatility, or
risk, is assumed in comparison to the amount of return expected from investments.
• Ideally, if the coefficient of variation formula should result in a lower ratio of the standard
deviation to mean return, then the better the risk-return trade-off.

*Note that if the expected return in the denominator is negative or zero, the coefficient of variation
could be misleading

Illustration:
• risk-averse investors may want to consider assets with a historically low degree of volatility
relative to the return, in relation to the overall market or its industry.
• risk-seeking investors may look to invest in assets with a historically high degree of volatility

DIVERSIFICATION
- this refers to the concept that by holding a number of different securities (ideally not just stocks) from
a spectrum of industries
http://www.viewpure.com/ibSp1xzLfy8?start=0&e nd=0

Modern Portfolio Theory (MPT) Harry Markowitz

- is a theory on how risk-averse investors can construct portfolios to maximize expected return based on
a given level of market risk
I've always wondered myself, why do we have to hear this every night when the stock market is doing
70 record closing highs so far for the Dow blasting through a sale in a record setting IPO, investors who
have been riding the wave. When the stock market is booming, we're made to believe the economy is
booming.

And in America, the stock market has been mostly booming for almost 40 years. But the stock market
goes, so goes the wealth and the health of the American economy. What the market is telling us is that
we are on the road to the skyrocketing stock market and that benefits everyone. In the stock market has
gained almost three trillion dollars in value since the election. But if you add up all the goods and
services bought and sold in the United States, the actual economy, that number isn't growing as quickly
as it used to. Wages have hardly budged in decades, and the average American families net worth still
hasn't recovered from the Great Recession.

So what exactly is the stock market measuring? The barometer of America's prosperity has been the
stock exchange. Look at the Dow currently up by… The Nasdaq finally hit, 5000… investors are
salivating… dividends!.. Is this a new kind of gold rush… You're all watching this global economic
expansion. We are now an historic… stock buy-back. It's a fundamentally psychopathic philosophy.

To understand what the stock markets are measuring, it helps to imagine a very simple business, like a
lemonade stand. Jill is killing it, but I'm thinking bigger. I tried to get a loan, but the bank said it was too
risky. Average investors were buying. Jill has another option. She can go public, giving anyone who
wants to get the chance to invest in her business through something called an initial public offering or
IPO. Investors pay a certain amount, say a dollar, to own a small part where share of Jill's business, Jill
sells a bunch of shares and I grow my lemonade empire! right, Jill and put that money towards opening
new lemonade stands, which means more profits. Jill can put some of those profits towards developing
new products. She can also give some of that money back to her investors. These are called dividends.
She doesn't have to do this, but it does help get people excited about her company and more likely to
buy her stock. Like Sam, he was sick on IPO day, but he thinks- Jill is the smartest girl in the whole world.
And I know this lemonade stand, I think, is going to be huge. So he offers to buy some shares from one
of the original investors for twice what she paid for them. He's thinking- Jill keeps this up, I can sell these
shares for a bit more later on. That's the stock market. It's people buying and selling tiny pieces of
companies based on how much they think those pieces will be worth in the future, except in real life. It's
happening thousands of times a second all over the world there.

Stock markets everywhere. But the New York Stock Exchange is the big kahuna. It's been around since
1792 when 24 stock brokers put on their finest short pants and top hats and got together under a
buttonwood tree on Wall Street in New York City. Today, it's where shares in big traditional companies
like IBM and G.E. are traded. The Nasdaq is the cooler younger brother. It was born in 1971 and doesn't
have a physical location. All the trading happens electronically. That's where you find tech companies
like Apple and Facebook. So in America, if you want to know how the stock market is doing, you want to
know how both these exchanges are doing. That's where indexes come in. They take a whole bunch of
share prices and transform them into one clean number, the S&P 500 tracks 500 of the largest
companies on both exchanges. While the Dow is a lot more exclusive, it only follows the 30 companies it
considers the most important. In 2015, it booted out AT&T and replaced it with Apple. The Dow and the
S&P are big American indexes, but other countries have their own indexes to measure their stock
markets. The German Stock Index, DAX, London's FTSE 100 index, first on the Nikkei index closed. The
Shanghai index dropped.
Today, many of the world's biggest companies are publicly traded. But that wasn't always the case. One
guy, and it was almost always a guy, used to call all the shots. Big corporations of the nineteen
hundreds. Most of them at that time had a single shareholder like Andrew Carnegie (steel), Cornelius
Vanderbilt (railroads), John D. Rockefeller (oil). They really exercised very tight control over these
businesses. This all began to change in the beginning of the 20th century. We start to see the rise of
companies like General Motors and General Electric and RCA. Companies discovered what Jill
discovered, that if you allow the public to buy shares, you can grow a lot faster. Shareholders want to
make money. So if the CEO makes a really bad decision, they'll start selling their shares, which will drive
the price down.

The opposite is also true. The possibility of a future payout encourages people to invest in risky new
ideas. That's the whole idea of the stock market as a force for good. It drives companies to make good
decisions so they have more money to give back to shareholders and more money to grow and create
jobs. And that's good for everybody.

By the middle of the 20th century, the American Public Corporation was proving itself one of the most
effective and powerful and beneficial organizations in the world. There's a sense of growing prosperity,
and the telephone company is a great full participant.

In the decades after World War Two, the stock market helped create the heyday of shared American
prosperity. A new era began to make the system more democratic, increase the flow of capital for the
financing of business.

The corporation really was supposed to be a vehicle for providing investment opportunities not just to
the very, very wealthy, but to average Americans. It's generating superior returns for investors. Don't
you think we ought to invest. Millions of secure, well-paid jobs is producing innovative products that are
bought around the globe. Executives and directors viewed themselves as stewards or trustees of great
public institutions that were supposed to serve not just shareholders, but also bondholders, suppliers,
employees, the community.

Buick has provided a stomping ground from a cowboy in diapers and Buicks’ General manager Ivan
Willes drops in the Dupont company. Modern chemistry and modern industry join hands in serving our
modern America.

These public corporations helped build the American middle class. And for people who knew how to
play it right, trading their stocks could build a fortune like this guy. I would work. Folk music is just his
hobby. Mostly he's the billionaire investor Warren Buffett, Warren Buffett, the biggest Wall Street titan
of them all, because most famous investor Warren Buffett is worth eighty four billion.

Buffett is famous for a particular investment style. Value investing, careful analysis of companies looking
at their balance sheet, looking at their business. But if you don't have time to do that, here's a tip from
the man himself buy an S&P 500 low cost index fund. An index fund puts a little bit of your money in all
companies in the index. Basically, you're hitching your wagon to the stock market. The other option is to
give your money to professional investors who for a fee, try to beat the stock market. Buffett once bet a
hedge fund a million dollars that over 10 years an index fund would make more money and he won.

