Stock Market - The place where the shares or stocks of publicly listed companies are traded.

How Do I Make Money?

*Price Appreciation

*Dividends: Cash Dividends, Stock Dividends, Property Dividends, Stock Rights Offering

Stock Exchange

*An organized market place or facility where stocks are traded; can be either physical places or virtual
trading posts

*Where trading transactions are done in an efficient, orderly, fair and transparent manner

*Rules and regulations are enforced that the publicly listed companies must strictly follow

Ex: New York Stock Exchange: Most Famous (wall street); world’s largest market

Amsterdam Stock Exchange: Oldest modern stock exchange founded in 1602

Market Cap or Market Capitalization

* is the total market value of a company’s outstanding shares traded in the stock exchange.

*It is calculated by multiplying the company’s outstanding number of shares by the present price of the
stock per share.
PSEI

*It is an indicator of how the securities or stocks are performing

*It is tool used by investors and financial managers in describing the market condition. The movement
has impact on the overall economy of the country

*It is a capitalization- weighted index composed of stocks representative of the different sector indices

*It provides a picture of the market trends

*It is a benchmark to measure the performance of mutual funds and ETFs

*Main Index is the PSE Composite Index or the PSEi

*Composed of 30 listed companies selected based on specific set of public float, liquidity, and market
capitalization.

*There are also six sector indices and the broader all shares index.

PSE Index List of Companies 2020

Blue Chips Companies *PSE conducts semi-annual review of the PSE indices.
Any company can be added or removed in the list
*large market capitalization
according to PSE comprehensive review
*well established and market leader on the
*Companies must comply with the listing
industry
requirements
*with history of reliable and stable financial
growth
*Invest for the long term
*reputation of consistent quality earnings
*Invest into Quality businesses at reasonable prices
*relatively low risk with reduced stock price
fluctuations and volatility *Invest using Diversification

*Invest using a Plan

 Bull/Bullish - is a common term to describe a stock,
pattern or a market that is characterized by upward
movement. A bullish market is a happy green market.

Bear/Bearish - is the reverse of Bull/Bullish. It is

characterized by downward movement. A Bear/
Bearish market is a sad red market.

Support – an area where price is expected to stop

declining after a sell off. It is an area where buyers are
waiting to buy.

Resistance- is an area where it is difficult for the price

to continue moving up. It is an area where selling is
heavy.

Rally – a continued uninterrupted rise in price.

Breakout - a term used to describe price movement

that got out of resistance after a long consolidation. It
is followed by heavy volume and increased volatility.

Oversold – term used to describe a stock which has been relentlessly sold down. An oversold stock is a
good candidate for recovery.

Overbought - a term used to describe a stock which has been continuously bought up. An overbought
stock may be pulled by gravity soon.

Tick – or fluctuation, is a minimum increment up or down movement of price.

Correction - term applied to a decline of 10% or more in the overall market. It happens when the market
becomes too expensive and overvalued. It applies also to individual stocks.

Paper Profit – is the unrealized profit in stock or investment. It is the difference between the market price
and the original purchase price. It is realized when the security is sold.

Paper Loss –Opposite of Paper Profit. Unrealized loss in stock.

Concept of Role Reversal

*A resistance will turn into support after it is successfully breached.

*A support will turn into resistance after it gets successfully breached.

The Board Lot System

*Stock Trading is done by Board Lot or Round Lot System

*Minimum number of shares to buy or sell

*Depends on the price per share

The Trading Cycle PSE Trading Hours/Market Phases

Board Lot Table Trading and Transaction Fees and Taxes

Brokerage Commission max of 1.5% + VAT

Online Broker Commission is 0.25% + VAT

Stock Transaction Tax .006%

Withholding Tax on Dividends

Upliftment /Withdrawal Fee Buyer P50/cert)

Cancellation Fee (Seller P100+VAT per/cert)

