Financial Markets

This course examines the dynamics, opportunities and challenges associated with the
capital markets or the markets for financial assets and the pivotal role they portray in an
effective and efficient functioning market economy. It explores the intricacies of the capital
market system which encompasses market instruments/securities, market participants,
frameworks for portfolio management, statistical concepts and tools, market efficiency,
behavioral finance, fundamental quantitative and qualitative models and technical analyses for
stock investments, stocks and bonds valuation, risk management, active versus passive
investing, the role of derivative securities in investing, international investing, and
performance evaluation.

Course Outcomes: At the end of the course, the students are expected to have:

CO1: Explain the significance of a well-functioning capital markets.

CO2: Analyze investment risk
CO3: Engage in stock or bond investments
CO4: Create a portfolio for pragmatic and continuous learning

Module 1: Introduction to Financial Market

6 hours

Module 1 discusses the introduction to financial market. It presents the road map of the
financial market including the overview of the Financial System. The Philippine Stock
Exchange is also introduced in this module. Further, it talks about the significant functions of
the capital market specifically the Philippine Stock Exchange in the overall performance of the
economy. At the end of the module, the students are expected to:

1. Determine the critical role of the capital market in a country’s economy

2. Examine the intricacies and dynamism of the Philippine’s Financial System.
3. Describe the Philippine’s Equity Market.
4. Explain the relevance of the Philippine Stock Exchange to the economy’s well-being
It is expected that at the end of the module the student will write his/ her reflection on
Philippine Capital Market amidst pandemic

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 Overview of the Philippine Financial System

The Central Bank is the regulatory and governing body of all the financial institutions in
the Philippines. It supervises banking and non-banking financial institutions. You have learned
all these institutions in your other subjects.

Activity 1: Essay Writing

You have revisited the Philippine Financial System, write an essay on the development of the
financial system in Bukidnon or in your locality and how it affects the economic development.

Financial Development in Caloocan City

The development of the financial system of Caloocan City starts with estate, construction, and machinery
taxes, as well as Special Education Fund taxes, are collected on an annual basis. These taxes were
collected and charged by the City Treasurer's Office's Land Tax Division. Taxpayers have the choice of paying
annually or quarterly. Real property owners receive tax discounts as offered by the local revenue ordinance
if these taxes are paid in advance in compliance with the payment schedule established under Section 250 of
the Local Government Code. The City can seek administrative and judicial remedies for the collection
of delinquent real property taxes when there are delinquent taxes. When tax payments were recorded, the
Land Tax Division also issues a Tax Clearance Certificate, which was required in some transactions (such as
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conveyances and loans) and can used as proof that real estate taxes had been paid and updated.

The City Budget Department prepares and finalizes the City's Annual Executive Budget and Supplemental
Budgets; conducts preliminary analyses of the City's annual and supplemental budgets in
188 barangays prior to transmittal to the Sangguniang Panlungsod; and offers technical assistance to
barangay officials on budget issues.

Processes payrolls, letters, and transaction request allotment and obligation slips, as well as disbursement
vouchers; checks processed disbursement vouchers until check payments are issued; prepares the Financial
Plan and Advice of Allotments for each department/office, which are necessary documents in the execution
of the City's Annual Executive and Supplemental Budgets, and assists the Mayor, Secretary to the Mayor, City
Administrator, and other Department Heads that may need the assistance in various aspects of budgeting.

Thus, Caloocan City’s economic development provides the construction of low-cost housing units, strong
collaboration with government agencies, non-governmental organizations, the business community, and civil
society is essential. The Loan to the Community to discuss the city's housing needs, the city's program
and relocation program improved to make a difference in the lives of those who are less fortunate.

Maintaining a stable and orderly society to support the city's thriving economy requires stepping up the
current system of law enforcement, especially in terms of the city's peace and order situation. Monitoring
and compliance operations will include barangay officials, private individuals, non-government
organizations, and other sectoral groups.

Development of a new generation of enlightened, knowledgeable, and motivated administrators, teachers,

and non-teaching staff in the education sector who possess honesty, dedication, and commitment in
providing effective services to the Filipino child.

It also form strategic alliances and harmonious working relationships with different publics to meet stability,
fruitful cooperation, and strong ties. As a result, it will provide all students with the requisite knowledge,
skills, competence, and values for active and effective involvement in a changing society.

Activity 2: Review of the financial system

Instructions: Use the list of words below to fill in the blanks.

Insurance Companies Brokerage Firms Investment Pension Funds

Companies
Investment houses Financial Market Investment Savings Bank

Financial System Capital Market Financial Financial Institution

Intermediation

Financial Market 1. This is a place where individuals and organizations wanting to borrow
funds are brought together with those having a surplus of funds.
Financial Intermediation 2. These are intermediaries that help the financial system operate efficiently
and transfer funds from savers and investors to individuals, businesses
and governments that seek to spend or invest the funds.
__Investment 3. An activity which involves the sale or marketing of securities.
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 Financial Market 4. This is a part of the financial system concerned with raising capital by
dealing in shares of stocks, bonds and other long term investment.
Financial System 5. This term refers to the interaction of policy makers, a monetary system,
financial institutions and financial markets to expedite the flow of
financial capital from savings to investments
Financial Institution 6. Composed of individuals or organizations that are engaged in
investment banking and financing activity.
Investment Companies 7. This is commonly called as Mutual Funds. Sell shares in their firms to
individuals and others and invest the pooled proceeds in corporate and
government securities
Brokerage Firms 8. Assist individuals and institutions who want to purchase new securities
or who want to sell previously purchased securities
Pension Funds 9. Receive contributions from employees and/or their employers and
invest the proceeds in behalf of the employees
Insurance Companies 10. Provide financial protection to individuals and businesses for life,
property, liability and health uncertainties.

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 The overall financial market can be categorized as money and capital Market. Money
market deals with the selling of short-term securities like treasury bills issued by the
government.

What is a Capital Market?

Capital Market refers to the place where the investors or buyers of securities
(government, individual or households, corporations) meet the suppliers or sellers of
securities for an exchange.
Capital Market can be primary or secondary. In a Primary market the new securities are
issued and sold while in secondary market, investors trade securities with each other.

Presented above are the segments in the capital market.

1. Security Market
This market security securities issued by business sectors or corporations. This market
can sell debt instruments in a form of corporate bonds and equity instruments called stocks.
Bonds represents liability on the part of the issuing corporation while stocks represent
ownership in the part of the stockholder or investor. Buying bonds means investors will earn a
fix income. This is often called a fixed income instrument. On the other hand, investors in
stocks

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share in the corporate profit at a variable rate, depending upon how much income is declared
by the corporation for dividend payment.

2. Derivative Market
Deals with the trading and investment of securities like future and forward contracts,
swaps and options. These investment securities are secondary securities whose values were
derived from the primary securities that they are linked to.
Future and forward contracts are linked to goods and services; options are linked to
stocks or bonds ( bond with option to convert into stocks); swaps are linked to interest rates.

3. Currency market
This market deals with the trading of national currencies in pairs (dollar to peso; dollar
to pound). Special Drawing Rights (SDR) are form of international money made by the
International Monetary Fund defined using the computed weighted average of different
convertible currencies.

4. Insurance Companies
These are companies which maybe non-profit or profit, government owned or not that
sell the promise to pay for certain expense in exchange for a regular pay called premium.
Insurance could be life or non-life; personal or commercial. There are also health, property
and casualty insurance in the Philippines.

Functions of Capital Market

What the capital markets allow investors to do?

1. Allocate savings to investments
Capital market link savers and investors leading to the capital formation.
2. Allow flexibility in timing and consumption
Capital market provides operational efficiency on the part of the stock or bond issuing
corporations because of longer terms of payment. Investors also benefit from lower
transaction cost and simplified investment procedures
3. Reduce risk through diversification
Diversification refers to the decision of putting investment in multiple types to reduce
risk. Capital market provides an array of investment options for diversification
4. Share risk optimally.
The risk are minimized because capital market is regulated and risk are shared by all
participants
5. Speed up economic growth and development.

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Types of Market

Primary- The primary markets provide a place for the buying and selling of securities
(debt and equity) directly from the issuers. Stocks are offered for buying through public
offering while bonds are traded through private placement.

Secondary – This market provides a platform for the buying and selling of all
outstanding securities without changing the number of securities outstanding in the
established stock exchanges for listed stocks and Over-the- Counter trading for bonds

The Philippine Stock Exchange (PSE)

The Philippine Stock Exchange, Inc. (PSE or Exchange) is a profit stock corporation
created to provide and maintain a fair, efficient, transparent and orderly market for the
purchase and sale of securities such as stocks, warrants, bonds, options and others.

The PSE is a national stock exchange created in 1992 from the merger of the Manila
Stock Exchange and Makati Stock Exchange. Both exchanges buy and sell stocks in the same
companies. Securities and Exchange Commission (SEC) granted PSE a self- regulatory
organization (SRO) status in 1998. The SRO allows the organization to implement its own rules
and establish penalties on trading participants and listed companies. In 2001, PSE transposed
from a non-profit, non-stock organization to a profit corporation. In 2003, it already traded its
own shares.

MILESTONE

October 2004 2005 July 26, July 22, June 22, 2016 2019
2010 2015
Securities andAdopted an Online Received the Introduced
Clearing CorporationDisclosure System.LaunchedAcquired of the PhilippinesProvides Marquee Award of PSEi TRI-
24/7 onlinethe PSEand (SCCP)became asystem access for theTRADE, alaunced wholly Alpha Southeast Asia tracked the
ownedsubmission of allnew tradingPSE TRADE subsidiary of PSE.types of Magazine as the overall
disclosuresystemXTS a new SCCP is a clearingthat improve theacquiredtrading and best Stock Exchange return of
settlementtransparency offrom Newsystem agency forlisted companiesYork in South East Asia. the main
Stockfrom depository trades.ExchangeNASDAQ Named PSE as the index.
best stock market in
Asia for 4 times in 5
years

Indices and Components:

The PSE constituent indices:
1. PSE All Shares Index (ALL) 4. PSE Holding Firm Index (HDG)
2. PSE Composite Index (PSEi) 5. PSE Industrial Index (IND)
3. PSE Financial Index (FIN) 6. PSE Mining and Oil Index (M-O)

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 7. PSE Property Index (PRO) 9.PSE Total Return Index
8. PSE Services Index (SVC) (TRI) 10.PSE SME Sector (SME)
PSEi is the main index of the exchange while ALL is the broader index. The next six
indices are for sectors. While TRI measures return the SME is for small, medium and emerging
stocks.

Philippine Stock Exchange Composite Index (PSEi)

The PSEi commonly known previously as PHISIX consist of 30 companies. This is seen
as an indicator of the general state of Philippine Business Climate. The PSE regularly revises
the list of these 30 listed stocks at least twice a year.

The selection of the 30 companies is based on a specific set of criteria under the revised
policy on index management. These criteria are as follows:
1. the company’s free float level must be at least 12%.
2. the company must rank among the top 25% in terms of median daily value in name
out of the twelve- month period in review.
3. ranking of TOP 30 qualified companies based on full market capitalization.

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Source: Asianup

Generally, a good market performance sends positive signal to investors.

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The PSEi performance from July 2019 to July of 2020.

Source: Tradingeconomics.com

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Performance Assessment 1. Reflection Paper
Examine the graphical illustration of the Philippine Stock Exchange Index Performance
from July 2019 to June 2020 on graph no. 1 and from July 2016 to July 2020 on graph no. 2.
How will you interpret these PSEi performance? Describe the economy during these periods
and how do you think the market would perform if the COVID 19 pandemic will continue? You
may write your answer on the space provided below. You may also encode your answer using
Times New roman font, font size 12 and double space.

Before, the PSEi is formarly called Phisix, a fixed basket of thirty (30) common stocks of
listed companies. These are carefully selected to represent the general movement of the stock
market in the Philippines, it is measuring and shows the performance of the Philippine stock
market, of what is happening and the trend every day.