Picking stocks is a hard game, but there's one popular strategy. This guy, John Maynard Keynes, you
can't remember him by his epic mustache. He came up with it. Keynes was one of the most influential
economists of the 20th century and he noticed that newspapers would do this thing. They would have a
full page of the newspaper dedicated to photos of pretty faces. And you are supposed to pick the six
prettiest faces and mark them down in rank order and mail them in to the newspaper. The newspaper
would rank all the faces based on how many votes they got, and the winner was the person whose
choices matched the crowds. Let's think about that contest. Do I really just pick what seemed to me the
prettiest faces? No, I should pick what other people think are the prettiest faces. That's kind of what
happens in the stock market.

It's not the real value of companies that drive their stock prices. It's the most popular story people
believe about those companies. Sometimes the stories are backed up by facts. Chipotle stock has
plunged more than a third. This comes after several outbreaks, including E. coli. Salmonella and
norovirus were linked to the chain. An emissions scandal rocking Volkswagen is sending its stock into a
free fall. But sometimes those stories are all hype. Internet companies are the hottest and most
profitable investments in a generation. They've driven the value into the stratosphere. Lycos, Excite,
Yahoo! Those Internet stocks continue their meteoric rise. The narrative in the 1990s was Internet
companies are going to dominate. These companies shouldn't be trying to make profits. That's a good
story, which is partly. Right, we do have companies like Amazon, Google. The problem is that nobody
had any way to calibrate this story. How high should the market be? Is it a boom without end? Has the
economy changed for good? You know something’s wrong when everyone’s talking about something
like this. It’s a bubble, it’s like a snowballing effect. It keeps getting higher and higher. It can’t go on
forever.

The Dot Com Honeymoon is coming to a close in many parts of the world. Many dot coms have become
dot bombs. 300,000 tech jobs are now gone. It’s describes as nothing short of breathtaking. A points
drop never before seen on the US market. It left traders and investors shell-shocked.

When stock market bubbles burst, it doesn’t just hurt investors, it wreaks havoc on the whole economy.
Millions of people can lose their jobs, companies go under, and pension gets pummelled. But even when
the stock market is up and investors are making money, that can hurt the economy too. We are heading
towards the most acute shortages of energy since World War II. Motorists began lining up before dawn
in hopes of getting enough gasoline to take them through the day. Are you mad about the way prices
have risen? I am thoroughly discourage and disgusted with the whole thing. There was a general sense
of concern that something had gone wrong in the American economy.

And eventually the finger got pointed at the way our large public corporations were operating and being
run. Meet the chief finger pointer. Milton Friedman, an economist so famous, he was invited onto
popular talk shows to help explain his philosophy. Did you ever have a moment of doubt about
capitalism and whether greed is a good idea to run on? Tell me, is there some society, you know that
doesn't run on greed? Remember the wheel? Friedman was not a fan. He thought it should have,
exactly, one spoke shareholders. In 1970, he published a blockbuster op-ed, the famous editorial that
ran in The New York Times, in which he said that because corporations were owned by their
shareholders, the only obligation of business was to make profits. Gordon Gekko's character in the
movie Wall Street epitomizes Friedman's philosophy. You own the company? That's right. You the
stockholder and you are all being royally screwed over by these bureaucrats. Greed, for lack of a better
word, is good.
And corporations took his advice and they start tying the top executives’ pay to share price
performance. Well, if 80% of the CEO's pay is based on what the share price is going to do next year, he
or she is going to do their best to make sure that share price goes up, even if the consequences might be
harmful to employees, to customers, to society, to the environment or even to the corporation itself in
the long term.

CEOs put more money towards things that would increase the stock prices in the short term, like cutting
costs or buying back a bunch of their own shares to decrease the supply and artificially bump up the
price. Between 2007 and 2016, that's how companies in the S&P 500 spent more than half their
earnings. Another 39% went to their shareholders as dividends, which didn't leave much left to raise
wages or expand or develop new products, things that are good for the economy and the long term.

If you have a long term view that, you know, 100 hundred years from now, I still want to be a company,
may be making something different, but I still want to be here. So the choices that you make in terms of
investments in people and in capital are different than if you want to, you know, make an investment
and generate a return within 24 months.

In 2012, the Wausau Paper Company was making investments to switch its factories for making printing
and writing paper to making tissue paper. But then a hedge fund bought up a bunch of shares and
pushed the company to cut costs. Instead, their argument would be, we don't need to do that. But I'd
rather see you do is to increase the dividend as management, we disagree with that. We offered
concessions. You know, we take a cut in pay just to leave the doors open. Wausau paper says it plans to
close the broken mill by March 31, leaving about 450 people without work. The news is devastating, not
just to the workers who will lose their jobs, but to the community of Broka, where the paper company
got its star. December 7th, they'll never forget that, you know, it's when Pearl Harbor was. But that's the
day I was burying my father and it's the day I lost my job. Then the next day I came to work and it was
just a madhouse, you know, people just crying. And you know why, you know, and it was a shock.

My concern is we've evolved to this much shorter term view on shareholder rights versus a longer
term view on stakeholder responsibilities.

This is a trend that's been going on for a while and has gotten even more powerful and important. It's
seriously threatening the ability of our corporations to pursue the kinds of projects that lead to long
term corporate sustainability and economic growth. Laying off workers, closing factories, keeping wages
low. These are things that are bad for the economy overall, but can be great for a company's short term
profits. And that's what the stock market cares about.

The stock market got off to an impressive start. The stock market set another record today for the record
books on Wall Street. A new US economy charges ahead and so do the bulls on Wall Street. It's a big day
on Wall Street. S&P 500 has reached out to a new all time high.

And as the stock market has grown, so have CEO paychecks. In 1973, the average CEO made about 22
times more than the average worker. By 2016, it was 271 times more. And as the stock market has
grown bigger, fewer Americans have benefited. The share of Americans invested in the stock market is
at its lowest point in 20 years as the middle class dropped out. So it's no surprise that as stock prices
have gone up in the United States, so has inequality.
But it doesn't have to be this way. Stock markets give people a chance to decide which companies
deserve to succeed, which ideas are worth a gamble. There's something about giving people games to
play. You look at successful countries and they all have stock markets and countries that tried to shut
them down are coming around and instituting them. Stockholders can influence how companies behave,
whose interests they take into account. Most of us are thinking about our long term futures. We care
about our neighbors and our children and our grandchildren. We have values and morals and want our
companies to make money by doing things that are good for the world and not by harming people and
destroying it. That's what most shareholders really want.

