Stock Market is one of the key sectors of financial markets where long-term financial

instruments are traded. The purpose of equity instruments issued by corporations is to

raise funds for the firms. The provider of the funds is granted a residual claim on the
company’s income, and becomes one of the owners of the firm.
For market participants’ equity securities mean holding wealth as well as a source of new
finance, and are of great significance for savings and investment process in a market
economy.
The purpose of equity is the following:
A new issue of equity shares is an important source of external corporate financing;
Equity shares perform a financing role from internally generated funds (retained
earnings);
Equity shares perform an institutional role as a means of ownership.
Within the savings-investment process magnitude of retained earnings exceeds that of
the news stock issues and constitutes the main source of funds for the firms. Equity
instruments can be traded publicly and privately. External financing through equity
instruments is determined by the following financial factors:
The degree of availability of internal financing within total financing needs of the firm;
The cost of available alternative financing sources;
Current market price of the firm’s equity shares, which determines the return of equity
investments.
Internal equity financing of companies is provided through retained earnings. When
internally generated financing is scarce due to low levels of profitability and retained
earnings, and also due to low depreciation, but the need for long-term investments is
high, companies turn to look for external financing sources. Firms may raise funds by
issuing equity that grants the investor a residual claim on the company’s income. Low
interest rates provide incentives for use of debt instruments, thus lowering demand for
new equity issues. High equity issuance costs force companies to look for other sources
of financing as well. However, during the period of stock market growth high market prices
of equity shares encourage companies to issue new equity, providing with the possibility
to attract larger magnitude of funds from the market players.
LESSON 1
FOUNDATION AND MECHANICS ON HOW THE CAPITAL MARKET WORKS
WHY DO STOCK MARKETS EXIST?
Companies that are in need of financing have two options, debt or equity. For debt
financing, companies can simply apply for a loan, for financial institutions, banks, public.
For equity financing companies can make their shares available for the public to purchase
with money.
HOW DO THESE COMPANIES ENTER THE STOCK MARKET?
An initial public offering (IPO) refers to the process of offering shares of a private
corporation to the public in a new stock issuance. Public share issuance allows a
company to raise capital from public investors.
HOW DO WE MAKE MONEY IN THE STOCK MARKET?
DIVIDENDS
A dividend is a distribution of profits by a corporation to its shareholders. When a
corporation earns a profit or surplus, it is able to pay a proportion of the profit as a dividend
to shareholders. Any amount not distributed is taken to be re-invested in the business
(called retained earnings). The current year profit as well as the retained earnings of
previous years are available for distribution; a corporation usually is prohibited from
paying a dividend out of its capital. Distribution to shareholders may be in cash (usually
a deposit into a bank account) or, if the corporation has a dividend reinvestment plan, the
amount can be paid by the issue of further shares or by share repurchase. In some cases,
the distribution may be of assets.
The dividend received by a shareholder is income of the shareholder and may be subject
to income tax (see dividend tax). The tax treatment of this income varies considerably
between jurisdictions. The corporation does not receive a tax deduction for the dividends
it pays.
A dividend is allocated as a fixed amount per share with shareholders receiving a dividend
in proportion to their shareholding. Dividends can provide stable income and raise morale
among shareholders. For the joint-stock company, paying dividends is not an expense;
rather, it is the division of after-tax profits among shareholders. Retained earnings (profits
that have not been distributed as dividends) are shown in the shareholders' equity section
on the company's balance sheet – the same as its issued share capital. Public companies
usually pay dividends on a fixed schedule, but may declare a dividend at any time,
sometimes called a special dividend to distinguish it from the fixed schedule dividends.
Cooperatives, on the other hand, allocate dividends according to members' activity, so
their dividends are often considered to be a pre-tax expense.
PRICE APPRECIATION
In a way, it’s common sense, right? Profit lies in the difference between buying a stock at
a lower price and selling it at a higher price, but it’s easier said than done. How will you
know when to buy? When to sell? Or maybe more importantly, when to hold?
Needless to say, it’s important to estimate what a stock is worth at market value. This
way, investors will know whether it’s undervalued, inflated or how the value would
appreciate or depreciate. Once you determine the stock’s market value, you can make
clearer decisions based on movements from that reference point.
Aside from the usual ‘buy and sell’ method, some investors also use the buy and hold
strategy which entails keeping a stock over a longer period of time. The key in this
approach is having enough information about the stock to project if the stock’s price will
rise over its market price.
For example: You bought 1000 shares of XYZ Company at P5.00 per share. Then, after
10 years, you assume that the stock price will be P30.00 per share. Your total profits
would be P25,000 minus taxes. If done in scale, this could mean millions, if not billions.
Some advantages of the ‘buy and hold’ approach are lower transaction fees and short-
term capital gain taxes. However, it requires some extra patience and careful decision
making.
MARKET MECHANICS DEFINITION OF TERMS
A. Philippine Stock Exchange (PSE) - The Philippine Stock Exchange, Inc. is the
national stock exchange of the Philippines. The exchange was created in 1992
from the merger of the Manila Stock Exchange and the Makati Stock Exchange.
Including previous forms, the exchange has been in operation since 1927
B. Philippine Stock Exchange index (PSEi) - The main index is the PSEi, which is
composed of a fixed basket of thirty (30) listed companies. The PSEi measures
the relative changes in the free float-adjusted market capitalization of the 30 largest
and most active common stocks listed at the PSE.
HOW DO I START INVESTING?
1. What is a broker?
2. Choosing a broker
3. Open account with a broker
4. Submit all required documents
i. Customer account information form
ii. Individual disclosure form
iii. Signed specimen card
iv. Signed online securities trading agreement (OSTA)
v. Xerox copy of 2 valid IDs (varies per broker)
vi. TIN
vii. Bank Details
viii. Proof of billing (varies per broker)
How to Submit Requirements?
1. Printed out documents
2. Drop off at broker’s office
3. Online account opening
 With most online brokers today, they usually have logistic services to pick up the
documents from your home.
5. Making your initial deposit
What is the minimum deposit per account? Currently, minimum deposits
range from 0 to 100,000 pesos, depending on your broker.
6. Planning your trade
7. Trade!
Philippine Stock Exchange (PSE) Market Schedule [before CoVID-19]
9:00 AM - 9:30 AM Pre-Open
9:30 AM - 12:00 NN Market Trading Hours
12:00 NN – 1:30 PM Lunch Break
1:30 PM – 3:15 PM Market Trading Hours
3:15 PM – 3:20 PM Pre-Close
3:20 PM – 3:30 PM Closing Hour