Based on the graph shows, in table 1, I can say that the PSE performance from July 2019 is
reached a high of almost 9,000. This means that when the stock is high, there’s a higher of trading in
a particular stock, that it makes attracted to investors to buying or maybe selling it, but in terms of
price action in the market, if the price is rising, they are eager to grab this is their opportunity to buy
stock but if it is falling, investors are choosing to sell it. This low volume, shows few investors are
putting little money at risk. As we can see in the graph, in the month of March 2020, the PSEi
performance is moving downward, that really affects the investors, that’s why investors tend to sell
it or avoid the market. It shows in the table 2 that in the past years, the PSEi performances is in the
good run and getting upward, but in this 2020 it dropped at a lowest point or is in a downfall, and
the reason of this is the crisis we are experiencing right now, the COVID-19. These circumstances
affect the market performance because investors are really afraid about risking their money that it
might loss or not will grow. But the good thing here, for the next month’s its slowly recovering and
suddenly there are investors are willing to take a risk and hoping to grow their money in the market
despite all the bad things happen in our country and all over the world.

COVID-19 has brought a lot of impacts in the economy. During these days the economy
really suffer very hard, especially in terms of financial condition of people in our country. This
pandemic push economies into a lockdown, which brought job loss, and worst tightens the financial
conditions and people experienced hardships and stress. Also brought reduction productivity in the
economy, in which the manufacturing productive activity literally slowing down because of the
global supply chain disturbance and food shortage. Because of this crisis, companies need to lay off
workers or worst fired an employee. Also, this crisis pushes some of the people do crimes like do
scams in the use of internet, others become prostitute online, committing theft and etc. in order to
fulfill their everyday needs, especially poor people, because government can’t be able to support or
feed all of his people. If ever this pandemic will continue, the stock market will have a very negative
view or output. No one will risking their money just for having a small chance to grow it. So, its not a
good thing if the COVID-19 pandemic will continue for how many years, it has a big impact in the
economy most especially in the stock market performance in the country nationwide.

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Rubric to grade the Reflection paper (40 points)
Sophisticated (10pts) Very Competent (8 Fairly Competent (6 Not yet Competent
pts) pts) (5pts)
Accuracy Paper represents the Paper represents the Paper represents the Paper misrepresents
(Grasp of author’s ideas. Evidence author’s ideas. author’s ideas. the author’s ideas.
readings) or conclusions accurately, Conclusions are Conclusions are Conclusions are not
fairly and eloquently shown shown but are not shown.
shown. Student shows a sufficient
firm understanding of the
capital market (PSEi)
Argument Paper fully meets the Fully meets the Paper does not Paper does not
(depth of requirements of the requirements but address some address significant
analysis) assignment. Student does not exceed. development in economic issues and
explores implications of Makes connections business research. concerns
the ups and down of the but There are no Does not connect to
PSEi permance. implications cited real problems in the
economy
Clarity Words used are Words used are Imprecise or Consistently
consistently precise and mostly precise and ambiguous wording. imprecise or
unambiguous. Sentences unambiguous. Confusing sentence ambiguous wording.
are clear and correctly Sentences are clear structure, no author’s Writing is not
structured. All authors and correctly citation understood.
are properly cited and structured. Lacks
effectively framed in the authors citation
sentence.
Presentation Paper is clean, correctly Paper is clean, Paper is clean, Paper is sloppy or
formatted with no correctly formatted correctly formatted incorrectly formatted,
broken sentences. No with no broken with no broken not written in full
spelling or grammatical sentences. There are sentences. There are sentences and there
errors. few misspelled number of misspelled are numerous
words or grammatical words or grammatical misspelled words or
errors. errors. grammatical errors.

Takeaways:
1. Central Bank Governs all institutions in the Philippine Financial System

2. Philippine Stock Exchange is a capital market for equity instruments.

3. Stock market performance mirror the economic performance of the country.

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 Module 2: Investment Analysis
15 hours

This module defines basic concepts of investment and risk related in stock. It describes the
investment instrument available for individual and institutional investors, the fundamental and
technical analysis in stock investment and some theories on risk. This module will help
prospective and actual stock investor in their investment decision in the capital market.
Furthermore, there are series of activities created to facilitate the development of investment
skills and at the end of the module students are required to complete the performance
assessment output. Specifically, this module will achieve the following objectives:
1. Describe the investment instruments available for individual and institutional investors
2. Apply investment analytical tools in making decisions;
3. Discuss theoretical framework on risk analysis;
4. Perform macro industry analysis;

Investment Instruments in the Capital Market

The capital market offers both debt and equity instruments.
Debt instruments are fixed income securities called bonds issued by company or the
government to raise capital for operation and strategic needs like expansions. Bond investor
received a fixed interest income for a definite period of time (10 or more years). Prices of
bonds can be premium, par or discount. Bond is said to be paid at premium when the selling
price is greater than the par or principal amount. Discount bond are offered at the market at a
selling price less than par or principal amount while bonds are acquired at par when paid on its
principal amount. Buyers of bonds are borrowers of funds called the bondholder.

Equity instruments represents ownership of the issuing corporations. Buyers of equity

are called stockholders of the issuing corporation. Stockholders receive dividends as return of
their investment. Stocks can be bought through an over-the-counter or stock exchanges like PSE.
There are different types and classes of stocks and it is very important that the investor applies
diversification across many or all types so that the risk will be minimized.

Mutual Funds are issued by a company with professional manages who pool money
from the investor to purchase securities. Managers can buy stocks, bonds or balanced funds
(mixture of both bonds and stocks).

Exchange Traded Fund (ETF) has similar concept with mutual fund except that they
trade like stocks on exchanges and track the market indexes and sub-indexes. ETFs are offered
at a lower cost and more diversified.

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How to invest in stocks?
Remember in module 1 that Philippine Stock Exchange provides a market for stocks.
Getting started in the stock market follows simple steps.
1. Choose your stockbroker
Pick only a legitimate stock broker. Before you decide on who will be your stock broker.
It is always better to do some research on the PSE accredited stockbrokerage companies
or trading participants. PSE publish a complete list of information about trading
participants who are authorized and qualified to trade securities. Visit www.pse.com.ph.
2. Open a trading account with your broker.
Submit the completed customer account information form and other identification
papers only to a stock brokerage firm or its licensed representative.
Report immediately agents or traders who make exaggerated, unwarranted and
misleading claims related to return on investment. Brokers are prohibited by law to make
assurances of specific result without reasonable basis.
3. Fund your account
Brokers have different instructions on how to fund your account. Follow instructions and
only go to the authorized banks or make a check directly to the name of the brokerage
firm.
4. Study the company that you wish to buy and discuss it with your broker.
Buying stocks will be gambling if you did not perform careful analysis on the company
that wish to buy. You can apply both the fundamental and technical analysis to help you
on your buying decisions.
5. Give ORDERS to the stock broker
PSE trade on matched ORDER basis. Wait until your order matched with the available
stocks and the bidding price.
6. Get the confirmation receipt.
Make sure that your broker gives you a confirmation receipt of the stock bought. This is
usually done through email.

Stock brokers and PSE understand that the students have limited resources and
knowledge on the actual buying and selling of stocks. There are multiple educational
applications created by corporations to provide basic stock investment skills. One of this is
Investagrams offers a free stock trading experience based from real stock prices. This is a
virtual trading platform under real market conditions where users can buy, test the strategies
and manage a portfolio. You will learn here about the actual companies and stock listed before
jumping to real training if both your emotions, skills and financial resources are ready.

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Activity number 1. Investagram
We will do a stock investment simulation through an investagrams application.
Please visit www.investagrams.com and download the app.
Follow the steps indicated on the same website on how to use the virtual trading platform.
Inform your teacher that you already have the insvestagrams account and started trading.

Photo from Investagrams.

Let us now Start Virtual Stock Trading using the

How to Try Stock Trading Without Risking Money?

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 We’ve all heard the saying, “Practice makes perfect,” but practicing in the stock market
can get very expensive very quickly! Don’t worry though, because we’ve got good news for you
—now you can practice trading stocks without risking any money!

How? Using the Investagrams virtual trading platform, a completely risk-free tool that is
available to all Investagrams users. Just sign up (for FREE!) here.

With our virtual trading platform, you can buy stocks, test strategies, and manage a
portfolio under real market conditions. Learn about actual companies listed in the Philippine
Stock Exchange, and jump straight into real trading whenever you’re ready.

Already have an account on Investagrams? Just follow these simple steps to get started
with your virtual trading account:

THE INVESTMENT ANALYTICAL TOOL

We don’t want to gamble our hard-earned money to a useless investment. Investors
need to conduct a careful study on the prospective company which they can entrust their
wealth. Fundamental and technical analyses can help in the decision-making process.

The Fundamental Analysis

When an investor uses financial and economic analysis in evaluating stocks, a
fundamental analysis is used. This analysis can be done qualitatively and quantitatively. The
investor needs to look at annual reports for the financial reports and non-financial information
like estimated of growth rates, demand for products and services, industry comparison,
government policies and economic trends. These are the fundamental data

Qualitative Review
Investors used web financial news, social media, blogs, web forums and annual reports
to conduct a qualitative review of the listed company. They will also use terrestrial and climatic
circumstances and even look at natural and man-made disaster to assess business
sustainability.

Quantitative Fundamental Analysis- Value Investing

The outcome of a fundamental analysis is the computed intrinsic value. The value
needs to be greater than its market price to signal buying decision. To find out the value of the
company, the investor may do a top down approach or a bottom up approach. Illustrated as
follows:

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Top down approach Bottom up approach

In a top down approach, First, the investor looks at the overall status of the economy
studying carefully the various factors. This covers both the macro and micro economic factors.
The macro economic factors are the Gross Domestic Product or GDP especially the increase
or decrease in the different sectoral contributions, employment rate, inflation rate, money
supply, level of government debts, short term and long-term effects of trends and changes in
economic measures. Investor may need also to look at the demands of the products and
services. After completing the economic analysis, investors evaluate the industry by examining
the company in the same niche. Let’s say you are interested in investing at Globe telecom. The
first step you will do is study the telecommunication company performance by comparing how
Globe and PLDT perform in the market. These two companies are the leading players in the
industry. Investor will compare the market performance, profile on revenue and assets, the
holdings, subscribers and forecast, infrastructure and transactions. A SWOT analysis is needed
to examine closer the strengths and weaknesses of the competing companies under this
industry. Lastly, investor need to evaluate the company’s performance on profitability,
solvency, liquidity , and efficiency of asset utilization so that shareholder can decide if it is
worthy to entrust investment on a specific company or not.

The outcome of fundamental analysis is a value (or a range of values) of the

stock of the company called its ‘intrinsic value’ (often called ‘price target’ in
fundamental analysts’ parlance).

VALUE INVESTING: RATIO ANALYSIS

Ratio analysis will help you a lot in evaluating the company that you want to
invest in. There are three important steps that you need to follow to perform the
financial ratio analysis

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1. Read the financial statements
 The most important statement are the balance sheet or statement of financial
position, income statement or statement of operation and cash flow statement.
Important figures are operating cashflows, earnings per share accounts,
accounts receivable and some other figures.
2. Calculate Key Financial Ratios
 The important ratios are debt to equity ratio to find out how much of the
company’s asset is financed by debt and how much is financed by equity, Net
profit margin or operating profit margin to look at how well the company’s
performance compared last year
3. Evaluate the company’s financial performance.
Important notes in evaluating the profitability of the company.

 Look closely on the trend of the sales or revenue and income. The increase in
sales should result to an increase in income. If the income account is not
increasing despite the sales increase, one can conclude that there is
something wrong with the company. On the other hand, if sales decreases
and income increases, there might be a problem on account manipulation.
 The sales to working capital ratio represented in the formula
SALES TO
WORKING Sales Revenue
CAPITAL RATIO Working Capital

*Working capital = current assets – current liabilities

The sales to capital ratio will not work to companies with negative working
capital- investors should avoid companies with negative working capital.