Transactions

The commission fee has minimum charge of P20.00

per transaction

For Broker assisted transactions Fee ranges from 0.5%

to 1.5%

For us we will use Brokers Fee of 1.0%

For on line transactions the commission Fee is 0.25%

Buying Transaction Selling Transaction

Directory of On-line Brokers

Steps in Investing/Trading Confirmation Advise
*Choose a stockbroker Confirmation invoice should be delivered by stock
*Research, on line access, track record brokers at T+1 (Transaction day + 1 trading day)

*Open an account, fill up forms, present Ids Confirmed transactions should be settled by the stock
broker at 12:00NN of T+3 (Transaction day + 3 trading
*Determine your risk tolerance day)
*Choose your stocks/company to invest do analysis Sellers – receive payment (T +3) Buyers – payment T
+3
*Give order and ask for confirmation

*Pay before settlement day (buying)

Common Stocks
*Receive proceeds from transaction (selling)
Growth Stocks – projected to increase in value more
than the rest the market.

Income Stocks – do not fluctuate much but have

history of paying dividends.

Value Stocks – undervalued stocks that can be bought

at a lower price.

Blue Chip Stocks- performed well for long period

being stable investments.
*****END OF LESSON TWO*****
Defensive Stocks- stocks of companies whose
products and services people buy no matter what like
food, utilities, pharmaceuticals.

Cyclical Stocks- rise and fall with the economy like

airlines, chemicals and home builders.

Speculative Stocks- offerings of young companies

using new technologies. Performance are
unpredictable and considered as high risk.

Portfolio- grouping of financial assets or investments

such stocks, bonds and other investments.

Stock Portfolio – stock watch list Investment Portfolio

Depends on your risk tolerance.

You can change your portfolio based on your goals and

risk tolerance
 Stock Investing

A STOCK is a type of security that signifies ownership of a corporation. It represents a claim in the
corporation’s assets and earnings. Also known as Shares or Equity.

A STOCKHOLDER owns shares issued by the corporation.

Stock Certificate - It is a document that signifies ownership of the corporation.

Certificate: Name of stock owner

Number of shares

Date of issuance

Identification number

Company seal

Signatures of company officers

Scripless Trading Electronic Certificate Rights of Shareholder

*Transfer of stock ownership is Street Name Certificate: the Nominating and voting rights
done by computerized book brokerage holds the stock
entry. Pre-emptive rights
certificate electronically under its
name instead of the legal owner Power of inspection
*Handled by Philippine Central
of the shares.
Depository(PCD) Right to information
The real owner of the stock is
*Eliminates the need for the Right to dividends
listed and has the rights
physical transfer of the scrip or
associated to the shares. Appraisal right
stock certificate.
Advantages of Street Certificate Disadvantages Corporations raise money by;
Securities held electronically Information, reports or other company Borrowing money direct from
facilitates communications will not reach the stock banks issuing debts or Bonds
owner.
speedy trading and reduce costs Selling Part of the company by
Brokers can use the street certificate as issuing Stocks
Reduced risk of damage, loss or
collateral for a loan or credit.
theft.
Possible that the stock can be traded by Types of Securities that can be
It removes the uncertainty that
the broker. bought in the Philippine Stock
would exist if the customer is
Market
responsible for the security. If the brokerage fails, your stock goes
with it. Common Stock

Preferred Stock
Investor Protection Public Listing of Companies in the Stock
Market Warrants
Self-Regulatory
Raise capital in a cost efficient manner. Philippine Deposit Receipts (PDR)
Organization Risk Base
Expand company business without Rights of Shareholder
Capital Adequacy Disclosure increasing debt or draining its cash
Rules reserves. Nominating and voting rights
Capital Markets Integrity Increase public awareness and interest to Pre-emptive rights
Corporation Total Market the company thereby attracting new Power of inspection
investors.
Surveillance Right to information
Price Fluctuation Measures Right to dividends
Different Types of Stocks
Securities Investor Protection Appraisal right
Fund (SIPF)

Bid - the highest price in the Stock Rating

market An evaluation of a stock’s expected
Ask - the lowest price in the performance or risk as recommended
market by a rating agency or stock analyst.