Philippine Stock Exchange (PSE) Market Schedule [during CoVID-19]

9:00 AM - 9:30 AM Pre-Open
9:30 AM - 12:45 pm Market Trading Hours
12:45 pm – 12:50 PM Pre-Close
12:50 pm – 1:00 pm Closing Hour

BOARD LOT OF PHILIPPINE STOCK EXCHANGE

Stock trading on the Philippine Stock Exchange is done by board lot or round
lot system. The minimum number of shares you can buy or sell depends on the market
price of the stock at the time you place your order.

Price Range (Pesos) Board Lot (Min # of shares)

0.0001 to 0.0099 1,000,000
0.010 to 0.049 100,000
0.050 to 0.249 10,000
0.250 to 0.495 10,000
0.50 to 4.99 1,000
5.00 to 9.99 100
10.00 to 19.98 100
20.00 to 49.95 100
50.00 to 99.95 10
100.00 to 199.90 10
BID AND ASK
The bid and ask prices are stock market terms representing the supply and demand for
a stock. The bid price represents the highest price an investor is willing to pay for a share.
The ask price represents the lowest price at which a shareholder is willing to part with
shares. The difference between the bid and ask prices is called the spread. If a stock
quote features a single price, it is the most recent sale price.
MAKING A TRADE
When placing an order with his broker, an investor enters into a trade. In order to place
an order, brokers submit an offer to a stock exchange, which causes a market order to
be placed. Every sale is negotiated on the basis of your size and proposed purchase
price. The highest bid is the demand side of the market for a particular stock. Each sales
proposal includes an amount offered and a proposed sale price. The ask price is the
supply side of the market for a given stock. When placing an order, there must be an
existing ask or bid that meets the order's requirements. There will be no trades between
brokers if no orders bridge the bid-ask spread. When no orders are crossing the spread,
market makers continuously quote both the bid and ask prices to maintain effective
markets.
Consider the hypothetical Company A, which has a current best bid of 100 shares
at P9.95 and a current best ask of 200 shares at P10.05. A trade does not occur unless
a buyer meets the ask or a seller meets the bid. Suppose, then, that a market bid order
is placed for 100 shares of Company A. The bid price would become P10.05, and the
shares would be traded until the order is fulfilled. Once these 100 shares trade, the bid
will revert to the next highest bid order, which is P9.95 in this example.
LESSON 2: 10 REASONS WHY A LOT OF PEOPLE LOSE IN THE STOCK MARKET
1. NO STRATEGY
This is founded upon the foundation of those who fails to plan are planning
to fail. There are a number of different ways to approach stock investing, but nearly
all of them fall under one of three basic styles: value investing, growth investing,
or index investing. These stock investment strategies follow the mindset of an
investor and the strategy they utilize to invest is affected by a number of factors,
such as the investor’s financial situation, investing goals, and risk tolerance.