• The Philippine Stock Exchange is the only equities exchange in the country. It is one of the
oldest stock exchanges in Asia. Tracing its fruits from the establishment of the Manila Stock
Exchange in 1927 and the Makati Stock Exchange in 1963, the two exchanges were unified in
1992 to form the PSE we know today. It currently maintains a trading floor at the PSC Tower in
Bonifacio Global City Taguig City. The PSE is a venue for companies to raise capital for business
expansion. As of end 2020 there are 272 listed companies at the PSE. The PSE also serves as the
marketplace for investors looking for equity-based instruments. It helps investors build their
wealth as stock investments have the potential to grow over time. Investors make money in the
stock market through price appreciation and dividends. The PSE helps maintain a fair and
transparent market through its continuing disclosure requirements for listed companies,
meantime its independent subsidiary the capital markets integrity corporation oversees and
regulates trading participants. Trading at the PSE is open Monday to Friday except on holidays.
The PSE currently observes shortened trading hours from 9:30 a.m to 1 p.m. investors who
would like to invest in stocks will need to open an account with any of the 126 accredited stock
brokerage firms. Visit the PSC website at www.psc.com or follow our official social media
accounts to know more about investing in the stock market.
• Investing 101 basics of stock market. so i just i will just talk about four things why you need to
save and invest, what are stocks, why invest in stocks and how to invest in stocks . So we all have
these hashtag goals you know some may be thinking of a self-improvement or probably you
know a career advancement iba sa atin are probably thinking of buying their dream car or yung
iba would like to build their dream home you know even a man travel goals and the others are
probably thinking of settling down, getting married and then raising a family. We have to
prepare for these and we have to prepare for the expenses of course that will come with these
milestones say for example in a dream vacation so if you're planning for a dream vacation, travel
restrictions so probably it's a good time to start saving up for your dream vacation COVID 19
pandemic and hopefully we survive this. For our dream vacation so say just for the purpose of
discussion you want to set aside a 10-day budget for two you know it's a vacation 240000 pesos
so say you want to save up for that five years so five years so that's around 4 000 per month
okay so you set aside 4 000 per month for five years and you can save up two hundred forty
thousand for your dream vacation so finally after five years and save up canada and two
hundred forty thousand so ready let's uh book the air the airfare and book the hotels and look
at the travel itineraries and while you're at it you realize oh my god yung dating 240,000 tumaas
na. This is called inflation it is a phenomenon that happens every day, this is a part of our lives
so basically what inflation does to your money is yung pera na tinabi mo today will not hold the
same value tomorrow. You see the overtime you know prices of goods and service they tend
to rise because factors of production you know yung sweldo ng labor para magawa yung goods
and service, or even the raw materials, while we are upgrading our lifestyle because of you
know increasing income we tend to have demand for goods and services that we cannot afford
before, so increasing demand for certain goods and services will result in an increase in the price
 of those goods and services. In economics, the higher demand will result in the higher price so
habang tumataas yung mga presyo ng bilihin yung purchasing power or yung value ng pera natin
over time bumababa so basically an inflation hurts our savings and so this is what inflation does
to our savings, it hurts it. so kung dati yung 500 pesos looks like this you know I remember uh
fresh grad ako that the time um 500 pesos can buy a kilograms of rice so fast forward to 10
years later iba na itsura ang itsura ng 500 pesos you go to the grocery store now you can buy
probably if not five kilos kung mas mura meron pa siguro. So the same amount but it buying less
amount of um 10 years from now 2031, I’m not sure what uh but 500 pesos would look like
then one thing is for sure it will buy less amount of rice. um one of the richest uh stock market
investors, kilalang kilala internationally Mr. Warren Buffett said that if you don't find the way
to make money while you sleep you will work until you die so while it is true that we work
hard for our money that we really earn our money, we also have to have this shift in the mindset
that we need to make that money and also work for us.
• So how can we make money work for us then we can set up our own business become
entrepreneurs or we can invest this money to grow, iba’t ibang investment alternatives is
available dyan. There are so many kinds of uh investment alternatives out there uh depende sa
tao. You see investing is very personal hindi sya parang one size fits all the damit so it's bespoke
to the person based on the person's personality.
• If you're the conservative type of investor uh what do you really want to do is to protect your
capital and para sa iyo peace of mind is top priority, you're willing to forego higher returns as
long as your money is invested in low risk options so yung mga ganitong klaseng investors may
want to look at yung mga investment products na deposit products you know particularly time
deposits so time deposits uh they give around 3.75 to 4% and only so there are also a regular
savings account now that uh give um around the same interest rates per year knows among
digital banks so you may also want to look at those uh products anyway um savings accounts
digital banks are also insured by the PDIC up to 500,000 pesos.
• So the next level of investor is the moderate investor somewhere in the middle so balances risk
and reward so somehow um capital protection while at the same time kung pwede magkaroon
ng regular income from the investment and okay lang yung may uncertainties sa return basta
sakto lang. Moderate investors are advised to put their money in fixed income products these
are products of indebtedness issued either by the government or by private corporations yan
yung tinatawag nating government securities, treasury bonds, retail treasury bills these are
fixed income products issued by the government. We also have them a private like uh
corporate bonds you know so if you want to invest in those products dahil sila ay instrument ng
pagkakautang may liabilities sa atin bilang investors ang mga issuers so may regular returns
matatanggap in the form of coupon payments
• next level and the extreme level is the aggressive investors they prioritize capital appreciation
so ang gusto nila is growth investing their money for the long term para mapalaki yung money
okay lang sa kanila yung short-term fluctuations pero for those actively trading they see the
dips, the down swings or even bad news as opportunities for even bad news as opportunities for
bigger gains.
SUITABLE INVESTMENTS FOR DIFFERENT PERSONALITIES
CONSERVATIVE MODERATE AGGRESSIVE
• Capital protection • Balances risk and reward • Capital appreciation
• Peace of minds is main • Expects regular income • Can tolerate short-term
priority • Uncertainty of returns is fluctuations
• Willing to forego higher moderately acceptable • Sees bad news as
return for low risk options opportunities for bigger gains
• As I was saying earlier so regardless of our investor personality type we have to take note that
we need to build a healthy investment portfolio. A healthy investment portfolio only has
legitimate financial investments and we can start with the short term you look at savings.
Importante ang savings well, it is true that savings is not equal to investing but having a savings
you know savings account and setting aside money is important especially for the short term , for
our emergencies. So typically a savings account will give you a return of about ½% per year. Now
moving on to the medium term you look at the fixed income and a good example would be
government securities almost risk-free ang government securities so in a five-year term uh
government securities will give returns of about 2 ½% per year. Now for the long term you may
want to look at stocks, stocks um in the last 10 years from 2009 to 2019 nagbigay yan ng
compounded annual return and compounded annual growth rate of about close to 10% so very
strong performance very impressive uh without debate yan naman talaga ang best performing
investment type out there. But again do we put it all in stocks or uh do we diversify well
depending yan on our investor personality type. Again before investing, set up your emergency
fund first so for me you know emergency fund personally is around 6 months of your living
expenses so say for example uh you're spending 50 000 a month for everything you know yung
utilities yung expenses by food etc so time 6 you put set up a savings account na hindi ginagalaw
that's your emergency fund. Of course you need to have your insurance in place health
insurance life insurance and fully paid basta nababayaran naka set up ang emergency fund. Then