 Earnings per share (EPS) is computed using the formula

Net Income to Common

EPS Shareholders
No. of Common Shares
Outstanding

Higher EPS serves as indicator that a stock investment is worthwhile.

EPs indicates how much shareholder will have if dividends will be increased.
An investor should look for a positive trend in the EPS. The EPS in the
quarter should be higher than the reported EPS in same quarter last year. The

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 comparing the EPS in the same quarter in each year is very useful because it
can tell you exactly whether the company is doing better or not.

 Common Size Financial Statement to compare last year’s operation.

o If interest expenses increases, it means that the company is taking
more debt.
o You can say that the company is fundamentally strong if the balance
sheet is good.
o Cash and Cash Equivalents has the key role in evaluating the
investment process because being the most liquid asset, this has to be
readily available for short term debt obligations.

Having adequate cash and cash equivalents on hand is what allows a business to

1. Settle its debts

2. Purchase new inventory and
3. Buy new lucrative investment

Keeping too much cash can also lead the business into different financial problem. A
high cash balance can be an indication that :

1. A company is waiving potential investment opportunities that would generate

higher interest income.
2. A company is waiving potential opportunities to expand its business
operations. List of Ratios useful to evaluate the company’s value

RATIOS FORMULA INVESTMENT CRITERIA

Cash and Cash

Cash to Currrent Equivalent Look for <40%; Avoid > 60%
Assets Current Assets

Cash and Cash

Inventory to Equivalent Look for <40%; Avoid > 60%
Current Assets Current Assets

Accounts
Receivable to Receivable Look for <40%; Avoid > 60%
Current Assets Current Assets

Net Income Shareholders' Aveage 3-5 yrs. >12%;

Return on Equity Equity
(ROE) previous year > 15%

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 Current Assets Look for1.5:1; Avoid 0.5:1
Current Ratio Current Liabilities

Interest Coverage EBIT Look for 15 times or higher

or Times Interest Earned
Interest Expense

Working Capital toWoking Capital Debt RatioTotal Liabilities

Look for > 2.0
Avoid negative ratio

Avoid Negative Operating Cash

Cashflow Flow

Free Cash Flow + Look for

CashFlow for Operating Cash Flow - Capital
Business Activities Expenditures Positive Results

Dividend Per share Look for < 60%

Dividend Pay-out Earnings Per Share (EPS)

Activity 2: Evaluating the Company’s Value using Ratio Analysis

Study Globe Telecom Corporation and make a decision whether investing in this
company is worthy of your money or not. Using the Financial Statement
presented ,compute for the following ratios:

1. Sales to Working Capital

2019 Audited 2020 Audited
Sales to
Working capital = 235, 921 Sales to
22, 837, 709 Working = 230, 051
= 0.01033000 Capital 17, 632, 968
= 1.03% = 0.01304664
= 1.30%

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 2. Cash To Current Asset

December 31 2019 June 30 2020

Cash to Current Asset = Cash to Current Asset =
8,298, 092 / 61,739,472 14,785, 235 / 75, 654, 606
= 0.134404972 = 0.195430732
= 13.44% = 19.54%

3. Return on Equity

2019 2020
Return in Equity = Return in Equity =
12,023,000/81,246,997 11,080,000/85,237,076
= 0.147980854 = 0.129990381
= 15% = 13%

4. Current Ratio

2019 2020
Current Ratio = Current Ratio =
61, 739,472 / 84, 577,181 75,645,606 / 93,287,578
= 0.73 = 0.81

5. Return on Equity

2019 2020
Return in Equity = Return in Equity =
12,023,000/81,246,997 11,080,000/85,237,076
= 0.147980854 = 0.129990381
= 15% = 13%

Based on my study about the Globe Telecom Corporation, this company is not worthy to
invest my money based in their financial statements, due to the fact that this company had not been
doing better in their operations. Through their financial ratios, I identified that the return in equity
lower up to 2% form the last year. This actually means that if I’m going to invest my money in this
company, this will probably result to a lower return, which is not worthy and not good for my
investment.

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TECHNICAL ANALYSIS: GLOSSARY

Before we delve into a thorough discussion on technical analysis, it is necessary that we

acquaint ourselves with a number of terminologies that most stock traders commonly used in
the stock market. Let it be known that there are countless terms/concepts used in technical
analysis which may not be covered in the entire semester. As follows are just but some of the
technical terms to kickstart our discussion.

Bear/Bearish market - a general decline in the stock market over a period of time

Breakout - the movement of the price of an asset through an identified level of support or
resistance

Bull/Bullish market - a market that is on the rise and where the economy is sound

Candle/candlestick - a type of price chart used in technical analysis that displays the high, low,
open, and closing prices of a security for a specific period

Crossover - a point on the trading chart in which a security's price and a technical indicator
line intersect, or when two indicators themselves cross

Day Trading - the act of buying and selling a financial instrument within the same day or even
multiple times over the course of a day

Divergence - is when the price of an asset is moving in the opposite direction of a technical
indicator

Gap/s - are areas on a chart where the price of a stock (or another financial instrument) moves
sharply up or down, with little or no trading in between

Going Long- a slang for buying shares with the goal of selling at a higher price in the future

Market correction/correction - a market decline that is more than 10%, but less than 20%

Oscillator/s - are indicators that are used when viewing charts that are ranging (non-trending)
to determine overbought or oversold conditions

Paper Loss - the unrealized loss in your portfolio. Once the price of a stock that you bought
goes down, you incur a loss in your portfolio, this loss becomes actual monetary loss once you
sell your position

Paper profit - the unrealized gain in your portfolio. Once the price of a stock that you bought
rises, it will appear as a profit in your portfolio. It is only translated as a monetary gain once
you sell your position

Portfolio - a collection of financial investments like stocks, bonds, commodities, cash, and cash
equivalents, including closed-end funds and exchange-traded funds (ETFs)

Position Trading - a trading strategy wherein one holds an investment for an extended period
of time with the expectation that it will appreciate in value. Positions are typically held from
weeks to a few months

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Pullback- a pause or moderate drop in a stock or commodities pricing chart from recent peaks
that occur within a continuing uptrend

Rally - a period of sustained, uninterrupted increases in the prices of stocks, bonds or indexes

Resistance - represents a high level a stock price reaches over time. Is that price level that a
rising stock can't seem to overcome or stock price increase get halted due to heavy selling

Support- a price level wherein stock price is expected to stop declining after a selloff. It is an
opportunity for stock traders to buy shares at an affordable price

Swing Trading - a trading strategy which involves entering in a trade as long as the
momentum is there and getting out once the momentum fades.

TECHNICAL ANALYSIS: AN OVERVIEW

Technical analysis (TA) is the study of historical price and volume data to identify trends
and have a gauge of future price direction. It examines market movements based on what
investors think the price of the stock should be.

Contrary to Fundamental Analysis (FA) that seeks to evaluate securities-stocks by

attempting to determine the intrinsic value of a stock to arrive at an investment decision, TA
uses stocks’ price and volume as inputs in deciding whether to buy or sell a stock. Stock prices
and volumes are reflected in a chart which shows a daily, hourly, weekly, monthly or even by
the minute movement of a stock and provides the open, high, low and close for the time period.

TA tells us to look at the past market movements in order to decide in the present while FA
teaches us to calculate the future value to decide in the present.

Through TA, we get a better view of investors behavior repeatedly done and are reflected
in the “charts” which shall be our “go to” tool in the proceeding discussions to know whether it
is the right time to buy a stock or not.

The data that you see in the chart are tangible decisions done by traders and investors.
Suffice to say, the actual exchange of buyers and sellers are reflected on the charts. The charts
showcased the actual financial decisions of both investors and traders.

Since time immemorial, markets move up and down in cycles. When people get excited,
they tend to buy much. Subsequently, markets move down when people are scared and sell
their stocks in whatever price available.

With TA, an investor or a trader for that matter can better maneuver his/her decisions
relative to the market movement. A day, a swing and even a position trader through the use of
TA shall be able to determine when is it ideal to buy shares and when to sell them. Usually,
traders tend to accumulate stocks once they spot a buying signal and dispose of these stocks
once a sell signal becomes prevalent.

Although TA may indicate buying signals, it cannot guarantee anyone that a stock price
will go up. No wonder, advocates of the Fundamental Analysis contend that one can never time

26
the market. Needless to say, despite of TA’s inaccuracy, one can still craft strategies to
safeguard him/her from potential big losses when his/her readings of the charts and
expectations don’t meet.

BEDROCK of TECHNICAL ANALYSIS

Stock price is a crucial element in technical analysis.

It is what the market dictates the value of the company ought to be. In so far as the
fundamental analysis is concerned, if FA suggests that a company’s fair value is Php25 yet the
stock price is trading at Php20, then we conclude that the company is undervalued and
therefore must be bought. Once FA says the company’s fair value is Php30 but company is
trading at Php40, the stock is therefore expensive, overvalued and must either be sold or
avoided.

Technical Analysis says otherwise. If the stock price is pegged at Php100, that is because
the market believes that, that ought to be the value of the stock. The company is valued at such
price simply because buyers and sellers agreed to trade at that price. Inherently, buyers want
to buy a stock at a lower price while sellers on the other hand, want to sell the stock at a higher
price. And since both buyers and sellers agreed to trade at Php100, that means both parties
came into terms that such price is a fair price for a trade.

From the buyer’s point of view, at Php100, the stock is cheap hence the buy. On one hand,
the seller believes the stock is already expensive hence the sell. In this scenario, the buyer is
optimistic of the company’s future growth prospect while the seller may be pessimistic of the
company’s growth potential.

In TA, whatever the market says is the stock price, that becomes the value of the stock at
that point in time. To the technical analysis advocates, the stock price speaks of everything one
has to know of the company- earnings, loses and growth prospects. Trading becomes
impossible therefore in the absence of knowledge of price action.

The stock price is always reflected in the chart.

The following figure is a raw price chart of our very own Jollibee Foods Corporation (JFC).
It shows the price movement of the company from June until August 2020. Notice that there is
a pattern of both red and green colored candles in the chart.

27
 The price of the stock is shown on the vertical axis and its relationship with time on the
horizontal axis. In the actual chart, you can narrow down the time into minutes, hours, days,
weeks, months and years depending on your trading appetite, your availability to monitor
stock price movement and profile as either investor or trader.

Humans decide based on emotions.

Given the many investing strategies, investors/traders alike still succumb to their
emotions when making and executing a buy or sell decision. A viable option to temper the
emotions then is to look into the charts. Undoutedly, the charts provide a vivid picture of fear,
greed, optimism and reluctance among market players.

Generally, when investors are fearful, the stock price shows a steep line downward.
Investors tend to sell their positions regardless of the price when they are fearful. When there
is too much excitement and optimism, investors/traders acquire more stocks resulting into an
increase of the stock price.

Great and stable companies aren’t immune to market sentiments. Regardless, their market
values rise and fall depending on investors’ emotions.

Typically, when more investors buy, stock price goes up. Stock price also drops when
several investors also sell.

BASIC CHART ELEMENTS

The Candlestick Chart

Candlestick trading as some are in the habit of calling it, originated back in Japan in the
1600.

Candlestick charts have been used by the Japanese for technical analysis for over 100
years, long before the development of the bar chart by the West. A man named Homma
Munehisa, who was a successful trader in the rice market, discovered that there was a link
between prices,
28
supply and demand. Furthermore, he understood that due to emotions, there was often a
difference between "real" value and the price. Homma used candlestick chart analysis, in the
1700s, to help measure the emotions captured in price history and as a fairly reliable tool to
predict future demand

Until these recent times, many stock market enthusiasts still use the candlestick chart. This
is due to the consistency of human emotions which are again depicted on these charts.
Educated and well-informed investors capitalize on the upsides of human greed, fear and panic
which haven’t change through time.

Parts of a Candlestick

A. The Body is the solid colored portion of the candle. It shows the opening and closing prices
of the candlestick for the time period specified. The opening price is the first price traded
during the day, while the closing price is the last price traded.

B. The Tail (a.k.a wick/shadow) are the thin lines on the ends of the candle. The thin lines
show the highest and lowest prices traded during the day.