2. BUYING BASED ON TIPS AND RUMORS

While watching the financial news, I heard there's a rumor that a certain
billionaire investor is about to buy out a specific company. How accurate do rumors
like this tend to be, and is it a good idea to buy shares in anticipation?
When a rumor like this is made public, there's often some degree of truth to
it. For example, maybe there have been preliminary talks between the billionaire
 investor and the company. So it may seem like a good idea to scoop up some
shares.
But it's important to point out that more often than not, nothing really comes
of rumors like this. For example, Bloomberg compiled data that showed at least
1,875 separate buyout rumors involving 717 companies from 2005 to 2010. How
many actually got acquired? Just 104 of them – or 14.5%.
Also, it's important to remember that buyout rumors tend to cause a stock's
price to rise, so you'll pay an inflated price to bet on a takeover. The average stock
in Bloomberg's data popped nearly 3% when the rumors started flying – but came
crashing back down soon after. And as I mentioned above, the takeover rumor
didn't come true more than 85% of the time.

3. NO RESEARCH –
There are tons of online articles, supposed “finance gurus,” investing
newsletters, and even friends or family all touting the latest stock or fund you
should be investing in. There are even websites like Morningstar that rate various
funds and stocks.
Too often though, people blindly follow these recommendations or advice
without researching themselves.
I know reading a stock or fund prospectus can make your eyes glaze over,
but they aren’t too hard once you know what to look for.
Many of these “recommendations” might be paid for by the company whose
stock or fund it is. And other recommendations might be based on that person’s
own goals, but you and your investing situation is unique.
You are putting your hard earned money to work, so you must understand
the “why” and “what” before investing in something.

4. NO RISK MANAGEMENT
Risk management helps cut down losses. It can also help protect a trader's
account from losing all of his or her money. The risk occurs when the trader suffers
a loss. If it can be managed it, the trader can open him or herself up to making
money in the market.
It is an essential but often overlooked prerequisite to successful active
trading. After all, a trader who has generated substantial profits can lose it all in
just one or two bad trades without a proper risk management strategy.

5. TRYING TO GET RICH QUICK

People lose money in the stock market because they think and assume
investing is their ticket to getting rich quick.
If you’ve done research online about investing, you certainly have come
across the wealthy day traders or penny stock traders.
 They show off money, fancy cars, or lavish traveling, and you think it’s easy
money. But 99% of the time, you’ll lose money following and trying to emulate
them.
Additionally, a Dalbar study showed from 1997 through 2016, the average
active stock market investor earned 3.98% annually, while the S&P 500 index
returned 10.16% in returns.
This is what happens when investors try to outsmart the stock market with
constant buying and selling to make fast profits.
Ignore the get rich quick pitches or the “must have” investments, you should
be focused on your long-term investment growth.

6. IGNORING FEES
Luckily, the fee structure of investment companies and brokers is improving.
But, that doesn’t mean there aren’t brokers with high or hidden fees.
And it’s not always the beginners fault when there is so much information
to understand about investing. But if you know there are fees and are doing nothing
about it, that’s on you for losing money.
But when it comes to investing, you should know the fees that are involved
with buying funds or making stock purchases/trades. Sometimes you might not
realize at first how much 1-2% can eat away at your results and overtime, how
much that actually compounds.