you can start considering investing for the medium term and the long term now your
investment demand combination ng medium and long term forms part of your growth fund. So
here you can see in the slide the image of a healthy investment portfolio. Say if I invested 100
000 pesos in Philippine stocks 10 or 20 years ago today magkano na magiging halaga nya today
or thereafter you can see that over time stocks outperform other investment alternatives by
folds especially um during 2009-2019 considered one of the longest bull runs also in the stock
market so just to better appreciate. This chart um let's look at the yellow line first, shows you
inflation so basically in 100,000 pesos mo ng 2009 would need to be 134,000 in 2019 for it to
buy the same amount of goods and services 10 years ago so kung nilagay natin yung pera natin
say sa time deposit naggrow lang yan to 124K teka medyo short pa, hindi pa umabot to be able
to buy the same amount of goods and services. now if you invested that money completely in
treasury bills naggrow lang yan up to 131,000 pesos so pede na pero medyo kulang pa so what if
nilagay mo sa stocks, it would have uh doubled already even greater than double so to 256 000
pesos so you have a beated inflation by folds and at the same time investment in stocks
outperformed the investment in treasury bills and time deposit the same din ba ang situation if
we take another 10 years step back well let's see there ah medyo iba na ang story dito well
pinapakita lang naman sa atin dito is that while stocks uh typically know over time outperforms
other investment alternatives there are also times na hindi rin sya out performing may time na
underperforming sya um a good example would be just like last year 2020 CODVID 19 pandemic
nagcrush yung market nung march bumagsak yung stock so same goes in the past so history has
shown that in times of crisis bumabagsak ang stocks but also history has shown us that stocks
have the capability to recover after every crisis so but still over time investments in equities tend
to outperform so anong key take away natin dito so basically let's not put our eggs in one basket
 let's diversify so ang question is magkano ang ilalagay, gaano kalaking percent ang ilalagay. Self-
check anong klase personality type meron tayo diversify based on your risk tolerance so are we
again conservative moderate or aggressive then you can determine how much of your portfolio
should be allocated into um riskier products but yung na nga not high rewarding or how much of
your portfolio can must be allocated to safer products but lower returns okay so maraming
investment products out there.
• Stocks or Equities
 1 slice= 1 share (shares of stock represent units ownership within a company)
 Stockholders (part-owners of big companies)
 Investor rights (share in company’s income and participate in decision making process)
• What are stocks? Stocks or equities so think of a company like a pizza with a lot of slices where
in one slice is equal to one share so when a company is equal to one share so the investor buys
slices into that pizza slice or which is equal to one share represents units of ownership within
that company so basically when you buy slices into that company you become a stockholder
and when you're a stockholder you're a part owner of that big company and also to participate
in decision making process of that company uh part owner you may right ka na over sa income
ng companies.
• How can we earn?
 Price Appreciation (buy low, sell high)
 Dividends (share in company’s profits)
• There are two ways to earn in stock market so the first is through price appreciation so ito
yung tinatawag natin where investors buy low and then sell high so tinitingnan ng mga investors
kung may mga stocks na oversold or undervalued and inaaral nila at kung sa tingin nila mura ang
stock na ito bibili sila and then when the stock’s price uh starts to recover tumaas na may kita na
sila ibebenta na nila so in difference between the buying and the selling yun yung nagiging kita
ng ating mga stock traders or investors. Another way to make money in the stock market is
through dividends so ito personally I prefer this more so this is when investors invest in
companies that are profitable and have shown a track record of distributing their profits to their
investors year in year out.
• There are three types of dividends you have the cash dividend, stock dividend and property
dividend. In cash dividend this is x amount of pesos for every share an investor owns yung stock
dividend x amount of additional shares for every share that an investor owns yung property
dividend is a little similar to stock dividend ang pinagkaiba lang ay share ng ibang company say
you are an investor of company A yung company A is listed traded in the pse and company A
owns another company which is company B so nagdecide ang company A to distribute ng shares
of company B sa mga stockholders ng company A so yun yung stockholders from company A
eventually will also become stockholders of company B so that's property dividend.
• So here at the pse meron pa tayong isang binabantayan yung tinatawag nating index the
Philippines Stock Exchange Index. What is an index? This is our way to monitor the
performance in the direction of the market so instead of looking at all the 272 companies and
how they did today we just look at the index so like today the PSEI closed at 7,019.18 points
okay um it's up by 115.43 points 1.67% so tumaas sya from yesterday so what does this mean
 um first let me explain the index now so the index is made up of the 30 of the biggest and most
actively traded companies. What we do is we have a research department that reduce the
composition of our index every 6 months so tinitignan nila pedeng madagdag sa index natin so
every 6 months narereview yan so looking at the companies here in the screen you can see that
um these are big companies these are very recognizable brands you know so for beginner
investors um advisable to invest in companies that are index stocks because they are what they
call the blue chip stocks
• So ano yung blue chip so we call them blue chip because uh to those naglalaro ng poker or say
games in the casino not saying that's good to play in the casino but anyway most of the time
yung chips iba iba ang color yung blue holds the highest value so hence the name blue chip
stocks so blue chip. Stocks are companies with strong brand recall you think of fastfood you
think of Jollibee…big banks bdo bpi metrobank etc… so household names na sila very familiar
ang tao sa bran nila and they have sustained demand so year in year out
maganda ang business, they have a lion's share of the sector so they are major players in the
industry and finally they have a proven track record you know to weather any economic
conditions so they have proven resiliency so even last year pandemic was the height of it you
can see that even the big companies were greatly affected by this crisis so dun mo makikita kung
sino talaga sa kanila yung may magandang business model, yung may magandang busines na I
would say defensive so in the good times and in the bad times kumikita yung negosyo nila.
• Benefits of Investing in Stocks
 Liquidity (buy or sell anytime)
 Transparency (access to corporate disclosures)
 Management (world-class companies run by professionals)
• Why is it good to invest in stocks? Stocks are shares of ownership within the company.
Pagbumili ako meron akong entitlement sa kanilang income. Index shows the direction of
market. So bakit magandang maginvest sa stocks? well there are a lot of benefits to invest in
stocks. Number one is the liquidity feature of it so ano ba yung liquid or or being liquid so ang
stock investment kasi can easily turn it into cash so pagkailangan mo yung pera mo the market
sabi kanina sa video is open monday to friday except on holidays so palaging may trading so you
need to sell your shares you can share sell your shares as long as it's within trading hours so
after three days you get the proceeds, so if you need your money you can sell it now yun nga
lang because it's actively traded; tumataas, bumababa baka may chance na kung kalian mo
kailangan yung pera mo mababa sya, kaya we advise to invest in the long term and the next
benefit is the transparency so again the continuing disclosure requirement yung companies
natin kailangan nila laging inaupdate yung investing public about material information or
material changes within the business so nakikita ng mga investors kung ano ang nangnyayari
within the business and how do you get access to this information through PSC edge and it's
free no all you have to do is download the app so PSE edge is electronic disclosure generation
technology. liquid investment, madaling bilhin, ibenta, walang minimum holding period tapos
very transparent pa alam mo kung ano binbili mo at anong nangyayari sa binibili mo and finally
these are you're buying into big companies okay mga malalaking company na drivers of our
economy so basically you are becoming owners or part of companies with a world-class. They're
 run by professionals they comply with the highest corporate governance standards they follow
international financial reporting standards while it's good that you start your own business.
Entrepreneurship is good but kung hindi ka pa ready bat hindi ka muna makiride sa business
success.