In a daily chart, a single candle summarizes an entire trading day. A candlestick is either
bullish or bearish.

A candlestick defines four points or price levels of a stock– the opening, closing, highest
and lowest price levels

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 1. The High is the highest price of the day and is usually represented by the upper tail of
the candle. In case that a tail is absent, the topmost part of the body is considered the high.

2. The Low is the lowest price of the day and is usually represented by the lower tail of the
candle. In the absence of a tail, the bottom part of the body is the low.

3. The Open is the price traded in the day.

4. The Close is the last price traded in the day and is considered the most important price
of the trading day.

From a personal experience, although the open, high, low prices are equally important
during the trading hours, it is the closing price that becomes the topic of discussion among
traders. Traders and investors alike reflect on the closing price after trading hours in order to
determine their entry point on the following trading day.

The length of the body indicates the trading activities in the stock. A longer body is an
indication of strong buying or selling, a shorter body on the other hand, indicates that there has
been little buying or selling activity.

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 The difference between the open and the close is called range which is represented by
the body of the candle.

A white candle or green in some charts means that the stock opened at a lower price
and closed at a higher price as such it is bullish.

A black candle or red in colored charts means that the stock opened at a higher price
but got sold down at the close, hence bearish.

31
 Once the stock closed a the same price that it opened, the candle will not have any
body or color an is termed as doji.

Candlestick patterns

1. Normal candlestick – candlestick with both tail and body.

2. Marubozu – candlestick with a body but with no or only one tail.
3. Doji – candlestick with no body, only tails.
4. Harami – candlestick pattern formed by a large and a small candlestick.

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 The following are the prevailing conditions that give rise to bullish or bearish markets as
reflected by the candlestick chart:

A. If there are more buyers than sellers, or more buying interest than selling interest, the
buyers end up having no one they can buy from. Consequently, prices then increase until the
price becomes so high that the sellers once again find it attractive to get involved. At the same
time, the price eventually becomes too high for the buyers to keep buying;

B. Nevertheless, if there are more sellers than buyers, prices tend to fall until a balance is
restored ushering in new buyers in the market;

C. The greater the imbalance between these two market players, the faster the movement
of the market in one direction. However, if there is only a slight overhang, prices tend to change
more slowly; and

D. When the buying and selling interests are in equilibrium, the stock price does not
change. Both parties are satisfied with the current price and a market balance is met.

Common Candlestick Formation

Description: White, tall, solid body, no tail

Interpretation:

 most bullish candle

 price opened at the low but closed at the high

 buying conviction is very strong

 Demand is high

33
 Description: Black, tall, solid body, no tail

Interpretation:

 most bearish candle

 opening price was high but got sold down during the day resulting into
closing at the low

 selling conviction is very strong

Description: White, tall, short body, long

tail Interpretation:

 very bullish candle

 price opened high but the sellers tried to push it down within the day but
never succeeded because the buyers rushed in and closed the price near the
high

 the tail is called the “buying tail”, it shows how the buyers supported the price
at the area; the attempt to push the price down was rejected at the area of the tail

Description: Black, tall, short body, long tail

Interpretation:

 very bearish candle

 price opened low, tried to move up but was pushed back down

 the tail is called the “selling tail”, it is the area of resistance where supply
(sellers) is heavier than demand (buyers)

Description: No color, no body, tall and short, looks like a cross

Interpretation:

 this is considered as the “doji” candle which is neither bullish nor bearish

 it closed on the same price where it opened

 It has no body

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 Interpreting a Candlestick

The figure on the left shows a stock

performance in one trading day. This is
a bullish configuration with the closing
price much higher than the opening.

The stock looks cheap from Php5

to Php10. The market bought it at those
prices until nobody was left to sell.
When buyers started coming in, the
stock price went up to Php25 and closed at Php20, higher than the opening price of Php10. As
long as the chart has a higher close than the opening, you can always pin it as bullish.

The figure on the right shows a bearish

configuration. The stock closed lower than the
opening price. This stock price performance may
be attributed to possible massive-profit taking of
the investors or net foreign selling

General Guidelines in Interpreting Candlesticks

1. The color determines the bullishness or bearishness of the stock. If the candlestick is white
or green in some charts, it’s bullish.

2. The size of the body determines the strength. The longer the white candle’s body the more
bullish it is. The longer the black candle’s body, the more bearish it is.

35
Sample Candlestick Chart of Bank of the Philippine Islands (BPI) from July 20 to 24, 2020.

Courtesy: Investagrams

36
ACTIVITY: Candlestick Chart Creation

Draw a candlestick chart based on the following stock price data and infer the stocks’
performance based on your plotted chart. You may refer to the sample candlestick chart of BPI
when plotting your chart.

Day 1 Day 2 Day 3 Day 4 Day 5

Open 5.31 5.5 5.3 5.4 5.56
High 5.35 6.0 5.4 5.5 5.95
Low 5.20 5.3 5.0 5.3 5.6
Close 5.25 5.25 4.95 5.6 5.8

Candlesti ck Chart Creati on

7
6
5
4
3
2
1
0
Day 1 Day 2 Day 3 Day 4 Day 5

Close

Day 1 Day 2 Day 3 Day 4 Day 5

Open 5.6 5.54 5.4 5.33 5.08
High 5.8 5.59 5.44 5.33 5.08
Low 5.55 5.39 5.35 5.08 4.64
Close 5.55 5.39 5.35 5.08 4.64

Candlesti ck Chart Creati on

7
6
5
4
3
2
1
0
Day 1 Day 2 Day 3 Day 4 Day 5

Close

37
 Day 1 Day 2 Day 3 Day 4 Day 5
Open 6.4 6.25 6.07 6.22 6.2
High 6.4 6.25 6.2 6.33 6.2
Low 6.20 6.04 5.97 6.2 5.98
Close 6.25 6.08 6.2 6.25 6.08

Candlestick Chart Creati on

6.5
6.4
6.3
6.2
6.1
6
5.9
5.8
5.7
Day 1 Day 2 Day 3 Day 4 Day 5

Close

ACTIVITY: BULLISH and/or BEARISH Identification

Determine if the candlestick is Bullish or Bearish.

1. 2. 3. 4. 5. 6.

1. Bullish
2. Bullish
3. Bearish
4. Bearish
5. Bearish
6. Bullish

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MOMENTUM AND NON-MOMENTUM CANDLES

In an actual trading setup, there’s is a straightforward and effective method of interpreting

price movement based on the combinations of candlesticks. By looking at the length of the

39
candles which is either long or short, one can determine whether they are momentum candles
or not.

Momentum candles otherwise known as energy candles are 2 or more long candles
usually seen during trending moves.

Non-momentum or weak candles are 2 or more short candles usually seen during trend
pauses.

Typically, a series of momentum candles is oftentimes followed by a series of weak candles

signaling that momentum has died down and a possible change in trend is certain to take place.

Anyone who intends to trade the stock market can use this pattern to determine entries and
exits in the stock market.

40
 Let us examine JFC’s Candlestick Chart from April until August 2020. The chart shows a
series of momentum candles driving the price either up and down but are oftentimes followed
by short non-directional weak candles indicating a change in market and price trend.

Key Takeaways:

1. The candlestick is composed of a body and a wick. The longer the body, the more bullish or
bearish the stock is, the shorter the body, the less bullish or bearish the stock.

2. The body is a representation of the market’s conviction towards the stock. The larger the
body, the greater is the market’s confidence in the stock. If the chart shows large bullish candles,
there is an expectation for larger moves upward or there could be a likelihood of it going
downward when the chart shows large bearish candles.

B.TREND LINES

A trend is simply the direction where price is headed. Traders usually trade only when
price is trending up simply because
that’s where the most profitable trades
are.

There are three basic trends,

namely: Uptrend, Downtrend and
Sideways (range) movement.

An uptrend is characterized by
a series of higher highs (HH) and
higher lows (HL) in price movement.
Stock traders usually ride the trend
until it lasts.

41
 On the other hand, a downtrend is characterized by formations of lower lows (LL) and
lower highs (LH). Buying in downtrends is quite risky especially for novice traders.

Lastly, sideways movement is

characterized by non-directional up
and down movement creating a range
of highs (H) and lows (L). The highs
are acting as resistance and the lows
as support. Some traders take
advantage of the sideways
movements by buying the lows and
selling the highs of the range.

Resistance is that price point where investors/traders think the stock is expensive enough
as such they refuse to pay and they start to sell.

Support on the other hand, is that price range where investors/buyers believe the price is
already cheap hence they refuse to sell and instead accumulate more shares.

42
 Below are stock charts of Philex Petroleum Corporation (PXP) and First Philippine
Holdings Corporation (FPH) showing resistance and support levels.

Inherently, price does not move straight up or straight down, instead it moves in uptrends
and downtrends waves.

Traders spot and ride these trends in order to profit from their every trade. Nevertheless, in
reality, riding the trend is a challenging feat.

43
 Just a disclaimer: We will only focus our discussion on Candlestick Charts, Support and
Resistance Levels in this module. Admittedly one semester isn’t enough to cover everything
regarding Technical Analysis. Anyone who aspires to be a financial or a security analyst must
devote himself/herself to a continuous learning process on the varied analytical tools and
apply his/her acquired learnings in day-to-day investing or trading transactions. Practice may
not necessarily make one an expert in trading but it is a sure way of profiting in the stock
market by executing well-planned entry and exit strategies. Needless to say, experience still is
the best teacher.

APPLICATION: HOW TO READ CANDLESTICK PATTERN

Recap:

1. Candlestick chart shows you who’s in control of the market (buyers or sellers)

2. Pay attention to the body, the wick and the body relative to the wick

3. The wick is a sign of price rejection

4. Candlestick represents different time-frames (hour,day,week, intraday-30 mins.15 mins., 5

mins.)

44
CANDLESTICK TIMEFRAMES

TIME OPEN HIGH LOW CLOSE NO. OF

FRAME CANDLES

The opening The highest The lowest price The closing 12 candles for the
price on the price at which at which the price on the last entire year
Monthly
first day of the the stock stock traded day of the
month traded during during the entire month
the entire month
month

Monday’s The highest The lowest price The closing 52 candles for the
Opening Price price at which at which the price on Friday entire year
Weekly
the stock stock traded
traded during during the entire
the entire week week

The opening The highest The lowest price The closing One candle per
price of the price at which at which the price of the day day, 252 candles
Daily or EOD
day the stock stock traded for the entire
traded during during the entire year
the day day

The opening The highest The lowest price The closing Approximately
price at the price at which at which the price as on the 12 candles per
Intraday 30
beginning of the stock stock traded 30th minute day
minutes
the 1st minute traded during during the 30-
the 30-minute minute duration
duration

The opening The highest The lowest price The closing 55 candles per
price at the price at which at which the price as on the day
Intraday 15
beginning of the stock stock traded 15th minute
minutes
the 1st minute traded during during the 15-
the 15-minute minute duration
duration

The opening The highest The lowest price The closing 75 candles per
price at the price at which at which the price as on the day
Intraday 5
beginning of the stock stock traded 5th m
minutes
the 1st minute traded during during the 5-
the 5-minute minute duration
duration

Notice that as the time frame reduces, the number of candles increase. You can refer to
the table relative to the type of trader you are. Long-term investors look into either weekly or
monthly charts but an intraday trader will only look into end of day (EOD) or at best 15
mins.charts.

45
TRADING CANDLESTICK PATTERNS: T.A.E Framework

A simplified way of trading using the candlestick patter is through the T.A.E
Framework.
T stands for Trend, A is for Area of Value; and E is Entry Trigger. Before delving into
Trend and Area of Value, let focus on Entry Trigger first.
Entry trigger tells you when to actually enter the trade/market.
There are five powerful candlestick patterns that can serve as an entry triggers.