7. NOT DIVERSIFYING
As you become a more experienced investor, you learn that diversifying
your assets is key to success. And even as a newbie, you’ll constantly read
information about diversification.
By creating an investment portfolio with diversification, you help weather
against stock market corrections, rough economies, or a bear market.
The goal with a diversified portfolio is to include various industries and
categories that react differently from each other. This way it helps reduce risk,
especially long-term.
Now, don’t think you won’t experience some loss even when diversified,
because it happens.
For example, certain stock funds might have higher reward, but so is the
risk. If you went all in with that you might do well during a great market. But as
soon as things turn red, you can wipe out all returns and potentially more.
It’s why people mix in funds like stocks, bonds, REITs, cash, real estate,
commodities, gold, silver, etc. Ultimately what you choose to invest in is based on
your goals and HORIZON, BUT ALWAYS DIVERSIFY.

8. LETTING EMOTIONS DRIVE INVESTING DECISIONS

 Showing your emotions and being human can be a great thing. But with
investing, emotions tend to create costly mistakes that drive bad decisions.
I found this to be one of the more challenging aspects to investing in my first
few months of learning.
Between the media, stock market fluctuations, others telling you what to do,
and your attachment to specific assets, it’s hard not to make emotional decisions.
But it’s a big reason why people lose money in the stock market. Here are
some examples of emotional investing. Being too invested in a specific company
because you love their product, you work(ed) there, family history of working there,
etc. So you base your investing choices on that alone.
The market is going up and down, and you play into the panic or greed
because of what others are telling you.
Similarly, instead of buying low, selling high, you let emotions get the best
of you and buy high because there are new records and everyone is excited.
Then when things turn to panic or some corrections set in, you get nervous
and sell for a loss when it would have recovered had you held and kept consistently
investing.
Those are just a few scenarios, but you get the picture. Remove emotions
from as best you can when it comes to your investing.

9. GREED
Most people want to get rich as quickly as possible, and bull markets invite
us to try it. The Internet boom of the late 1990s is a perfect example. At the time,
it seemed all an adviser had to do was pitch any investment with "dotcom" at the
end of it, and investors leaped at the opportunity. Buying of Internet-related stocks,
many just startups, reached a fever pitch. Investors got greedy, fueling more
buying and raising prices to excessive levels. Like many other asset bubbles in
history, it eventually burst, depressing stock prices from 2000 to 2002.
This get-rich-quick thinking makes it hard to maintain a disciplined, long-
term investment plan, especially amid what Federal Reserve Chairman Alan
Greenspan famously called "irrational exuberance. It's times like these when it's
crucial to maintain an even keel and stick to the fundamentals of investing, such
as maintaining a long-term horizon, dollar-cost averaging, and ignoring the herd,
whether the herd is buying or selling.

A Lesson From the "Oracle of Omaha"

An exemplar of clear-eyed, long-term investing is Warren Buffett, who
largely ignored the dotcom bubble and had the last laugh on those who called him
mistaken. Buffett stuck with his time-tested approach, known as value investing.
This involves buying companies the market appears to have underpriced, which
necessarily means ignoring speculative fads.
 10. COMPLICATING YOUR INVESTING
Owning too many funds, looking for random ways to make money with
investing, and tinkering with your portfolio too much. Just a few ways you might be
complicating your investment portfolio. However, even then I’d adhere to a simple
principle of investing.
I have 4 funds in my retirement account that get me exposure to U.S.
markets, some international, a percentage of bonds, and smaller percent in a
REIT. That’s it!
One principle many long-term investors should consider is the Bogleheads
Three-Fund portfolio. The Three-Fund Portfolio is to keep investing simple with
three index funds that create a diversified and effective portfolio. You can learn
more about it here.
Another way for people who don’t have the time or care to manually invest,
can use Robo-investing that does more of the work for you. At a high level, the
process of robo-investing is to ensure you have the most hands-off approach to
your money, but are maximizing results. Instead of having to self-manage your
choices, you send this over to a robo-advisor that does the work for you based on
questions and goals you answer.