Open - the first stock price traded Rating

for the day
Price Earning Ratio Buy - stock offers share price upside of
Close - the last stock price traded > 15% vs price target over the next 6
for the day P/E R = price/earnings ratio = market price
to 12 months. Minimal risk.
as of the end of a given year ÷ EPS or
Market Value – the price at earnings per share at the end of that year Add - stock offers share price upside of
which the buyers and sellers are 5% to 15% vs price target over the
willing to purchase or sell a stock The PER of a common stock is NOT
next 6 to 12 months.
based on a perceived value. CONSTANT; it changes from year to year
Hold - stock offers share upside of <
Target Price – a price set by The P/E R of a common stock may be
5% and a downside of <5% vs price
analysts predicting where the interpreted as “the number of pesos that
target over the next 6 to 12 months.
price of the stock will head in the the investor would be willing to pay for
Moderate risk.
next 52 weeks. It is also the price every peso of net income that the common
the investor is hoping a stock will stock earns.”
go at a specified time.
Earning Per Share (1) Price to Book Value - Gives you an idea of Final approval of the sec (securities
what is left of the company in case of and exchange commission) and the
EPS at the end of any given year= net
bankruptcy A lower P/B ratio could mean Philippine stock exchange is required
income after tax during the given year
that the stock is undervalued before the offering and eventual listing
÷ No. of outstanding common shares
in the exchange
as of end of that year P/B Ratio – ratio used to compare the
stock’s market price to its Book Value IPO can be risky for investors
Calculate the Target Price
because you cannot predict the stock’s
Book Value – Total Assets - Intangible
Target Price = Price x {(Current P/E) / performance on the listing day and the
assets and liabilities
Forward P/E} near future.
P/B Ratio = Stock Price / Total Assets –
Look for stocks with Target Price of
Intangible assets and liabilities
more than 20% from the current price

Forward P/E - is the estimated value

of earnings for the next 12 months Return on Equity
based on historical data. ROE is the amount of net income returned
If Forward P/E Ratio is lower than the as a percentage of shareholder’s equity.
current P/E Ratio, it means earnings Measures the corporation’s profitability by
are expected to increase. revealing how much profit it generates with
the money invested by the shareholders. END OF LESSON 3
If higher, earnings are expected to
decrease. (2) ROE = Net Income /Shareholder’s Equity
Example: Z Corporation has a market
Shareholder’s Equity = Total Assets – Total
price of P25 per share and EPS of 1.1
Liabilities
The estimated earnings for next year is
P125 M and Z Corp has 100M Shareholder’s Equity is also the Net Worth
outstanding shares. (3)
ROE
Current PER = 25/1.1 = 22.7
17 % to 18% - very good 20% excellent
Estimated EPS = 125M/100M = 1.25
> 25% - superior
per share Forward PER =
P25/P1.25 = P20 A rising ROE is likely to lead to a similarly
rising price of the company’s stock.
Since Forward PER 20 < Current PER
22.7, Price is expected to increase.
Market Capitalization = current Public Offer- 33% or P50M whichever is
market price of the common stock x higher 25% or P100M w/c ever is higher
No. of outstanding (4) 20% or P250M w/c ever is higher
*Not exceeding P500M Investor Relations Program for Company
Information, financial report, company
*Over P500M to P1B
news, stock information, investors FAQs etc.
IPO
Track Record Requirement- P50M EBITDA
An Initial Public Offering is the first for 3 years prior to listing.
time that the stock of a private
Management Track record for 3 years
company is offered to the public.
Minimum Capital Requirement – P500M
A private company applying for an IPO
and 25% fully paid and subscribed
must comply to the criteria set by The
Philippine Stock Exchange. Minimum Number of Stockholders – 1000
Personal Goals must be specific and A trader’s style refers to the timeframe or holding period in which stocks or other
time bounded. instruments are bought and sold.
ex: 50% increase in 5 years! Trading style is based on factors including account size, time dedicated to trading,
level of experience, and risk tolerance.