• Settlement bank –facilitates the exchange of money for the securities bought or sold
• Clearing House (SCC) – serves as intermediary in making delivery upon payment of securities
• Depository (PDTC) – acts as custodian of scripless securities
• How do we invest in stocks? so actually three easy steps to invest in the stock market but
before we proceed there let me just give you an overview of the ecosystem paano ba
tumatakbo ang isang stock market so it all starts with companies like what the video said earlier
so companies when they need capital for business they raise that capital and so maraming
sources of capital either kunin nila yan through loan, banks, issues corporate bonds, securities of
indebtedness or they raise their capital through equities through private equity investors now if
they raise the capital through equity in a big stage in a public scale they do that through the PSE
and they do that through listing so they list their company they list their shares in the Philippine
Stock Exchange they sell the shares they distribute the shares to the public in exchange for
capital so investors buy shares from the company so nagiinvest na sila sa company na yun they
become part owners of that company now these companies that conduct their equity share
offering or equity fund raising for the first time are conducting what we call an IPO or initial
public offering, these are basically companies naglist sa pse for the first time so investors can
participate in IPOs even retail investors open. now after the offer period the shares are listed
and then actively traded in the stock market so investors who were able to buy nakabili during
the IPO pede ng ibenta kumita na sila or if they want to invest more they can buy more now for
those investors na hindi nakabili during the IPO okay lang because they can buy in the secondary
market so yung secondary market naman ito yung tinatawag nating stock market. In the stock
market, the shares that being bought and sold so between investors na yun nagbabuy and sell
na fellow investors. So dito ang ikot ng trading, so buying investors selling investors buy and
sell, um palit ng shares so naiintindihan na nating ang trading so what happens after trading so
 say for example bumili ako ng shares or nagbenta ako, so kelan ko makukuha yung pera ko yung
clearing and settlement process natin happens in three days or T+3. We have our central
clearinghouse or the SECP so they serve as the intermediary in making the delivery upon
payment of securities so the SECP ensures that there is no default in the transaction so basically
the buying broker delivers the cash and the selling brokers delivers the shares. So yung shares
nasa yung shares natin so all the shares here are electronic, they are what we call scripless so
the scripless shares allows us to trade actively during trading hours so kaya liquid investments
natin, kaya mabilis syang gumalaw dahil electronic sya and um they are safely stored in the
Philippine Depository and Trust Corporation PDTC, it acts as the custodian for scripless securities
so you can see here guys in the slide the entire stock market ecosystem.
• PSE Products
 Shares of Stock – units of ownership of a public corporation which can either be
common or preferred.
 Exchange Traded Fund – an open-end investment company that seeks to mirror the
performance of an index
 Dollar Denominated Securities – securities that are listed, traded and settled in US
dollars.
 Real Estate Investment Trust – a company that owns and operated income-generating
real estate assets
• At the PSC there are a lot of equity-based financial products being traded. Shares of stocks are
basically units of ownership of a public corporation. Exchange traded fund so familiar na kayo
sa mutual fund. Basically an exchange traded fund is a mutual fund and pinagkaiba nya lang sa
typical na mutual fund is that itong exchange traded fund is actively traded in stock market so
yung shares of ETF company or the exchange traded fund you can buy and sell it at the stock
market. It offers you feature of mutual fund which is the diversification and at the same time it
offers you the feature of the stock which is the liquidity. So liquidity and diversification best of
both worlds you put it together that is exchange traded fund and in addition an exchange
traded fund is also considered an index fund because it's required to track an index so right
now meron tayong isang exchange traded fund na listed sa PSE uh First Metro Philippine Equity
Exchange Traded Fund FM ETF. FM ETF they track the PSEI or the Philippine Stock Exchange
Index. the PSEI is composed of the 30 of the biggest and most actively traded companies. So
basically when you buy an ETF you are instantly invested into these 30 companies so diversified
ka na all right another product is a Dollar Denominated Securities DDS so these are securities
also shares of stocks that are listed traded and settled in U.S dollars so useful for investors na
may extra dollar savings so instead of savings ilagay na stocks that are traded and earning
dividends in U.S dollars and finally um we have the Real Estate Investment Trust REIT
so one of the newest products on PSE we saw the first REIT listing last year august 2020 basically
what is a REIT so kung naiintindihan natin yung business ng owning a property and making
money through that property so kunwari nagpapaupa ka then you're making money in that
apartment building right so basically yung mga companies real estate assets, kumikita sila sa
real assets na yun pede nilang ilist yung real estate assets as a real estate investment trust so
through REITnagkakaron yung investors ng opportunity to own real estate malalaking real estate
 for a fraction of the price because you don't have to buy the entire building or the entire
infrastructure you just have to invest into the company that operates the asset and REIT is a
good source of income also steady source of income for the investors because they required to
distribute 90% of their income annually as dividends to the stockholders so you may want to
look at the REITs also if you're uh interested in uh investing in real estate.
• Launch of Real Estate Investment Trust REITs
 Steady source of dividends (90% of distributable income annually distributed as
dividends)
 Affordable real estate investments (opportunity to buy into a portfolio of different
income-producing properties at a fraction of their cost)
 Foreign investments (REITs are an opportunity for foreign investors to tap into the
Philippine real estate market)
• How to start your stock investment journey?
 Open Account (with PSE-accredited stock broker)
 Fund Account
 Enter Order
• just three things that you need to consider number one open an account so you need to open
an account with the PSE accredited stock brokers there are 126 active trading participants or
stock brokerage firms here at the PSE opening a stock trading account is just like opening a bank
account when you open a bank account, you open it for savings when you open a stock trading
account that you open it for purpose of investing in stocks or trading stocks. Now if you're
opening an online account kasi may online at traditional pagonline you have to fund your
accounts and prepaid sya lagyan mo ng funds yung account then you can start buying and selling