COMPONENTS OF SUCCESFUL INVESTING/ TRADING

SYSTEM RISK MANAGEMENT

INVESTING TRADING

EXECUTION: ABILITY TO OPERATE AND PSYCHOLOGY

IMPROVE

THINGS YOU NEED TO ASK YOURSELF

1. What kind of effort can I put into this?
2. What is your time horizon? Short or long-term?
3. Do you know yourself? Are you patient? Are you humble enough to cut losses?
Re-allocate your portfolio?
4. Emotional mastery: can you handle market volatility, constant monitoring, and
execute objectively.
5. What are your personal strengths and weaknesses? You can tell a lot about your
past experiences in life.
LESSON 3:
INTRODUCTION OF FUNDAMENTAL ANALYSIS VS. TECHNICAL ANALYSIS
Fundamental and technical analysis are two major schools of thought when it comes to
approaching the markets, yet are at opposite ends of the spectrum. Investors and traders
use both to research and forecast future stock prices. Like any investment strategy or
philosophy, both have advocates and adversaries.
FUNDAMENTAL ANALYSIS
Fundamental analysis analyzes stocks by focusing on the company's fundamentals. That
means looking at the business' earnings, debt, and other performance metrics to
determine the overall value of the company and the value of each share of stock. The
study of business and economic factors to determine the current and potential value of a
stock. It has four areas of focus, namely: qualitative, quantitative, macroeconomics, and
microeconomics

Comparison of Qualitative vs. Quantitative Factors

QUALITATIVE
BUSINESS MODEL
A business model describes the
company’s plans for earning revenues,
its products and services, the target
market so as to maintain its profitability. understand a company’s worth like its
COMPETITIVE ADVANTAGE
This helps the company to create an
economic moat around the business, thus
helping the company to keep competitors
at bay and enjoy longevity, growth, profits
and dominate the market share.
MANAGEMENT
A sound management with strong
credibility always works for the betterment
of the company and its employees and
also generates wealth for the
shareholders.
CORPORATE GOVERNANCE
This is the framework of rules, practices,
and processes which directs and controls
the firms as well as involves balancing
QUANTITATIVE
THE BALANCE SHEET
Investors can determine the growth of a
company by comparing its balance sheet
over a period of time. It helps to
Equity, debt, liquidity, asset base and
working capital position, among others.
INCOME STATEMENT
It reports the financial performance of a
company over a period of time. It helps an
investor to understand whether the
company will be able to sustain its
earnings growth and whether its
performance will surpass its peers in the
coming times.
CASH FLOW STATEMENT
It shows the true cash or liquidity position
of a company. It provides information on
the cash inflows and outflows over a
period of time.
the interests between management,
directors, and stakeholders.

A. QUALITATIVE - The qualitative analysis captures the company’s aspects or risks

difficult to measure in numbers- such as management competencies and
credibility, competitive strategies, R&D capabilities, brand recall, and others.
B. QUANTITATIVE - These are the measurable factors that influence the value of a
firm. The biggest source of quantitative data is Financial Statements, analyzing
which helps investors to make better investment decisions.
In fundamental analysis, we check whether a stock has Value (cheap) or
Growth (potential). We look at the financial statements and apply ratios valuation
metrics to see whether a tock has value or growth.

VALUE GROWTH
 Price to Earnings  Earnings
 Ratio  Sales/ Revenue
 Book Value  Product Innovation
 Net Asset Value  Industry Position.
 Dividends

C. MACROECONOMICS - focus on the activities that affect an economy at-large,

including statistics regarding unemployment, supply and demand, growth, and
inflation, as well as considerations for monetary or fiscal policy and international
trade. These categories can be applied to the analysis of a large-scale economy
as a whole or can be related to individual business activity to make changes based
on macroeconomic influences. Large scale, macroeconomic fundamentals are
also part of the top-down analysis of individual companies.

D. MICROECONOMICS - focus on the activities within smaller segments of the

economy, such as a particular market or sector. This small-scale focus can include
issues of supply and demand within the specified segment, labor, and both
consumer and firm theories. Consumer theory investigates how people spend
within their particular budget restraints. The theory of the firm states that a
business exists and makes decisions to earn profits.