*Investing and trading are very

different approaches to generating
profits in the financial market.

*Both investors and traders seek

profits through the financial market
participation.

*Both investing and trading involve

risks on the capital.

Period

Trading is a method of holding stocks

for a short time. Scalper is a trader specializing in small price changes. This is a risky style done by
Investing is an approach in buy and professionals involving strict exit strategy, a lot of trading activities, very focused and
hold for years or decades. disciplined, quick decisions and constant monitoring of the screen.

Capital Growth Day Trader - a trader who buys and sells stock within the same trading day. This is
quick trading to gain profit. He / She is a very experienced speculator relying on a lot
Traders look at price movement of of data, charts and other information. Profits from small price fluctuations.
stock in the market and sell if the price
is higher

Investors take the perks of Position Trader – a trader who buys and hold a stock for several months or even
compounding interest, cash and stock years. Use a combination of fundamental and technical analysis in stock selection.
dividends gradually Profits from primary trends

Risk Swing Trader - trader with a short term strategy in buying and selling of stocks usually
one day to several weeks holding period. Rely on technical analysis and trends. Profits
Trading involves higher risks but higher from short trends.
potential return.

Investing involves lower risk and lower

returns in the short run.

Skill

Traders are skilled who time the

market, follow trends and learn
technical analysis.

Investors analyze the stocks, study the

fundamentals and invest in value.

Investor - puts money into
investments or stocks to make it grow
and expect financial returns or profits.
Use fundamental analysis. Buys stocks
for long term investment and long
term profits.

Rules of successful trading

Individual Stock Trading Plan Why most People lose Money in the
Stock market
1. Decide which stocks to buy
2. Identify market indicators to use 1. Not doing enough research and
3. Decide how many shares to buy investing based on Tips
4. Set specific price entry point
5. Define how will you monitor the 2. Trying to make money quickly
trade
Which stocks to choose from?
6. Decide parameters to exit
1. Liquidity 7. Decide your trading schedule 3. Sudden overexposure to the
2. Volatility 8. Evaluate your trading plan Market
3. Volume
4. Lower price 4. Holding to Losses while booking
Create a Trading Journal profits early

1. Record of trading activities 5. Lack of Patience

Things to do in Stock trading
2. Improve as a trader
1. Create a watch list 3. Learn from mistakes

*A watch list is a list of stocks being 6. Blindly following the crowd

monitored for potential trading or
Stop Loss - is an order that you set up to
investing opportunities.
limit losses when the stock price drops.
2. Select the stocks to trade It triggers a sell order if the price of the
3. Prepare a trading plan stock falls on a certain level.
4. Create a journal

A set of rules and guidelines to follow

that defines your trading behavior to
minimize mistakes and achieve your
goals . A customized roadmap on how
to trade, written down and followed.

*****END OF LESSON 4*****

Technical Analysis Fundamental Analysis VS. Technical Analysis
*One of the methods used to analyze *View from financial statements *View from charts
securities & make investment decisions
*Best employed for long term investing *Best employed for short term trading
*It is about price movement in the
market. *Data utilized come out periodically *Data utilized come out daily
tends to focus on a specific sector
*It is about the supply & demand in the *Focused on what happens
market that determines the direction or *Focused on what “must” happen
*Will improve investing and make
trends *Works best if all investors are logical & sensible decisions
*A method of evaluating securities by could separate emotions from
*Works best in determining market
analyzing statistics generated by market investment decision
sentiment and factor it the creation of
activities such as past prices and volume. *Will succeed if the analyst finds over investment or trading decisions
*It does not attempt to measure intrinsic looked data in identifying undervalued
value but instead use charts & other tools securities
to identify patterns that can suggest
future activity. Valuation Process

*It is believed that the historical Top Down Approach Bottom-up Approach
performance of stocks and markets are
indication of the future performance

*It attempts to understand what is

happening in the market by studying the Considers condition affecting Economy, Financial Markets & Industry Company
market itself.