stocks. See three easy steps open an account fund your account and then start investing

• Walang minimum holding period yan so you can buy any time so trading at the PSE again we're
open monday to Friday except on holidays. Trading hours iba’t iba tayong marketplaces so we
observe short-term trading hours for now we hope.. we start at 9:00 ang market phase natin is
pre-open so what happens during pre-open, participants can enter their orders buying and
selling orders pero wala pang namamatch, wala munang matching of orders, pwede kang
magmodified pwede kang magcancel until 9:15 Pre-open (No cancel) period na dito, now at
9:30 market open so PSE trading engine yung nakita nyo sa ecosystem yung gitna. We have an
automated trading engine that works very very fast you know high frequency high volume uh
transactions ang kaya nya. Imamatch nya lahat ng mga orders na pwede na mamatch at the
 opening price and from 9:30 tuloy tuloy ang trading until pre-close at 12:45 similar to pre-open
ganun din you can enter orders pero walang namamatch pwedeng magcancel pedeng
magcancel at magmodify pag 12:48 pre close (no cancel) hindi na pedeng magcancel or
magmodify bakit tayo may no cancel period for the pre-open and the pre-closed because this is
the time where when the trading engine computes and determine pagpre-open no cancel the
opening price but pre-close no cancel the closing price. now at 12:50 magmamatch na lahat ng
orders at one price which we call the last traded price LTP hence we call this market phase
trading at last or the runoff period so the market closes at 1:00 for it to resume again at 9:00
the following day

• all right next questions magkano ang minimum investment for the stocks? May mga stock
brokers na iba’t iba ang kanilang account opening requirement, so there's a minimum amount to
open an account with them pero hindi un yung minimum investments sa stocks so that's
basically just to open your account and then that money na binigay sa kanila to open the
account will you can also use that to buy the stocks. The minimum investment for stocks
depends on the stock that you want to buy. What price range and then what is the
corresponding lot size for that particular price range based on the PSE board lock table that
you're seeing in your screen right now. Let me give you a few examples, so based on last rated
price it's up to date then february 5 2021 uh metro pacific so MPI this is also a blue chip stock
diversified into infrastructure, cinema, hospitals among others so they closed today at 4.25 what
range they are in this range 50 centavos to 4.99 so on corresponding lost size nyan is 1,000 so
basically 1,000 times 4.25 equals to 4,250 plus applicable fees yan ang minimum investment for
mpi or metro pacific okay let's give a few more examples lucian group okay lt group they closed
at 14.96 so nasa and price range and due to sales are five pesos to 49.95 so times 100 so
basically fourteen point ninety six times one hundred so one thousand four one thousand five
hundred nakamu minimum investment for lucitan group plus applicable fees images in the next
slide i will show to you ayala land property property company they closed at 39.95 so again
same price range as lt group so minimum investment for ayala land is 3995 close to 4 000 pesos
that's uh to buy one hundred shares of ayala land then universal rubina um they are in the food
um i don't know food production business growing up as a kid eating Japanese snacks anyway
going back to urc they closed at 146.50 um price range is 50 pesos to 9.99 nano so 10 shares i'm
required to buy universal rubina so 146.50 times 10 so basically 1465 you know close to 1500
minimum investment for urc
then you have san miguel corporation if you've been watching the news recently um
 you can see smc infra young silence skyway stage 3 that connects the n-lex and s-lex very very
important project that um is helpful to the economy i am company behind it the san miguel
corporation so 128.90 you know so i am 50 to dens the same same range silence so minimum
investment is around 1 300 pesos i thought telco company i am during the pandemic demand
for internet stable internet i mean work from home miranda home school so yeah good job for
the telco business so globe closed at 2026 so they're in the price range of over 1 000 pesos per
share so minimum investment for globe you need five shares to buy glue so ten thousand pesos