ENGULFING PATTERN

The first candle shows that the sellers

are in control which are eventually
superseded of by the buyers as indicated by
the second candle hovering the previous.
The buyers have reversed the selling
pressure and signifies a sign of strength.
This two candlestick pattern occurs
after a downtrend and is formed by one
bearish candlestick (which is covered) and
one bullish candlestick (which does the
covering).
This is an opportunity for active traders to enter the market. Such pattern is an indicator
for traders to consider opening a long position to profit from any upward trajectory.

46
 Initially buyers pushed the price to
the top but somehow got overridden by the
sellers resulting to a drop of the stock price.
This is an opportunity for traders to
sell their positions or cut loss before a long
down trend settles in.

47
HAMMER AND SHOOTING STAR

This is a Bullish reversal showing price rejection

in the market. Technically, it is the rejection of lower
prices. At one point, sellers were in control, however,
buyers came in and push the price all the way back up.
Hammer candlestick pattern indicates a potential
price reversal to the upside. The price must start moving
up following the hammer hence traders start to
accumulate shares to take advantage of the eventual
price increase.

buy positions. DISCLAIMER: This pattern is usually confirmed through

other technical analytical tools before traders decide to

48
 The shooting star is a single bearish candlestick
pattern.
The sellers triumphed over the buyers in the
Shooting Star pattern. Buyers tried to push the price up but
the sellers curtailed price increase due to massive selling of
positions.
Traders use this candle to enter short trades on the
assumption that the bullish move is running out of steam.

49
DRAGON AND GRAVESTONE DOJI

Typically interpreted as
a bullish reversal candlestick pattern that
mainly occurs at the bottom of
downtrends. This surfaces when the open,
high, and close are the same or about the
same price. This pattern acts as an
indication of investor indecision and
possible trend reversal.

50
This is a bearish pattern that suggests a
reversal followed by a downtrend in the
price action. A gravestone pattern can be
used as a sign to take profits on a bullish
position or enter a bearish trade.

51
MORNING AND EVENING STAR

MORNING STAR

It is a sign of a reversal in the previous

price trend. This signals an upward climb
following a downward trend.

EVENING STAR

From an uptrend reversing

to the downside.

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TWEEZER BOTTOM AND TOP
TWEEZER BOTTOM

Is a bullish reversal pattern seen at the

bottom of downtrends. This occurs during a
downtrend when sellers push prices lower,
often ending the session near the lows, but were
not able to push the bottom any further.

The bears are not willing to sell below

that lowest price, so the bulls returned and
overpowered the bears, pushing the price back
up.

This is considered to be short-term

bullish reversal patterns that signal a market bottom.

53
TWEEZER TOP

This is a bearish reversal pattern seen at

the top of uptrends. This pattern occurs during
an uptrend when buyers push prices higher,
often ending the session near the highs, but
were not able to push the top any further.

This indicates that the bulls are not

willing to buy above that highest price, so the
bears returned and overpowered the bulls,
pushing the price back down

54
 Performance Assessment: Fundamental Analysis

Part 1: Make a macro industry analysis in one of the PSE Listed Companies. Present
your answer in a paragraph form using sub heading. You can also use graphs, charts
or other info graphics for clarity of presentation. Cite sources properly and provide
reference list.

Guide questions:
1. What is the general economic environment in which the company is operating?
2. Is it conducive or obstructive to the growth of the company and the industry in
which the company is operating?
3. How is the political environment of the countries/markets in which the company
is operating or based?
4. Does the company have any core competency that puts it ahead of all the other
competing firms?
5. What advantage do they have over their competing firms?
6. Does the company have a strong market presence and market share? Or does it
constantly have to employ a large part of its profits and resources in marketing
and finding new customers and fighting for market share?

Answer:

The BDO Foundation actively promotes volunteerism among its employees who help
out in the Foundation’s various activities that include, among others, community building,
livelihood/skills training, fund raising, and environmental/green initiatives. Through these,
the Bank hopes to give back to society and make a positive contribution to the broader
community it serves. BDO imposes limits and monitors exposure to certain industries, e.g.,
Gaming, Tobacco and Alcohol, as well as restricts lending to other sectors under the Exclusion
List (those deemed to have adverse or harmful effects to the community and the environment).
Through its Sustainable Energy Finance (SEF) Program in cooperation with IFC, the Bank
supports green energy investments in Energy Efficiency (EE) and Renewable Energy (RE)
projects. Further, the Bank has a tie-up with the Japan Bank for International Cooperation
(JBIC) for the latter’s Green Facility, a USD50 million relending credit facility open to RE, EE
and Green building projects which reduce Greenhouse gas emissions.

55
 BDO Unibank Inc. (BDO), originally known as Acme Savings Bank, was acquired by the SM
Group in 1976. BDO listed its shares on the Philippine Stock Exchange on May 21, 2002. The
Company merged with Equitable PCI Bank in May 2007. The picture above shows the information
and status of this certain company, which are the stock information and its fundamental analysis.
The Philippine economy grew by 5.9% in 2019, among the highest in the region, as growth
recovered in 2H 2019. The year began slowly, following high inflation and interest rates in late 2018
that spilled over to 1H 2019. This was further aggravated by the delayed passage of the
government’s national budget and the midterm election ban on public spending that dampened
economic activity in 1H 2019. The ramp-up in government spending and the healthy recovery in
private consumption on the back of decelerating inflation and easing monetary policies allowed the
economy to regain its growth momentum in 2H 2019. Government spending (comprising 12% of
GDP) surged in 4Q 2019 to cap the full year with a 10.5% expansion, serving as the major growth
engine on the demand side. Resilient consumer spending (up 5.8% and accounts for 68% of GDP),
benefitting from easing consumer prices in 2H 2019, also contributed to the country’s positive
performance. Growth in capital formation (investments) was flat, while net trade posted a 5% drop
year-on-year amid escalating US-China trade tensions. Meanwhile, the services sector (58% of
GDP), which rose by 7.1% on the back of retail trade (up 8.0%) and financial services (up 10.4%),
as well as the industry sector (up 5.4%, fueled by the 7.7% rise in construction) led growth on the
supply side. The inflation rate eased to 2.5% in 2019, within the BSP’s 2%-4% inflation target and
lower than the 5.2% average recorded in 2018. From a high of 4.4% in January 2019, the inflation
rate decelerated, hitting a low of 0.8% in October 2019 on effective measures to address supply-side
disruptions, stabilizing oil prices as well as base effects. With inflation well-managed and to support
economic activity, the BSP unwound the tightening measures in 2018 with a series of policy rate
cuts in May, August, and September 2019, bringing the key policy rate down to 4.0% from a ten-
year high of 4.75%. As well, the BSP implemented on a staggered basis 400 bps cuts in banks’
deposit reserve requirements (RR) over the year to bring the RR to 14% by end 2019. Meanwhile,
the peso rallied towards year-end to close at P50.74/USD from P52.72/USD in 2018, on the back of
the improvement in the Balance of Payments (BOP) to a surplus underpinned by Overseas Filipino
Worker (OFW) remittances, business process outsourcing (BPO) income and tourism revenues.

Part 2: Download the comparative financial statements (2018-2019) of the chosen listed
56
company in part 1. Compute for the following ratios:
1. Sales to Working Capital
2. Cash To Current Asset
3. Return on Equity
4. Current Ratio
5. Return on
Equity If applicable
6. Earnings per share
7. Dividend Pay-out ratio

Make a decision based from part 1 and part 2 if it is worthy to invest in the chosen
company.
Rubric to grade the Reflection paper (40 points)
Sophisticated (10pts) Very Competent (8 Fairly Competent (6 Not yet Competent
pts) pts) (5pts)
Research Research dramatically Research meet Complied major parts Did not meet
exceeded assignment assignment of the assignment. assignment
requirements and all requirements. All Part 1 is partly based requirements.
sources are reliable parts are complied from reliable sources
based from reliable Research was
sources incomplete.

Research was from

unreliable sources.
Content Excellent use of specific Sufficient use of Majority of the Content was
and relevant facts. Fully specific and relevant presentation does not insufficient to explain
supported by the facts are included. relate to or support the the subject matter.
Company Analysis ratios topic.
and calculations. Company Analysis Content did not
Conclusion is ratios and Company Analysis include the required
commendable calculations are ratios and calculations ratio calculations or
conclusive. were vague or company analysis.
incorrect
organization Words used are Words used are Imprecise or Consistently
consistently precise and mostly precise and ambiguous wording. imprecise or
unambiguous. Sentences unambiguous. Confusing sentence ambiguous wording.
are clear and correctly Sentences are clear structure, no Writing is not
structured. All authors and correctly author’s citation understood.
are properly cited and structured. Lacks
effectively framed in the authors citation
sentence.
visual Charts, graphs, tables, Charts, graphs, tables, Charts, graphs, tables, Charts, graphs tables,
matrices, etc. were very matrices, etc. were matrices, etc. barely matrices, etc. did not
well developed, visually well developed and meet assignment meet assignment
effective, and guided the visually effective. requirements, but requirements.
audience to a good were difficult to follow
understanding. and understand. Were poorly
. developed.

57
Presentation Paper is clean, correctly Paper is clean, Paper is clean, Paper is sloppy or
formatted with no correctly formatted correctly formatted incorrectly formatted,
broken sentences. No with no broken with no broken not written in full
spelling or grammatical sentences. There are sentences. There are sentences and there
errors. few misspelled number of misspelled are numerous
words or grammatical words or grammatical misspelled words or
errors. errors. grammatical errors.

Follow the Principles of value investing:

1. Understand what you buy and why you buy it.
You should be able to answer the following questions:
a. What does the business do?
b. How does it make money?
c. Who are its competitors
d. What are the potential risks that the business may take?
e. Why do you expect the stock price to rise over time?

At the minimum, you should be able to read the company’s quarter reports and keep
at least a half on news pertaining to the company so that you understand the
situation is changing. Investor’s first priority is to minimize the risk.

1. Invest in Cash Rich Business- there is sufficient cash and cash equivalent. Company
with strong cash position most likely pay cash dividend.
Look for company with a long and uninterrupted history of dividend payments.

58
2. Invest in Low debt Business
Having too much debt can lead to financial trouble. Evaluate the short term debts
using liquidity ratio and evaluate the long term debts using solvency ratios. Then
compare these to the competitors and the industry average. Evaluate the short term
and long term debt using debt to asset ratio.
3. Rely on High Quality Management
A company is only as successful as the people running it. The big part of value
investing is making sure that the business you buy into has a reliable experienced
and forward thinking management style.
To determine how well the management is doing- Use efficiency
ratios Invest in companies with sustainable competitive advantages.
4. Avoiding Losses is the first Priority.
Never lose money
If the portfolio’s value drop by 20%, then grows 20%, you have lost
money. So, Give yourself a margin of safety
5. Invest for long term
Warren Bufffett believes that all short term price movements in the stock market
should be disregarded. Spend time studying the operational performance rather
than allowing you market volatility to lead you into a hasty and emotional
investment.
Risk is lower in long term investment.
It takes time for the stock price to reflect the company’s true value. Patience is key
to your investments’ success
6. Know when to sell your stocks
a. Hold stocks until it becomes overvalued
b. Bad news report
c. The company fails to meet revenues earnings or growth projections.
d. Market volatility
e. Dividends cuts

59
 Module 3: Investment in Stocks and Bonds
6 hours

This module aims to develop a stock investment skills in students. Using Investagram as tool,
the students will make investment decision on selling, holding and buying PSE traded stocks.
Specifically, the module aims to achieve the following objectives:

1. Compare and contrast stocks and bond investment

2. Simulate Philippine stock/bond market investment.

Stock Versus Bond Investment

What to buy, Stocks or Bonds?