E. Why does FUNDAMENTAL ANALYSIS works?

Value And Growth
Economy > Business >
TECHNICAL ANALYSIS
The study of historical price and volume data to identify trends and have a gauge
of future price direction. We look at the behavior of the buyers and sellers to identify trends
and patterns. We look at technical indicators to come up with buying and selling signals.
Unlike fundamental analysis, which attempts to evaluate a security's value based
on business results such as sales and earnings, technical analysis focuses on the study
of price and volume. Technical analysis tools are used to scrutinize the ways supply and
demand for a security will affect changes in price, volume and implied volatility. Technical
analysis is often used to generate short-term trading signals from various charting tools,
but can also help improve the evaluation of a security's strength or weakness relative to
the broader market or one of its sectors. This information helps analysts improve their
overall valuation estimate.
Technical analysis can be used on any security with historical trading data. This
includes stocks, futures, commodities, fixed-income, currencies, and other securities. In
this tutorial, we’ll usually analyze stocks in our examples, but keep in mind that these
concepts can be applied to any type of security. In fact, technical analysis is far more
prevalent in commodities and forex markets where traders focus on short-term price
movements.

Why does TECHNICAL ANALYSIS works?

Human Behavior Supply and Demand Repeatable Pattern
> >

THREE BASIC TECHNICAL ANALYSIS ASSUMPTIONS

1. The market already discounts all relevant information (micro + macro) in the
price.
Technical analysts believe that everything from a company's fundamentals
to broad market factors to market psychology are already priced into the stock.
This point of view is congruent with the Efficient Markets Hypothesis (EMH) which
assumes a similar conclusion about prices. The only thing remaining is the analysis
of price movements, which technical analysts view as the product of supply and
demand for a particular stock in the market

2. Prices moves in trends

Technical analysts expect that prices, even in random market movements,
will exhibit trends regardless of the time frame being observed. In other words, a
stock price is more likely to continue a past trend than move erratically. Most
technical trading strategies are based on this assumption
 3. History repeats itself.
Technical analysts believe that history tends to repeat itself. The repetitive
nature of price movements is often attributed to market psychology, which tends
to be very predictable based on emotions like fear or excitement. Technical
analysis uses chart patterns to analyze these emotions and subsequent market
movements to understand trends. While many forms of technical analysis have
been used for more than 100 years, they are still believed to be relevant because
they illustrate patterns in price movements that often repeat themselves

COMPARING FUNDAMENTAL ANALYSIS AND TECHNICAL ANALYSIS

FUNDAMENTALS TECHNICALS
 Financial Statements  Charts
 Financial Ratios  Technical indicators
 Earnings growth  Trends
 Risk Management thru  Risk management + cutting losses
Diversification
 Avoiding company down turns  Stop loss
 Finding groundbreaking profits,  Breakouts
earnings growth
 Value investing  Bounce/ Major Reversals

LESSON 4: FUNDAMENTAL ANALYSIS: ECONOMIC FACTORS AFFECTING STOCK

MARKET

FUNDAMENTAL ANALYSIS
It is the analysis of business and economic factors to come up with investing decisions.

FOUR SUB-PARTS OF FUNDAMENTAL ANALYSIS

A. ECONOMY
The economy is like the tide and the various industry groups and individual
companies are like boats. When the economy expands, most industry groups and
companies benefit and grow. When the economy declines, most sectors and
companies usually suffer. Many economists link economic expansion and
contraction to the level of interest rates. Interest rates are seen as a leading
indicator for the stock market as well. Below is a chart of the S&P 500 and the yield
on the 10-year note over the last 30 years. Although not exact, a correlation
between stock prices and interest rates can be seen. Once a scenario for the
overall economy has been developed, an investor can break down the economy
into its various industry groups.

HOW THE ECONOMY PLAYS A PART IN THE STOCK MARKET?

a) GROSS DOMESTIC PRODUCT. IS THE GLOBAL ECONOMY GROWING

OR SHRINKING?
Gross Domestic Product Refers to the monetary value of the goods
and services that are produced by a country over a specific time period.
Usually, GDP is measured on an annual basis, which means that the current
GDP rate reflects the comparison between current growth and that which
was seen during the previous year. GDP is the broadest indication of a
country’s economic health or weakness, as it includes all elements of both
public and private consumption.
When using this information for trades, spread betters will look at the
broader market trends before buying or selling an asset. So, for example,
traders looking to establish a position in the British Pound (GBP) might first
look at the growth trends in GDP to determine whether the currency should
be bought (long position) or sold (short position).