*Can be used also on any securities with

historical trading data. This includes gold,
commodities, fixed income securities,
futures, forex, etc. A chart is a picture. A
picture is worth a thousand
Based on 3 Assumptions: words or probably
1. The market discounts everything
2. Prices move in trends
3. History tends to repeat itself

ADVANTAGES

*Portability

*Price based trade or investment

planning

*Does not require knowledge of many

*****END OF LESSON 5 PART 1*****
mathematical formulas

DISADVANTAGES

*May not be used to predict future price

action

*Not easy to use with IPOs

*May miss 20-25% of the movement

*It has a tendency to create self-fulfilling

prophecies
 TECHNICAL ANALYSIS USING CHARTS

Price is the most important element in a chart

Market Psychology – Each investor has his or her own opinion about a certain
security or any other object for that matter

Logical: sellers want to sell at the highest

Practical Market Psychology price possible

Competitive: sellers tend to lower their offer

price in order to attract buyers

Emotional: sellers tend to panic when price

drops

The Dow Theory

1. The market discounts everything: all information, past, present and even the
future is discounted in the markets and reflected in the prices of stocks and
indexes (price is King).
2. The three trend market are primary, intermediate or secondary & tertiary minor.
Primary trend will last more than a year up to 3 years; Secondary rend will last
Charles Dow and Edward Jones for 3 weeks to 3 months; Tertiary or minor trend lasts less than 3 weeks
3. Three phases of primary trend
*Published the Wall Street Journal Primary Downward Trend
Primary Upward Trend
(Bear Market)
*Invented the Dow Jones Industrial Average (Bull Market)

Dow Theory in 1896

The market will generally

move in a trend and not a
straight line but in one
direction.

Uptrend 4. Market Indexes must confirm each other

Downtrend
5. The volume confirms the trend 6. The trend remains intact until it gives a definite reversal signal.

Dow Jones Industrial Averages 100 years PSE Index 1987 to Sept 2020
 Chart Composition

Price Fields:

Open – the first price trade for the period

High – highest price traded for the period. More buyers than
sellers

Low- lowest price traded for the period. More sellers than
buyers

Close – the last price traded for the period. Price used for
analysis.

Volume – number of shares traded for the period

Bid – the price a buyer is willing to pay

Ask – the price a seller is willing to accept

 Why the trend is important?

1. Help determine the long term direction

2. Can help determine support and resistance
3. Can be great entry and exit points
4. Can help identify breakout points
5. Can be wrong with timing but not trend

Direction – we can identify the trend by taking a look at the direction of Trendlines
the moving average.
No strict rules in plotting trendlines.
if rising = uptrend
In uptrends, connect the two successive lows, then extend
if falling = downtrend the trend line.
Price Location – compare the price location to the moving average. In downtrends, connect the two successive highs then extend
Price above = bullish the trend line.

Price below = bearish In sideways, connect the highs and connect the lows to
identify support and resistance respectively.
Crossover - two moving averages with different periods are used

Shorter MA crosses above = bullish

Shorter MA crosses below = bearish

Moving Averages
 Channels

An enhancement of the trend line wherein another line is placed

on top of the trend line thus creating a channel wherein prices will Support is the area where people buy
bounce up and down until the trend changes and the channel is
broken. Resistance is the area where people
sell
The upper trend line connects the series of highs while the lower
trendlines connects the series of lows. “Buy Support Sell Resistance”

Role Reversal:

When Support is broken it becomes the new resistance

When resistance is broken, it becomes the new support.
Chart patterns signal the trader that the price of
the stock is likely to move in one direction or
another when the pattern is complete.

Two types of pattern:

Reversal – signals the prior trend will reverse on

completion of the pattern

Continuation – indicates that the prior trend will

continue upon completion of the pattern.
 Symmetrical
Triangle Descending Triangles

Triple tops
Ascending Triangle

Triple Bottoms

Round Bottoms