Characteristics Stocks Bonds
Issuers Corporations Corporations or Government
Account classification of Equity Debt
issuers
Returns Profit sharing in forms of Interest income
dividends
Risk level High risk because the recovery Relatively low risk because
of investment depends on the by nature it is an
performance of the business obligation
on the part of the issuer
Major type of risk Market and business risks Interest and inflation rate
associated risks
Benefits other than Stockholder has the right to Bondholders have the
return vote in the issuing corporation preference in payment of
principal and interest
during
the time of liquidation
Usual Place of trade Stock exchanges Over-the-counter

Activity 1: True or False

Write true if the statement is correct and false if otherwise on the blanks provided.
True 1. Bondholders and stockholders participate in the profits and losses of the issuing
corporation.
True 2. Stocks are more liquid than bonds because these are traded in the Philippine
Stock Exchange.
True 3. Public corporation (those corporations with listed stocks in PSE) have legal
obligations to pay dividends to their shareholders.
True 4. It is better to invest in stocks because returns are higher compared to bonds.
True 5. Stock investment has no maturity date while bond investment has.

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 True 6. It is easier to diversify in bonds than in stocks.
False 7. The investor’s principal investment is more protected in bonds than in stocks.
True 8. Stock investment is greatly affected by the pandemic while income on bonds
are fixed.

Stock Investment

Common stock represents ownership of a firm. Owners of the common stock of a firm share in
the company’s successes and problems. If, JFC, TEL, BPI, ALI, etc. companies make profits,
stock investors in these companies will receive higher dividends and the market value of these
stocks will grow, giving theoretical gains to all investors if the stocks will be put on hold. In
contrast, the investor can lose money if the firm does not do well or even goes bankrupt. In
these instances, the firm is forced to liquidate its assets and pay off all its creditors, leaving the
common or preferred stockholders usually little or nothing. Putting your money on common or
preferred stocks means taking higher risk compared when buying fixed income securities.

Common Stock Classifications (PSE Category)

According to RIGHTS

a. Common stock – It is a security usually purchased for participation in the profits

and control of ownership and management of the company. A common stockholder
exercises control through voting rights during annual or special stockholders’ meetings,
but can only claim rights to the company’s assets and earnings when preferred
shareholders are already paid in full.

Most of the issues traded in the local stock market are common

stocks. Common stocks are also known as “ordinary shares.”

b. Preferred stock – It is a security whereby the holder has a higher claim on the assets
and earnings of the company.

In terms of dividend payment and liquidation, preferred shareholders have priority over
common shareholders. Though preferred stockholders do not have voting rights, they are
entitled toreceive dividends before any dividends are paid to the common stockholders.

Preferred stocks usually have a specified limited rate of return or dividend and a specified
limited redemption and liquidation price.

61
Preferred stocks are also known as “preference
shares.” According to OWNERSHIP

Common shares may further be classified into:

a. Class A – These are stocks that can be exclusively traded by Filipino investors.

b. Class B – These are stocks that can be bought and sold by both Filipino and foreign
investors.

Both classes have the same privilege and receive the same amount of dividends. Such
classification of common shares is done to monitor the equity ownership of both local and
foreign investors.

According to SECTORS

Stocks listed and traded on the PSE are classified into six (6) sectors:

1. Financials Sector – includes companies engaged in banking, investments, and

finance.

2. Industrial Sector – includes companies involved in the following:

a. Electricity, Energy, Power, and Water

b. Food, Beverage, and Tobacco
c. Construction, Infrastructure, and Allied Services
d. Chemicals
e. Diversified Industrials

3. Holding Firms Sector – includes companies or firms that control or manage partial
or complete interest in another company or other companies. Usually, these companies
do not produce goods or services itself; rather, its purpose is to own shares of other
companies.

4. Property Sector – includes companies involved in land and property development

5. Services Sector – includes companies involved in the following:

a. Media
b. Telecommunications
c. Information Technology

62
 d. Transportation Services
e. Hotel and Leisure
f. Education
g. Diversified Services

6. Mining and Oil Sector – includes companies engaged in mineral extraction, oil
exploration, extraction and production

According to CHARACTERISTICS

Though there is no formal definition or criteria to classify a stock according to its characteristics,
analysts generally describe stocks as:

a. Blue Chip stocks – are shares of well-established and financially sound companies
that have demonstrated their ability to pay dividends in both good and bad times. They
also exhibit more modest but dependable returns and are relatively of lower risk.

b. Income stocks – are shares of those companies with good dividend payment history
due to steady profits. Since they are stable, income stocks generally have a lower level
of volatility.

c. Growth stocks – also called “glamour stocks”, are shares of corporations whose
earnings are expected to grow at an above-average rate relative to the market. A growth
stock does not usually issue dividends as earnings are reinvested in capital projects.

d. Defensive stocks – are shares that provide regular dividends and stable earnings,
regardless of the overall condition of the stock market. Defensive stocks remain stable
under difficult economic conditions. Generally, these are stocks of food, oil, and utilities
companies, which are characterized by steady demand amidst hard times.

e. Cyclical stocks – are those sensitive to business conditions or cycles strongly tied
with the economy’s performance. These companies produce or offer services that are
low in demand during slowdown and increase when business peaks.

f. Speculative stocks – are those that rise quickly when economic growth is strong and
falls rapidly when growth is slowing down. A speculative stock is considered very risky
because of its volatility. It increases or decreases rapidly depending on the economic
conditions.

63
Bonds in the Philippine Market (Villafuerte, 2020)

Bonds are debt security where one party is a lender and the other is a borrower. The borrower
has a legal obligation to pay the principal and the interest to the lender at an agreed time. The
borrower is called the bond issuer while the lender is the bondholder. In the Philippines there
are two basic types of bonds: government and corporate.

Government bonds may be called the retail treasure bonds, treasury notes, T-bills and others.
Investing money to the government is risk free because it will be paid by the republic of the
Philippines.

Corporate bonds are sometimes called long term commercial papers. Investing in this type of
bonds means you lend money to the corporations.

In bond investment, the students should understand three basic terms.

 Par Value- the face value ( appearing on the bond certificate). It is the principal amount
that the borrower give to the corporation or the government.
 Coupon Rate- the interest rate ( stated in the bond certificate). This will identify the
amount of money that the bond issuer will pay to the bondholder in periodic basis.
 Maturity Date- the date indicated in the bond certificate for the issuer to pay the
principal amount of the bond.
For Example:
Investor A bought ALI Bond for 1 million. The coupon rate of the bond is 10% payable
annually with the maturity date of 10 years. There bonds were issued on January 1,
2020.

Therefore Investor A will receive P50,000 (1M x 10% x1/2). These bonds will mature on
January 1, 2030.

How to invest in Bonds

For government bonds, you can go to any commercial bank and ask if they are selling Treasury
Bonds. You can alternatively visit the website of Bureau of the Treasury and check for current bond
offerings.

On the other hand, for corporate bonds, you can ask the Treasury or the Investor Relations
Department of a company and ask if they’re selling or offering bonds (which they sometimes call
long-term commercial papers).

Moreover, you can alternatively invest in a Bond Fund. These are available through banks as a type
of Unit Investment Trust Fund (UITF); and through mutual fund companies.

64
Lastly, always remember that before investing, you should define your financial objectives first so
you can properly design and manage your investment portfolio.

Before any investment decision, it is important to know what type of risk taker are you.

Activity 2: Investment Risk Assessment

How much risk is right for you?
Go to this website https://thecalminvestor.com/how-much-risk-is-right-for-you/. Answer
the short quiz and find out what kind of risk taker are you. You should also understand that
the level of risk you can take depends on your age, income and responsibility.

I you can not access the online quiz, then answer the quiz append in this module.

STOCK INVESTMENT SIMULATION

Now that you already know the bond and stock investment, it is time to invest in the PSE. Recall
that in Module 2 you were instructed to download investagram, you will then buy or sell securities
based from the result of the fundamental and technical analysis. The monitoring started on the time
you were introduced to module 2 up to the end of the semester. There should be buying and selling
transactions and you should build your portfolio. If you haven’t tried Investagram, here’s how:

STEP1: Howtousethevirtualtradingplatform(vTrade)

Once you are logged in to Investagrams, simply click ‘Virtual Trade‘ on the top left
navigation bar. You will see a dropdown menu that corresponds to ‘Virtual Trade’ menu
option. Click ‘My Portfolio‘ to go to your virtual trading page. You will see the overview of
your Portfolio, Records, Order History (left side) and the Buy and Sell box on the right for you
to start trading. Choose your preferred Stock and enter the number of quantity that you

65
want to trade in. Click ‘Buy’ if you want to buy stocks or Sell Order’ if you want to sell
stocks.

STEP2: Howtobuyastock

On the Buy Order page, use the drop down menu to find the stock you want. You can
also type the stock name or stock code to find your stock faster. Enter the quantity or number
of shares you want to buy, and simply click the “BUY” button at the bottom of the page.

Other important information you will see on the page include: your available cash, the
current price of the stock, the boardlot or minimum number of shares you can buy, and more.

STEP3: Howtosellastock

66
 To sell shares of a stock you own, simply follow the same steps on the Sell Order page—use
the drop down menu or simply type in the stock name to find the stock you want to sell. Then,
enter the number of shares you want to sell and click the “SELL” button below.

Important information such as the current price, boardlot, and more can also be seen here.

STEP4: Howtomanageyourvirtualportfolio

To view your portfolio, simply go to the Portfolio page. Here you will see a summary of
the stocks you currently have—the number of shares for each stock, the total cost, current
market value, profit or loss so far, and more. You can also see the amount of cash you have
available (at the top left corner) and the total value of your assets (stocks + cash).

Easy, right?

Don’t wait another second and start practicing today! You have nothing to

Performance assessment: Narrative Report on PSE Stock investment Simulation.

Write a narrative report on your virtual stock investment simulation. The report should consist of
three parts: introduction, body and conclusion. In the introduction, you should talk about the
Philippine Stock Exchange and stock investment. The body should talk about how you have chosen
your companies. Express the challenges you have encountered in making selling and buying stocks
decisions for the past weeks. You should also be able to describe your portfolio. Provide some

67
screenshots on your chosen stocks chart, price monitoring or portfolio performance. Lastly, provide
in the conclusion your insights on PSE stock investments based from your portfolio performance.
Do not forget to indicate your references on the last part of the report.

Rubrics
Rubric to grade the Narrative Report (40 points)
Sophisticated (10pts) Very Competent (8 Fairly Competent (6 Not yet Competent
pts) pts) (5pts)
Content Excellent use of Sufficient use of Majority of the Content was
specific and relevant specific and relevant presentation does not insufficient to
facts. facts is included. relate to or support explain the subject
Decisions are fully the topic. matter.
supported by Fundamental and
Fundamental and Technical analyses Decisions are not NO application of
Technical Analysis are not so applied dependent on fundamental and
Conclusion is fundamental and technical analyses
commendable technical analyses.

organization Words used are Words used are Imprecise or Consistently

consistently precise and mostly precise ambiguous wording. imprecise or
unambiguous. Sentences and unambiguous. Confusing sentence ambiguous wording.
are clear and correctly Sentences are clear structure, no author’s Writing is not
structured. All authors and correctly citation. The ideas understood. The
are properly cited and structured. Lacks presented in the ideas are not
effectively framed in the authors citation. paragraph jump from logically arranged.
sentence. Ideas are one to another.
somehow logically
All ideas are logically arranged.
ordered.
visual Charts, graphs, tables, Charts, graphs, Charts, graphs, tables, Charts, graphs
matrices, etc. were very tables, matrices, etc. matrices, etc. barely tables, matrices, etc.
well developed, visually were well meet assignment did not meet
effective, and guided the developed and requirements, but assignment
audience to a good visually effective. were difficult to requirements.
understanding. follow and
. understand. Were poorly
developed.
Presentation Paper is clean, correctly Paper is clean, Paper is clean, Paper is sloppy or
formatted with no correctly formatted correctly formatted incorrectly
broken sentences. No with no broken with no broken formatted, not
spelling or grammatical sentences. There are sentences. There are written in full
errors. few misspelled number of sentences and there
words or misspelled words or are numerous
grammatical errors. grammatical errors. misspelled words or
Gramma tical errors.