b) INTEREST RATES. ARE INTEREST RATES FRIENDLY FOR BUSINESS

ACTIVITES AND MONEY FLOW?
We will look at interest rate levels, which gives traders an indication
of how a country’s central bank is responding to the economic factors that
are present in a country. Broadly speaking, central banks tend to increase
interest rates when they become concerned about the prospects for
consumer inflation. Higher interest rates are meant to limit further increases
in pricing pressures. Conversely, central banks tend to reduce interest rates
when growth (GDP, for example) becomes weak.
Since interest rates dictates the cost of money, this primes how
businesses attract capital from businesses and investors. This ultimately
leads to more money flow in the market. Since low interest rates attracts
aggressive investors, business expansion and growth also follows. With the
money flow, the stock market valuation is pushed relative to the changes in
interest rates.
Lower interest rates are meant to stimulate economic growth. So, as
a trading example, if a major world economy lowers interest rates, it is a
sign that economic growth will rise in that area. This could be positive for a
commodity price (such as in Oil), as the increased economic activity will
likely lead to greater sales of energy products.
 c) INFLATION RATES. IS INFLATION STEADY TO ENSURE THAT COST
OF GOODS ARE CONTAINED?
Another economic factor that is often watched is the rate of inflation,
or the rate at which the price values for goods and services is changing over
time. Inflation is measured at both the producer level (for wholesale
companies) and the consumer level (for individual households and
consumers). So, for example, if consumer inflation is 5%, an item that costs
P100 today will cost P105 a year from now.
This information can be highly valuable when looking to establish
trading positions as well. For example, let’s assume we want to take a
spread betting position in Ford Motor Company. If in the Philippines,
consumer prices are moving higher while producer prices are moving lower,
we could expect that the business conditions for Philippines companies are
favorable (as their costs are declining while prices for their items are
increasing). Information like this might suggest spread betters could have
an opportunity to profit from long positions in Ford in the future.
In simple terms, your return must be greater than inflation. After all,
one of the ultimate goal of investing is to BEAT INFLATION RATE!

d) CURRENCY. WHICH INDUSTRIES WILL BENEFIT FROM THE

BENEFIT?
The better shape a country’s economy is, the more foreign
businesses and investors will invest in that country. This results in the need
to purchase that country’s currency to obtain those assets.
For example, let’s say that the Philippine peso dollar has been
gaining strength because the Philippine economy is improving. As the
economy gets better, raising interest rates may be needed to control growth
and inflation. Higher interest rates make peso-denominated financial assets
more attractive. In order to get their hands on these lovely assets, traders
and investors have to buy some greenbacks first. This increases demand
for the currency. As a result, the value of the Philippine peso will likely
increase against other currencies with lesser demand.
In a nutshell, strong peso is good for importer while weak pesos is
good for exporter.

2. BUSINESS MODEL AND PRODUCT

What exactly does the company do? This isn't as straightforward as it
seems. If a company's business model is based on selling fast-food chicken, is it
making its money that way? Or is it just coasting on royalty and franchise fees?
 3. MANAGEMENT
Corporate governance describes the policies in place within an organization
denoting the relationships and responsibilities between management, directors
and stakeholders. These policies are defined and determined in the company
charter and its bylaws, along with corporate laws and regulations. You want to do
business with a company that is run ethically, fairly, transparently, and efficiently.
Particularly note whether management respects shareholder rights and
shareholder interests. Make sure their communications to shareholders are
transparent, clear and understandable. If you don't get it, it's probably because
they don't want you to.
Some believe that management is the most important criterion for investing
in a company. It makes sense: Even the best business model is doomed if the
leaders of the company fail to properly execute the plan. While it's hard for retail
investors to meet and truly evaluate managers, you can look at the corporate
website and check the resumes of the top brass and the board members. How well
did they perform in prior jobs? Have they been unloading a lot of their stock shares
lately?

4. FINANCIALS
Followers of fundamental analysis use quantitative information gleaned
from financial statements to make investment decisions. It is the medium by which
a company discloses information concerning its financial performance. The three
most important financial statements are income statements, balance sheets, and
cash flow statements.