• so there you have it so minimum investment depends on the stock, magkano yung stock and
ano yung corresponding lot size. Let's go to transaction fees these are the applicable fees, it
ranges pero mostly eto na lang ginagamita nila so 25 basis points or ¼ of 1% or 20 pesos, so 20
pesos yung minimum tapos may VAT na 12% on the broker's commission tapos may yung
clearing house at 0.01% pse charges 0.005% for our services so and total buying transaction cost
mo is 0.295% now a sales tax applicable stock transaction tax sa selling order so that's a little
over ½ of 1% so in total uh selling transaction cost is 0.895% so the entire cycle buying and
selling is uh around 1.2%. Let me give you an example so PSE is also a listed company so PSE let
say you buy 100 shares at 138 pesos so the gross transaction is 13,800 plus the applicable fees
brokers commission 34.50 pesos VAT on commission 4.14 pesos then you have the SSCP at 1.38
peso and the pse at 69 centavos so your total cost is 18,840.71. Now tumaas yung presyo nya to
157 you sell it your gross transaction gross selling is 15,700 less applicable fees brokers
commission 39.25 VAT on commission 4.71 SCCP 1.57 PSE fee 79 centavos and then the tax
94.20 so your net proceed is 15 559.48 so yung kinita (net gain) is basically your net proceeds
minus your total cost
• Some useful PSE Applications
 PSE EDGE (2013) features listed company disclosures which include announcements,
financial reports, dividends and Exchange notices.
 PSETradeX (2013) internet-based trading management that allows users to trade shares
of stock, monitor and manage their stock portfolio, and get real-time market
information
 PSE EASy (2019) a web-based portal and mobile application which enables retail
investors to subscribe to shares online whenever there is an initial public offering (IPO)
• Equip yourself with very useful apps and these are all free PSE EDGE or the electronic disclosure
generation technology so all disclosures nandyan you get the information first hand through
 PSEG it's free. now if you're interested in online trading we also offer an online trading facility
we call it the PSETradeX you cannot directly get the service from us pero you can get it from the
brokers we enable so may mga online brokers so out of the 126 32 sa kanila online and most of
them or karamihan are using PSETradeX. Now if you're interested to buy IPOs I suggest you set
up your PSE EASy account, so open your account with the broker first and then set up your PSE
EASy. It is a web-based portal and mobile application that enables retail investors to subscribe to
IPOs madali lang yan magregister ka lang select your broker get your account verified so once
that's done whenever there's an IPO log in and then subscribe and then make the payment
• so with with that um i'd like to ask you if you're ready for the ride you know um it's really a
cliche you know investing in the stock market it's like uh going on a roller coaster ride but it's a
very close comparison so before dba before ka umupo sa roller coaster you ask yourself do you
really want to go through this are you are you sure so before fastening your seat belt, list down
your financial objectives and make sure to follow your plan, have a plan and follow the plan
don't follow the herd mentality huwag magpapadala sa hype especially social media and in your
investment always take rational decisions don't let the volatility distract you always think long
term and you know if you're the aggressive type then whenever there are downswings then it's
a chance for you to rebalance your portfolio with the hopes of probably making more money in
the future.
• There are a lot of factors that affect the prices of the stocks; fundamental factors, technical
factors but there are also factors that are beyond our control talagang external and we just also
have to take note of these things because these things affect the stock market too like say
geopolitical risks you know um U.S china trade war or the tension in the west Philippine sea
yeah affects the stock market and of course we have black swans a new event that we who
would have thought that the world will shut down because of a virus but it happened right so it
also affected the market and of course economic cycles/ economic downturns so it happens
you know economies they grow they slow down they take a dip and then they start again so key
takeaway here is investing in stocks is again for the long term all right invest for the long term
and you will enjoy the benefits the full benefits of stock market investing.
• Looking ahead to the future
 Markets have a proven track record of recovery from past crises
 PSE is well-positioned to take advantage of post-pandemic opportunities
 Our stakeholders remain integral to PSE’s success
• and of course looking ahead into the future markets have a proven track record to recover from
past crisis and you can check historical figures and data and the numbers will uh support this
claim and of course PSE and as well as the country is well positioned to take advantage of post
pandemic opportunities so we always just have to.. i know it's it's kind of funny you know no
pun intended but stay positive yeah um so yun positive outlook so and of course we want to
thank our stakeholders they remain integral to PSE success you know our listed companies our
trading participants and of course you the investing public so thank you for continuously
supporting the stock market
• Capital Markets Integrity Corporation CMIC so the cmic is the subsidiary of the philippine stock
exchange which regulates now overseas and regulates trading participants
• ATTORNEY MARTIN GENERAL this afternoon I’ve been requested to discuss investors rights and
investor protection so before we actually discuss those two matters um I’ll be discussing briefly
about our company which is the Capital Markets Integrity Corporation this is actually relevant
or material to this two matters because as mentioned earlier by um john we are the entity that
regulates trading participants or the brokerage firms of the Philippine Stock Exchange so just a
little history we were incorporated in 2011 and in 2012 we were given a self-regulatory
organization status by the SEC Securities And Exchange Commission. So having that status we
are able to formulate certain rules that must be complied with by the by our members or the
trading participants or the brokerage firms. And relative to that we also impose sanctions in
cases of violations by the rules of those by those trading participants.
• CMIC
 Is the independent audit, surveillance, investigation, and enforcement unit of the
Philippine Stock Exchange. so we are the watchdog of the PSE
 Self-regulatory organization
 Also we have jurisdiction to investigate and resolve violations of the securities laws by
trading participants including cases involving trade and related irregularities and
unusual trading activities. Our jurisdiction really involves the brokerage firms but in a
limited sense we also exercise jurisdiction over issuers for trading related irregularities
and unusual trading activities
• okay so how do we fulfill our functions we have three core departments.
 Investigations and Enforcement Department
 Surveillance Department
 Audit and Compliance Department
• so how do we fulfill or how do we do our investigatory function involves
 Investor Complaints
 Cases initiated by the Surveillance Department
 Special Cases
  Other Matters
• so um recently well beginning in january of 2021 we have been receiving a lot of complaints
against trading participants so we have been receiving emails and also calls so this customers
actually asked for the procedures with regard to the filing of complaints. CMIC is the entity that
receives those complaints and also resolves those. So we have actually a form which we call
investor complaint for which is available for downloading on our website httpwww.cmic.com.ph
and once you fill out those forms we you may submit those to CMIC through our email and also
you can also visit our office. Once we receive those complaints we actually assess the assets the
merit of the allegations submitted by the customers or by the complainants and if we determine
that such complaints or allegations would justify the initiation of an investigation we will request
the conservative participant to submit a written explanation and of course upon receiving that
with an expiration we may also request the customer or the complainant to file a reply to that
written explanation by the trading participant. And also in some cases an informal hearing may
be conducted and after that we will be finally issuing a resolution. Our resolution we actually
involve penalty impose against the trading participants or against the brokerage firms, some
disciplinary actions be involved suspension then position about monetary fine and also in some
cases we may also impose a written reprimand. We also initiate cases usually this is these are
initiated by our surveillance department. The surveillance department monitors the market so if
there are certain instances of market manipulation. Our surveillance department prepares a
report and there may be recommendations for or finding some violations committed by trading
participants by issuers or sometimes by the beneficial owners or by the investors. We also
initiate special cases, this are the ones initiated when we deem that certain matters should be
investigated even in the absence of an investor complaint or by a or by a case initiated by
surveillance department and also we have we also handle other matters which may involve the
interest of investors
• as stated earlier, for a certain case there may be several violations.
 Violations by Trading Participants or by the brokerage firms - these are primarily
handled by the CMIC considering our jurisdiction
 Violations by Issuers or Listed Companies - for trading related irregularities or market
manipulation we may also exercise limited jurisdiction we actually have the power to
impose restriction, halt or suspension orders with the concurrence of the PSE Philippine
Stock Exchange
 Violations by Beneficial Owners or Investors - the customers themselves how do they
do this in some instances they may commit insider trading or they may commit market
manipulation so in these instances considering our limited jurisdiction we endorse these
cases to the SEC Securities And Exchange Commission which has jurisdiction over the
beneficial owners or the investors
 Violations of Listing and Disclosure Rules - the Philippine Stock Exchange has
jurisdiction over these violations so in the process of conducting surveillance we actually
monitor possible violations of the listing and disclosure rules
 Utilization of Surveillance System. We actually have um a sophisticated surveillance system
which we acquired from the Korea Exchange or from the KRX. This is what we call the Total
Market Surveillance System TMS.
 Monitoring in Real Time. We monitor the trades in real time so in other words during
trading hours we monitor the trades being entered in the system.
 Analysis of Disclosures. We also analyze disclosures. The disclosures are the issuances
of the listed companies that may be material to trades entered into by the clients so if
there are certain traits that may be questionable or maybe __ we relate this to the
disclosures issued by the uh listed companies. So in other words, this disclosure support
the trades being entered into by the investors
 Evaluation of Trades. Of course we evaluate trades whether they are manipulative or
not manipulative or whether they may justify the drafting of an initial report
 Detection of Abnormal or Irregular Trades
• so finally for audit. We conduct three classes of evaluations. We have the regular audit this is