68
 Narrative Report on PSE Stock
investment Simulation
The Philippine Stock Exchange, Inc. (PSE) is
bold and practical steps toward the growth
of capital markets. It has made significant
progress in educating Filipinos about stock
market investing and the importance of the
stock market as one of the country's main
economic drivers. Numerous different
investor education initiatives have been
developed and implemented in the
Philippines to encourage a better
understanding of the stock market and, as a
result, to foster an investment-conscious
culture. Investor education will continue to
be a priority for the PSE. This primer is just
one of the many ways we believe we can
improve financial literacy among Filipinos,
ranging from the general public to college
students, young professionals to people in
business, and government officials to
overseas Filipino employees. Based on the
current report of PSE, BDO, one of my chosen companies for the investment, lost -0.78% in exchange
for stocks.

On the other half, a stock market is a place where consumers can order and sell shares. The
Philippine stock market is where people can invest in companies that are "publicly listed" upon on
Philippine Stock Exchange (PSE). Stocks, on the other hand, are a corporation's shares. You become a
stockholder or shareholder in a company when you purchase stock in a publicly-traded corporation.
You share in the company's potential earnings and growth as a shareholder. If the company loses
money or performs poorly, you could lose money.

Unfortunately, I lost my investment from the previous trading. I bought some stocks from different
companies, and as of now, I have a total profit of -1.19%, which equals -548.24. Out of six companies
I have chosen, only one of them increased my investment. I had encountered the difficulty of
selecting the right companies and the shares I have to buy. However, I took the risk of purchasing a
high amount of shares for more possibilities of winning. During the trading, my investment
increased, and gain some money. But, I ended up losing my investment.

In conclusion, the result of the latest PSE affects the profit of my investment. Since BDO has lost -
0.78% thus, I lost the money since I bought stocks from them. Since other companies I have chosen
were not on the PSE active list, I think they also lose the investment because I also lost my supplies.

https://www.pse.com.ph/

69
 Module 4: Investment Portfolio
12 hours

This module introduces fixed income investment securities and financial derivatives to
students. Further an introduction to portfolio management is covered in this module as a
foundation for the investment portfolio.
Specifically, the module aims to achieve the following objectives:

1. Discuss fixed income securities

2. Explain the basics of portfolio management
3. Create an investment portfolio.

Fixed Income Investment Securities

Activity 1: Essay
You are familiar of the famous investment concept of the risk and return trade-off. How
would this affect your investment Decision?

Risk and return trade-off are not simple as choosing an option. It is much like a real game, to win or
to lose. Before selecting the given offer, it must think wisely. To increase the probability of getting a
high return, the investor should also risk investing. However, low risk is for those investors who want
to invest their small amount of money and get a low return.

This risk and return trade-off will affect the investment based on the decision-making; if the investor
is afraid of losing its investment, better to choose low risk so that the loss will not be large enough.
But if you get the return, what will add only a tiny amount of money to the investment. Meanwhile,
the higher the risk, the higher the possibility of increasing investments. But if the acquisition has not
returned, then it’s an enormous waste of money.

On the other hand, many investors chose to risk high and low risk to balance their investment.
There’s a chance to increase investment from a small amount or to an immense amount. Thus, it must
take the concept of the risk and return trade-off seriously.

Investors believe on the adage “ Do not put all your eggs in one basket”. This means the
portfolio should be diversified.

Fixed income securities may not be as popular as stocks but they are worth looking. These are
low- risk investment that provides a regular source of passive income (growing money without
doing anything in the form of interest or dividend payments) and returns the amount invested
at the end of the maturity date. The investors earned on a fixed schedule. The funds grow
regardless of the market conditions and the return are basically higher than bank’s rate in
savings or time deposits. In the capital market, according to Zoleta (2020), these securities
maybe categorized as:

1. Government Securities

70
Government securities are debt instruments issued by the Philippine government
through the Bureau of the Treasury (BTr), an agency under the Department of Finance
that’s mainly responsible for the national government’s financial assets. These risk-free,
highly liquid instruments are issued to make funds available for government spending
on healthcare services, education, infrastructure, and other programs and projects.
Government securities are the safest type of investment because they’re fully
guaranteed by the national government, backed by its full taxing power. Investors can
expect to receive their principal upon maturity. Government securities can also be used
as collateral for a loan. However, this type of fixed income securities pays the lowest
return.

71
The most common types of government securities are fixed rate treasury notes, treasury bills,
and retail treasury bonds. The treasury bills are not categorized as capital market instruments.
They belong to the money market because it is payable in less than a year.

Fixed Rate Treasury Notes

Investment horizon: Medium to long-term
Term: 3 to 25 years
Minimum investment: Php 50,000 to Php 200,000
Interest rate: Based on the prevailing market rate
Interest payment: Semi-annually

Fixed rate treasury notes (FXTNs) pay interest to the investor every six months. Interest
payments are subject to 20% final withholding tax. Upon maturity, the investor receives the
principal and the last interest payment.

Retail Treasury Bonds

Investment horizon: Medium to long-term
Term: 3 to 25 years
Minimum investment: Php 5,000 (primary market) | Php 100,000 to Php 200,000
(secondary market)
Interest rate: 4.375% (rate for 2020)
Interest payment: Quarterly

Offered to small investors, retail treasury bonds (RTBs) are higher-yielding and more affordable
than other types of fixed income instruments such as FXTNs, T-bills, and time deposits.

They comprise the government’s program that makes government securities accessible to retail
investors, hence the name. For as low as Php 5,000, individuals and corporations can start growing
their money (with very low risk of losing it) and receive interest payment more frequently at every
three months. The required minimum succeeding investments are at increments of only Php 5,000.

2. Corporate Bonds

Corporate bonds, sometimes called long-term commercial papers, are a form of debt issued
by public and private corporations to raise funds for their ongoing operations or business
expansion. They are available either as Philippine Peso or US Dollar-denominated bonds.
Compared to government securities, corporate bonds yield higher interest because they’re
riskier investments. However, they’re not as accessible.

You’ll have to wait for companies to announce their offer of bond investments (usually through
newspaper reports) before you can start investing in them. Corporate bonds are moderately liquid
investments, allowing you to buy or sell them in the open market.

Peso Corporate Bonds

Investment horizon: Medium to long-term

72
 Term: 2 to 15 years
Minimum investment: Php 50,000 to Php 100,000
Interest rate: Based on the prevailing market rate (usually more than 4.75% per
annum)
Interest payment: Quarterly or semi-annually

Peso corporate bonds are issued by Philippine corporations that are registered with the Securities
and Exchange Commission (SEC).

Some companies that offer bond investments include Ayala Land, Inc., Petron Corporation, San
Miguel Corporation, and SM Prime Holdings, Inc.

When you invest in Peso corporate bonds, the company pays you interest every three or six months
(subject to 20% final withholding tax).

US Dollar Corporate Bonds

Investment horizon: Medium to long-term
Term: 5 to 25 years
Minimum investment: USD 100,000 or depending on the minimum lot size of issue
Interest rate: Based on the prevailing market rate
Interest payment: Semi-annually

Dollar corporate bonds are issued by either Philippine or foreign corporations in US Dollar
denomination. These bonds have higher returns than USD time deposits.

3. Certificates of Deposit- These are the deposits the investors place in the bank. These are
money market instruments

Advantages and disadvantages of Fixed-Income Securities

Advantages Disadvantages
Steady Source of income Lower return than stocks
Fixed Interest Payment Slow Capital Appreciation
Low Risk Inflation Rate Risk (interest rate maybe lower
than Inflation rate)
Diversification Non-repayment risk
Medium to High Liquidity
Affordability

How much can you make from Fixed Income Securities?

Based on official data, you can earn returns as much as 8% of your investment in fixed income
securities. From 2010 to 2019, T-bills had yielded average returns ranging from 2.17% to 2.73%

73
ver the same 10-year period, T-bonds had yielded average returns ranging from 3.63% to 8%,
based on BTr data.Bond funds managed by mutual fund companies have yielded returns ranging
from -0.38% to 5.06% over five years, based on data from the Philippine Investment Funds
Association (PIFA).

How to Invest in Fixed Income Securities in the Philippines

Investors can buy and sell fixed income securities in the Philippines through commercial banks and
mutual fund companies with trust investment products (See the list below).

Easy steps:

Step 1: Inquire at the nearest bank.

Talk to the bank’s account officer or investment specialist to inquire about the fixed income funds
they offer. Ask for a copy of the product brochure or prospectus and study it at home to understand
the fund’s features and requirements.

Alternatively, you can visit the office of a mutual fund company or broker (like COL Financial and
First Metro Securities’ FundsMart) to learn about their bond fund offerings and how to start
investing in bonds.

Step 2: Open a deposit account.

Once you’ve decided on a government or corporate security, visit the bank to open a new Peso
account or assign an existing deposit account as your settlement account. The settlement account is
where your principal will be deducted and where your interest income plus principal will be
credited.

Before you go, prepare the requirements first. Actual requirements vary per bank, but here are the
most common documents investors need to submit:

Two valid government-issued IDs

Tax Identification Number (TIN)
Proof of account with the bank (such as passbook or checkbook), if with an existing
account
Initial investment amount

Step 3: Fill out the required forms.

You’ll then be asked to accomplish forms, including the following:

Account opening forms with the bank

Signature cards
Client Suitability Assessment Form/Risk Profile Questionnaire Form
Risk Disclosure Statement
Order Ticket
Special Power of Attorney (SPA)
Other documents required by the issuer

74
Step 4: Pay the principal amount.
After your account with the bank has been settled, your principal payment will be deducted from
your designed bank account. You should receive proof of investment or official confirmation of the
transaction from the bank.

Every three or six months until your fixed income investment matures, you’ll receive your interest
payments through your settlement account. At the end of the term, the last interest payment and
principal will be deposited into your bank account.

List of Government Securities Dealers in the Philippines

Before investing in fixed income instruments, make sure to transact only with Government
Securities Eligible Dealers (GSEDs). Also called primary dealers, these companies are SEC-licensed
and belonging to industries supervised by the SEC, Bangko Sentral ng Pilipinas, and Insurance
Commission. GSEDs have met several criteria for eligibility to participate in the primary auction of
government securities (and acknowledged by the BTr as such).

Here’s the BTr’s official list of primary government securities dealers in the Philippines.

 AB Capital and Investment Corporation  JP Morgan Chase Bank

 Asia United Bank (AUB)
 Australia and New Zealand Banking
Group Limited
 Banco de Oro Unibank, Inc. (BDO)
 Bank of Commerce
 Bank of the Philippine Islands (BPI)
 BDO Capital & Investment Corporation
 BDO Private Bank, Inc.
 BPI-Capital Corporation
 China Banking Corporation (China
Bank)
 Citibank, N.A.
 Citystate Savings Bank, Inc.
 CTBC Bank (Philippines) Corporation
 Deutsche Bank
 Development Bank of the Philippines
(DBP)
 East West Banking Corporation
 First Metro Investment Corporation
(an investment banking arm of the
Metrobank Group)
 ING Bank
 Land Bank of the Philippines
(LANDBANK)
 Malayan Bank Savings & Mortgage
Bank, Inc.
 Maybank Philippines, Inc.
 Metropolitan Bank & Trust Company
(Metrobank)
 Philippine Bank of Communications
(PBCOM)
 Philippine Business Bank
 Philippine National Bank (PNB)
 Philippine Veterans Bank
 Rizal Commercial Banking Corporation
(RCBC)
 Robinsons Bank Corporation
 Security Bank and Trust Company
 Standard Chartered Bank
 Sterling Bank of Asia, Inc.
 The Hongkong and Shanghai Banking
Corporation, Ltd. (HSBC)
 Union Bank of the Philippines
 United Coconut Planters Bank (UCPB)
Source: Bureau of the Treasury

List of Banks That Offer RTBs in the Philippines

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Only nine companies are recognized as official selling agents of retail treasury bonds in the country:

BDO Capital & Investment Corporation

BPI
China Bank
DBP
First Metro Investment Corporation
LANDBANK
PNB Capital and Investment Corporation
RCBC Capital Corporation
SB Capital Investment Corporation (a subsidiary of Security Bank)
Source: Bureau of the Treasury

List of Banks and Mutual Fund Companies That Offer Bond Funds in the Philippines

 Peso Bond Funds  ALFM Dollar Bond Fund, Inc.