LESSON 5: FUNDAMENTAL ANALYSIS: ANALYZING COMPANIES AND ITS

CATALYSTS

A catalyst in equity markets is an event or other news that propels the price of a
security dramatically up or down. A catalyst can be almost anything: an earnings report,
an analyst revision, a new product announcement, a piece of legislation, a lawsuit, the
outbreak of war, an offer to buy a company, a move by an activist investor, a comment
from a CEO or government official, or the conspicuous absence of a company officer at
a special event.
In the financial media, a catalyst is anything that precipitates a drastic change in a stock's
current trend. It can be negative news that rattles investors and breaks upward
momentum or good news that pushes the stock out of the doldrums.

HOW TO ANALYZE COMPANIES AND ITS CATALYSTS?

In the financial media, a catalyst is anything that precipitates a drastic change in a

stock's current trend. It can be negative news that rattles investors and breaks upward
momentum or good news that pushes the stock out of the doldrums. Since a catalyst can
take any number of forms, it's better to give a concrete example.
On August 25, 2015, the S&P 500 Index hit a low for the calendar year of 1867.61,
12.51% below its all-time intraday high of 2134.72, which it had hit on May 20 of that year.
The decline, which had begun the previous week and hit its stride on August 24, was the
steepest since 2011, and dragged a number of quality stocks down out of sheer panic.
Nike Inc. (NKE) was one of these: having closed at $114.98 on August 17, it touched
$94.50 on August 24.
Yet the business was as solid as ever, and had very nearly recovered by market
close on September 24, reaching $114.79. Later that day, the company reported quarterly
earnings that exceeded expectations by 12.61%, and the stock shot up to an intraday
high of $125.00 the next day. In other words, the catalyst of an earnings surprise propelled
Nike's share price upwards by 9.71% in less than 24 hours (and 33.27% in a little over a
month), despite lousy prevailing market conditions.

The change was due to new information and a resulting change in investors'
perception, not the fact that Nike was 109.71% as valuable on Friday as it had been on
Thursday, or 133.27% as valuable as it had been a month ago.
When analyzing companies one of the simplest indicator is its earnings framework.
Does the company have the potential to give positive earnings potential? Looking in it
simplistically, this is just the remnant of your revenues after deducting all the expenses.
If the revenue is greater than expenses, this will result to positive earnings (net income),
and net loss if the otherwise. Simply stated, based from the earnings framework, we can
analyze whether the company’s earnings are a driver or has a potential to give an investor
in generating income.
HOW TO FIND CATALYSTS?

 Is something a positive driver of earnings or revenues

 Can this event/ info add to the “value” of the company
 How relevant is the new business development in terms of innovation, market
leadership, and what not?
TYPES OF CATALYSTS

 Earnings report - A strong earnings report (which is more than what expected by
the market experts) can be really good for the stock. The public takes this report
enthusiastically and hence; the company’s share price is pushed higher. Further,
this also raises the ‘bar’ for the future earning potentials of the company.
 Business acquisition - A merger occurs when two separate entities combine
together to form a new joint organization. You can consider a merger as a
corporate ‘marriage’. Whereas, when a company takes over another company and
establishes itself as a new owner, then this action is called acquisition.
 Strategic partnership/ investments – Did a company sign a big new contract or
forge a partnership with an industry leader? New business connections can
generate new trends in stock prices. For example, when music-streaming service
Pandora announced partnerships with AT&T and Snapchat, the stock price spiked
nearly 20%. When two or more entity combine this brings increase resources,
technology, and earnings capability of an entity. In effect this might push the stock
prices, making it enter the bull market.
 Management changes – persons responsible for governing business can also
drive stock prices. When a known personality entered a certain company (or
becomes part of the management) this might attract potential investors into
investing in a company due to the trust they give to that specific person/ manager.
 New product - If a company announces the launch of a new product or the
opening of a new plant that can help to generate more revenue in the future, then
it will be taken positively by the public.
 Government policies - Whenever the government makes a major policy change,
this can be a catalyst for business in a related sector. After multiple police
shootings, several cities changed the way they police. New laws mandating police
body cams caused several security-related stocks to spike. For example, the
ending prohibition on weed in states across the U.S. gave many weed-related
stocks a boost. Take a look at the example below.
 Global trade/ impact - Right now, we’re in the midst of the coronavirus pandemic.
Companies that produce masks, potential vaccines, or faster tests have seen
massive movement. These stock prices moved 100%, 200%, or more. Major
events like this create hot sectors. In the past, news events like Ebola, weed
legalization, and even police body cameras have driven related stocks to make
huge moves. Take a look at the example below.