based on an audit program approved by the securities exchange commission recently we have
been conducting regular audits of the books and records of all the trading participants that are
members of the Philippine Stock Exchange. We also conduct spot audits these are based on
certain parameters established by our rules and finally we have special audits these are audits
requested by the investigation enforcement department in case this were in the investors or
certain investors file complaints against their trading participants or by their brokerage firms
• okay so let's now go to the matter concerning investors rights. If you do decide to open an
account with a trading participant or you if you already have an account with a trading
participant you may ask what are your rights as a shareholder or as a client of a trading
participant or a brokerage firm so since we are actually talking about fundamentals and basics
maybe we can define what a right is or what a legal right is so based on an online information.
• a right is defined as something to which one is a just claim or something that one may properly
claim us due
• a legal right is something that this is defined as the interest in a claim which is recognized by and
protected by assumptions of laws by a state which enables one to possess property or to engage
in some transactions
 the interest in a claim which is recognized by and protected by sanctions of law imposed
by a state, which enables one to possess property or to engage in some transaction or
course of conduct or to compel some other person to so engage or to refrain from some
course of conduct under certain circumstances and for the infringement of which claim
the state provides a remedy in its courts of justice.
• INVESTOR RIGHTS so what are your rights or what are you entitled to when you are considered
or classified as a shareholder or a customer of a brokerage firm we actually have a number of
rights
 the first one would be the right to full accurate and timed information being a
shareholder of course um you want to invest in something that you think would be
beneficial to you so what would be your basis for investing in such a share or security of
course you would be basing your this your decisions on trading on full accurate and time
 information so what are these information or what is this information this information
would uh take the form of um financial statements and um in some cases um in your
trading you may also look uh into the disclosures being issued by the listed companies
so under the disclosure rules there are certain um requirements that must be complied
with by the listed companies in order to be compliant with those rules so for certain
information that may be pertinent or maybe material for the shareholders the recent
companies are given a certain time for the disclosure of this material information usually
it's 10 minutes from the time of occurrence of that material information so you may this
right may also be relative to the issuances of financial statements the other reports of
listed companies and of course the tips or the recommendations given by the trading
participants or brokerage firms to their clients
 the second right would be the right to rely on the completeness accuracy and
truthfulness of accounting and financial statements of course being shareholders you
are of the presumption that the financial statements issued by the issuers are complete
accurate and truthful so how do we determine this or how can we verify this of course
we must rely on the fact that these financial statements are authenticated by certified
public accountants and also by regulatory authorities
 the third right would be the right to have full access to funds in the account so this is
just a consequence of ownership over um shares of stock being a shareholder of course
relative to that you may also want to know what your position is so you actually have
the right to demand from your stock broker or from your brokerage firm the statement
of account with regard to your um shares or to your portfolio so under our rules we um
the trading participant or the brokerage firm has to issue statements of account on a
monthly basis but um if the investor requests that the statements of account be issued
quarterly they may do so
 next we have the right to fair and equal treatment of course being shareholders
whether you're small or whether you have a large stock holdings or shareholdings um
you expect to be treated fairly and equally by not only by the listed company but also by
the brokerage firm so for recommendations um we you expect that the
recommendations given to you by the beta brokerage firm is based on uh truthful
information or verifiable document and also in cases of conflicts of interest such are
avoided or if they cannot be avoided they are duly for timely disclosed to the client
 we also have the right to fair securities markets where trades are executed at the best
possible price so the shares um listed in the exchange or the prices of such shares are
reflective of the value given by the market to those shares
 next right would be the right to vote and to exercise related rights so being
shareholders of course you have um the right to manage the affairs of the corporation
so how do you do this so this this uh right is actually exercised during meetings of the
shareholders and may tinawatag na ASM those are the annual stockholders meetings
so during those events you can actually exercise the right to vote over material matters
involving the company this may involve the election of directors, the amendment of the
articles of incorporation, the acquisition or disposition of property of the company and
 this may also involve the extension or the shortening of the corporate term and other
related matters.
 another right would be the right to expect the board the management the brokers and
agents to perform their functions responsibly of course we have rules and those rules
would ensure that the interests and the rights of the shareholders are protected and
enforced so by doing this we have um we the board the management the brokers and
the agents also have a concurrent um obligation to perform their functions responsibly
so in recent years we have certain updates with regard to corporate responsibility so we
have independent directors we um and also corporate responsibility your social
responsibility so we have a lot of improvements on how the corporations fulfil their
duties and functions vis a vis the protection of the investors rights and how their
interests are protected.
 we also have the right to know dividend policy to receive dividends and to enjoy other
benefits due to stockholders so um being shareholders of course you have um share in
the profits of um that company so this uh this may take the form of dividends or the
declaration of dividends. Dividends may be um the form of cash property or stock.
 Then we have the right to expect the rate that the regulatory bodies are exercising
supervision over the industry exercising supervision over the industry so um for listed
companies and for brokerage firms and actually have a number of regulatory authorities
we have of course the securities exchange commission we have the Philippine Stock
Exchange and we have of course the CMIC or the capital markets integrity corporation.
these entities uh ensure that the listed companies that the brokerage firms are
complying with all the relevant rules and securities laws
 then we have the right of recourse in case of disputes concerning the account as
discussed earlier whenever a complaint or whenever you have a problem or any dispute
involving your trading participant or um the listed company of course you have several
remedies available to you of course you can file a complaint with the SEC you can also
file a complaint with CMIC and actually CMIC and SEC exercise concurrent restriction
and um of course uh for considering that um jurisdiction is not unlimited um for cases
involving compensation or for damages or for the award of damages this may be
properly filed with the regular courts um CMIC only exercises jurisdiction administrative
jurisdiction and actually our jurisdiction would only be um limited to the securities loss
violations of trading participants in some instances the listed company so in some in
some cases the customers or the clients ask us if we are authorized to grant damages
um actually we cannot because um that's actually um beyond our jurisdiction that may
only be properly filed with uh well uh a complete uh for damages may be filed with the
regular courts not with CMIC
• investor protection so these are the safeguards promoting transparent organized buying and
selling of stocks. Where every investor is protected from fraud manipulative trading practices
and airing stock brokers. What are the things that protect the interest of the investors actually
we have we have several of these safeguards first we have of course these self-regulatory
organizations or the SRO. CMIC is a self-regulatory organization also PSE is an sro so sro
 basically um is an entity that formulates policies and rules for their members in order that their
members should comply with. um sros may also impose penalties in cases wherein the
members are violative of those rules or are in violation of those rules. We have also the
disclosure rules of course or for any information that will be relevant to the stockholders of
course they want this information to be disclosed in a timely manner so we have actually the
disclosure rules to take care of that so there are certain requirements that must be complied
with especially by the listed companies in order for the for this material information to be duly
disclosed to the public. We also have the customer first policy this substantially uh entails the
brokerage firms to give priority to the to the orders of the customers so the orders of the clients
take precedence over the orders of the brokerage firm or the house account. Okay we also have
the securities investors protection fund or the SIPF this actually um is similar to PDIC so in
cases wherein the a brokerage firm commits a violation and it's ordered closed or suspended by
the securities exchange commission in some instances um via a petition filed by cmic for the
takeover of operations of a certain trading participant the investors or the clients of the trading
participant may actually submit this claim or her claim to the SAPF so para syang insurance din
so if the funds of the concern trading participant are insufficient to meet the demands of the
clients new deficiency may be answered or may be addressed by the SAPF
• Safeguards
 Capital Markets Integrity Corporation
 Total Market Surveillance
 Risk-Based Capital Adequacy
• okay so we of course we have the CMIC, in some instances the listed companies and we have
the total market surveillance system which is the surveillance system of the cmic which
monitors the trades and uh certain abnormalities or abnormal trades in the regular trades in the
market and finally we have the risk-based capital adequacy actually this is just a principle that
must be a requirement that must be complied with by the brokerage firms with regard to their
capitalization requirements we have a certain computation in order for us to determine if the if
a certain brokerage firm is compliant with the capitalization requirements um the brokers are
mandated to file by monthly bi-monthly reports of the of their RBCA and in some instances
especially if there's a breach of the ratio we require the brokerage firms to submit a daily report
to us in order for us to monitor if the capitalist capitalization requirements have already been
met