 ALFM Peso Bond Fund, Inc.  ALFM Euro Bond Fund, Inc.
 ATRAM Trust Corporation  ATR KimEng Total Return Bond Fund Inc.
 AUB  ATRAM Trust Corporation
 Bank of Commerce  AUB
 BDO  Bank of Commerce
 BPI Asset Management and Trust  BDO
Corporation
 BPI Asset Management and Trust
 China Bank Corporation
 Cocolife Fixed Income Fund, Inc.  EastWest Bank
 EastWest Bank  Grepalife Dollar Bond Fund Corp.
 Ekklesia Mutual Fund Inc.  Grepalife Fixed Income Fund Corp.
 First Metro Save and Learn Fixed Income  LANDBANK
Fund, Inc.
 MAA Privilege Dollar Fixed Income Fund,
 Grepalife Bond Fund Corporation Inc.
 LANDBANK  MAA Privilege Euro Fixed Income Fund,
 Manulife Asset Management and Trust Inc.
Corporation  Manulife Asset Management and Trust
 Maybank Corporation
 Metrobank  Maybank
 Philam Bond Fund, Inc.  Metrobank
 Philequity Peso Bond Fund, Inc.  PAMI Global Bond Fund, Inc
 Philippine Business Bank  Philam Dollar Bond Fund, Inc.
 PNB  Philequity Dollar Income Fund Inc.
 Prudentialife Fixed Income Fund Inc.  PNB
 RCBC  Pru Life UK Investments
 Security Bank  RCBC
 Sun Life Prosperity Bond Fund, Inc.  Security Bank
 Sun Life Prosperity GS Fund, Inc.  Sun Life Prosperity Dollar Abundance
 UnionBank Fund, Inc.
 UCPB  UnionBank
 Foreign Currency Bond Funds  UCPB

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Introduction to Portfolio Management

The term portfolio refers to the collections of investments or assets. It may compose of several
stocks, bonds and other types of investment which are properly diversified. Portfolio
diversification means spreading your assets in the portfolio to minimize the investment risk. There
are several concepts the investor has to learn to manage the investment portfolio. These
understanding the risk and asset allocation. The detailed discussion on this is found in the subject
Investment and Portfolio Management.

As a beginner, one should understand asset allocation. Depending upon the investor’s appetite
to take risk and intention or goal in his investment, investor should choose properly an
investment vehicle.

Activity 2: Asset Allocation Decision

Assuming you are given 1 Million pesos today, how would you like to invest the money? Complete
the pie chart below, indicating the percentage of your investment in different investment
instruments (stocks/Bonds). Be more specific in the types of bonds or stocks you will place your
money. You may refer to the previous module for details of equity investment. State your objectives
in each investment decisions you will come up.

Sales

5%
20%

35%

15%

10%
15%

RCBC Bond Stocks cash gold real estate personal

Performance Assessment Output: Investment Portfolio

Using the Investagram stock market investment simulation, focus on your investment portfolio and
you should be able to do the following:
1. Present the company background of the stocks in your portfolio. You can gather this from
the annual reports published.
2. Explain the asset allocation in your portfolio by stating your investment objectives.
3. Perform fundamental analysis in each of the chosen company.

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 4. Perform technical analysis to explain your buying and selling decisions.
5. Support your answer with chart, tables, graphs and matrices for better visualization.
6. Provide a reflection in your investment journey.

Rubric to grade the Investment Portfolio (60 points)

Sophisticated (10pts) Very Competent (8 Fairly Competent (6 Not yet Competent
pts) pts) (5pts)

Company The company Company There is very limited No company

Research background information background is company background background
as to product or present but not presented.
services/ profile/ complete.
performance are present
in all stocks invested.

Asset The investment The investment The investment No investment

allocation objectives are properly objectives are stated objectives are vague objectives and no
stated with asset but vague. There is with no percentage of asset allocation
allocation percentage. percentage of asset asset allocation percentage.
allocation

Content Excellent use of Sufficient use of Majority of the Content was

specific and relevant specific and relevant presentation does not insufficient to
facts. facts is included. relate to or support explain the subject
Decisions are fully the topic. matter.
supported by
Fundamental and Fundamental and
Technical Analysis Technical analyses Decisions are not NO application of
Conclusion is are not so applied dependent on fundamental and
commendable fundamental and technical analyses
technical analyses.

organization Words used are Words used are Imprecise or Consistently

consistently precise and mostly precise ambiguous wording. imprecise or
unambiguous. Sentences and unambiguous. Confusing sentence ambiguous wording.
are clear and correctly Sentences are clear structure, no author’s Writing is not
structured. All authors and correctly citation. The ideas understood. The
are properly cited and structured. Lacks presented in the ideas are not
effectively framed in the authors citation. paragraph jump from logically arranged.
sentence. Ideas are one to another.
somehow logically
All ideas are logically arranged.
ordered.

visual Charts, graphs, tables, Charts, graphs, Charts, graphs, tables, Charts, graphs
matrices, etc. were very tables, matrices, etc. matrices, etc. barely tables, matrices, etc.
well developed, visually were well meet assignment did not meet
effective, and guided the developed and requirements, but assignment
audience to a good visually effective. were difficult to requirements.
understanding. follow and
understand.

78
 . Were poorly
developed.

Presentation Paper is clean, Paper is clean, Paper is clean, Paper is sloppy or

correctly formatted correctly formatted correctly formatted incorrectly
with no broken with no broken with no broken formatted, not
sentences. No spelling sentences. There are sentences. There are written in full
or grammatical errors. few misspelled number of sentences and there
words or misspelled words or are numerous
grammatical errors. grammatical errors. misspelled words or
grammatical errors.

Investment Portfolio

Company Background

Based on my
Investagram Portfolio, I chose six companies to invest in and buy shares from them. These are BDO Unibank, Ayala
Corporation, ABS-CBN Holdings Corporation PDR, RCBC, San Miguel Corporation Series 2-A, and Puregold Price
Club.

BDO Life Assurance Company, Inc. is a wholly-owned subsidiary of BDO Unibank, Inc., the country's largest Bank
to date. BDO Life offers a diverse pool of life insurance products suitable to the needs of its target clients. BDO Life
provides protection, education, savings, retirement, and estate planning solutions to create a secure future for its
customers and their families.

Meanwhile, Ayala has been a long-time collaborator in the country's quest for prosperity and nation-building since
1834. Creating enterprises that alter industries, challenge the status quo, and bring ideas to the Philippines and
throughout the world contribute to the country's social and economic goals.

Aside from that, ABS-CBN Corporation (abbreviated as "ABS-CBN" or "Company") is the Philippines' largest
multimedia information and entertainment conglomerate. The Company's primary operations are television and
radio transmission and television and radio programs production for domestic and foreign audiences and other
associated industries.

On the other hand, Rizal Commercial Banking Corporation (RCBC or the Bank) is a Philippine universal bank that
offers various banking and financial services. The end of December 2018 had total assets of P645 billion and an
actual net worth of P81.17 billion, including minority equity. Among private local banks, the Bank came in eighth
(8th) in terms of assets.

While La Fabrica de Cerveza de San Miguel, founded in 1890 as a single brewery in the Philippines, was Southeast
Asia's first brewery, producing and bottling what would later become one of the region's best-selling beers and one
of the world's top beer brands.

Puregold is a thriving grocery chain in the Philippines, with more than 300 locations. It is a well-known and well-
liked brand that offers high-quality goods, services, and bargains around the country. As it continues to build its
business, the Company desired to produce an annual report that beautifully highlighted its values, goals,

79
accomplishments, and efforts.Asset Allocation

Since I chose six companies for my investment, here’s the amount

Asset Allocation of stocks I bought from each of them:

BDO: 20 stocks, so I have my shares in Bank Corporations and BDO

is one of the trusted companies here in Philippines when it comes
20% 20% to investments.

200% 100% Ayala Corporations: 20 stocks also because I want to have some
shares since they are continuously booming in the industry.

ABS-CBN: 100 stocks, I decided to invest with their company due

150% to quality of entertainment, cables, and it is the largest multimedia
information.

San Miguel Corporations: 150 stocks, due to wide variety of

businesses in the society. Aside from beverages industry, they
came up with another field of enterprises.

Puregold: 200 stocks, because it is well-known and customer’s

1000% budget friendly which made them the first choice of public when it
comes to quality of grocer that provides basic needs.

RCBC: 1000 stocks, they gained my trust because I am one of their

clients on the previous years. All the banking of my family were
processed by RCBC and we did not encounter any single problem
BDO AC ABSP with it. Thus, I decided to buy shares from them so I can be part of
RCBC SMC2A PGOLD it.

Analysis,

According to the results of my latest investment these companies. Provided below are the flow my investment.

80
As you can see with the chart, most of the data shows the
negative status of my investment. Only the stocks I’ve
got from ABS-CBN increase my money. Unfortunately,
the remaining five companies present the chart with the
downfall of my shares. The results from PSE for the
latest record of the exchange, BDO also lose this trade.
Thus, I came up with the decision to sell my other stocks
to save the loss I had.

Reflection
Despite the loss, I learned how to overcome it and decide
critically on investing. There are many chances to gain
from the high amount of trading; the risk is also high,
just like what happened from this experience. I lose a
significant amount of money due to the assumption of
gaining more. Hence, I learned that be careful in making
decisions and be practical with trading. Failure is a part
of the journey, but it inspires us to be better for the next
challenge in business.

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References:

Cecchetti, S. (2010). Money Banking and Financial Markets, New York City. McGraw-Hill Irwin

Mishkin, F. (2008). Understanding the Economics of Money, Banking and Financial

Markets.Pearson Education Inc. Singapore

Nti, Isaac kofi & Adekoya, Adebayo & Weyori, Benjamin. (2019). A systematic review of
fundamental and technical analysis of stock market predictions.
Artificial Intelligence Review. 10.1007/s10462-019-09754-z.
Rhoderick R. Santos.2011 Essentials of Investment in the Philippine Capital Market.
Southville International School and College System Publications, Laspinas
City, Metro Manila

Rose, et al. Money and Capital Markets.2006. McGraw Hill.New York

Santos, R.R.(2011).Essentials of Investments in the Philippine Capital Market 2nd Edition.Las Piñ as
City, Philippines:Southville International School and Colleges Systems
Publications

Saunders, Anthony et al. (2011)Financial Markets and Institutions Mc Graw Hill Philippine
Copyright,International Edition

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Smart, S.B. & Megginson W.L.(2011). Financial Management: An Introduction. Cengage
Learning Asia Pte Ltd

Villafuerte, F. (2020, September 19). How to invest in Bonds for beginners. Ready to be rich.
From https://fitzvillafuerte.com/invest-bonds- beginners.html#:~:text=In%20the
%20Philippines%2C%20there%20are,%2DBills
%2C%20and%20many%20others.

Zoleta, V. (2020,May 11)

https://www.pinoyinvestor.com/smartinvestor/technical-analysis-part-1-introduction/

https://www.pseacademy.com.ph/LM/investors~details/id-
1345022032133/The_Principles_of_Technical_Analysis.html

https://www.investagrams.com/

https://www.pse.com.ph/stockMarket/home.html

edge.pse.com.ph

https://www.pinoyinvestor.com/smartinvestor/exclusive-special-report-home-ipo-valuation-analysis/

https://corporatefinanceinstitute.com/resources/knowledge/strategy/industry-analysis-methods/
https://www.investagrams.com/daily/2017/10/virtual-trading-how-to-try-stock-trading-
without-risking-money/

https://www.tradeciety.com/understand-candlesticks-patterns/

https://elitecurrensea.com/education/master-guide-on-candlestick-patterns/

https://medium.com/@cryptogrinders/reading-the-candlestick-73b2ecabdf5e

https://www.investopedia.com/trading/candlestick-charting-what-is-it/

https://www.investopedia.com/articles/active-trading/062315/using-bullish-candlestick-
patterns-buy-stocks.asp

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