Investing in the Stock Market

Today’s  Topic
1. I  want  to  invest  in  stocks!  But  how?
a. Fundamental  Analysis  (FA)
b. Technical  Analysis  (TA)

2. Some  tips  on  investing

3. Conclusion
I  want  to  invest  in  stocks!
…but  how?
What  are  stocks?
• Share  of  ownership  in  a  company
How  do  I  make  money  from  stocks?

PHP  160

32X

PHP  5
What  stocks  do  I  buy?
 2  Branches  
of  Analysis

Fundamental   Technical  
Analysis  (FA) Analysis  (TA)
üNews  and  plans  of  the  company üHistorical  charts  and  graphs
üFinancial  statements   üPrice  patterns
üValue  of  the  company üSupply   and  demand
üLong-­‐term  by  nature üShort-­‐term   by  nature
Fundamental  Analysis
• “How  much  does  the  company  earn?”
• “What  is  the  company’s  growth  prospects?”
• “Does  the  company  have  significant  competitive  advantage  over  its  
competitors?”
• “Is  the  management  team  credible?”

• “How  much  is  this  company  worth?”

Goal  of  Fundamental  Analysis
• Find  stocks  that  are  trading   at  a   DISCOUNT  to  its  “real  value”
• Stock  Price  <  Real   Value=  BUY
• Stock  Price  >  Real   Value=  SELL

SELL
Real  Value SELL SELL

BUY BUY BUY

Stock  Price
After  doing  your  research…  You  found  out  that…

Real  Value:  PHP  100/share

If  the  current  price  is  PHP  80/share,

Should  you  buy  or  sell?
BUY
If  the  current  price  is  PHP  110/share,
Should  you  buy  or  sell?
SELL
After  doing  your  research…  You  found  out  that…

Real  Value:  PHP  100/share

If  the  current  price  is  PHP  80/share,

Should  you  buy  or  sell?
BUY
If  the  current  price  is  PHP  110/share,
Should  you  buy  or  sell?
SELL
Relative  Value

Stock  A Stock  B
Current  Price:  Php10 Current  Price:  Php100
2016  EPS:  Php1 2016  EPS:  Php20
10X  P/E 5X  P/E

Earnings Current  price

EPS  = Number  of  shares
P/E  = Earnings  per  share

General  Rule:  
A  stock  is  relatively  cheaper  if  P/E  is  lower
Relative  Value

Stock  A Stock  B
Current  Price:  Php10 Current  Price:  Php100
10X  P/E 5X  P/E
2017:  100%  EPS  growth 2017:  -­50%  EPS  growth

Things  to  consider  when  doing  relative  valuation:

• Looking  at  a  point  in  time
• Higher  growth  can  justify  higher  P/E
In  general,  we  want  high  growth and  low  P/E

STOCK EPS  GROWTH P/E

Which  stock  looks  cheap?
Which  stock  looks  expensive? A 10% 10.0

B 20% 8.0
Company  B  looks  cheap
Company  D  looks  expensive C 15% 12.0

D 8% 15.0
Sources  of  Information
• PSE  Website  – financial  statements,  press  releases,  disclosures

• Company  Website  – products  and  services,  investor  presentations

• News  Reports  – latest  developments,  interviews  with  management

• Broker  Reports  – what  analysts  think

Challenges  of  Fundamental  Analysis
• Hard  to  determine  the  “real  value”  of  a  company  as  there  are  a  lot  of  
factors  that  can  affect  the  company

• We  don’t  know  how  long  will  it  take  for  the  stock  price  to  reflect  the  
real  value  of  the  company  
Technical  Analysis
• Focuses  on  historical  charts  to  determine  supply  and  demand,  and  to  
forecast  the  stock’s  future  movements
• Technicians  do  not  care  much  about  the  company’s  fundamentals
Assumptions  in  Technical  Analysis
1. The  market  discounts  everything
ØFundamentals/news  are  priced  in  already.  Current  price  reflects  all  available  
information

2. Prices  move  in  trends.

ØFuture  price  movement  is  likely  to  follow  the  trend.  “ The  trend  is  your  friend.”

3. History  repeats  itself.

ØInvestors  provide  consistent  reactions  to  similar  market  events,  providing  
similar  chart  patterns  over  time.
The  trend  is  your  friend!
Support  and  Resistance
• Support  – a  price  level  where  there  are  a  lot  of  buyers  (demand)
• Resistance  – a  price  level  where  there  are  a  lot  of  sellers  (supply)

Resistance
P  12.00

P  10.00
Support
Goal  of  Technical  Analysis
• Buy  low,  sell  high  – buy  at  support,  sell  on  resistance

SELL  AREA
P  12.00

P  10.00
BUY  AREA
Buy  Low,  Sell  High

Resistance

Support
Buy  Low,  Sell  High
Goal  of  Technical  Analysis
• Buy  high,  sell  higher  – buy  on  break  above  resistance
Goal  of  Technical  Analysis
• Buy  high,  sell  higher  – buy  on  break  above  resistance

Resistance New  Support ß BUY  HERE

Support
Note:  Once  a  resistance  is  broken,   it  will  become  the  new  support   of  the  stock.
The  same  goes  for  a  broken   support,   it  will  become  the  new  resistance.  
Buy  High,  Sell  Higher

Resistance

New  Support
Challenges  of  Technical  Analysis
• Requires  time  and  effort  in  monitoring  
stock  prices  and  studying  stock  charts  on  
a  regular  basis

• Different  traders  have  different  views  on  

the  same  stock  chart
FA  or  TA:  Which  is  better?
• What  drives  stock  prices?
ØThe  collective  action  of  all  market  participants

• Who  are  the  different  market  participants?

ØInstitutional  investors  – fund  managers,  etc.
ØRetail  investors  – normal  people  like  us

• How  do  these  market  participants  make  their  investment  decision?

ØInstitutional  investors  – fundamental  analysis
ØRetail  investors  – technical  analysis

• Having  a  basic  knowledge  of  both  is  an  advantage

Tips  on  Investing
• Invest  only  an  amount  you  can  afford  to  lose

• FA  is  not  Facebook  Analysis;  TA  is  not  Tsismis Analysis

• Study  before  you  invest;  Google  is  your  best  friend!

• Take  risks! If  you  win,  you’ll  be  happy.  If  you  lose,  you’ll  be  wise.  
Learn  from  your  mistakes.  J
I  want  to  invest  in  stocks!
Can  I  start  now?
Of  course  you  can!
• Join  the  UP  Stock  Competition
ØUse  this  as  an  opportunity  to  try  out  stock  trading  without  risking  real  money

• If  you  realize  the  stock  market  is  not  for  you,  don’t  worry!
ØYou  can  still  invest  through  mutual  funds

• The  important  thing  is  to  start  now!

ØParticipate  in  the  Philippine  growth  story  through  stocks  or  mutual  funds
ØCompanies  will  benefit  from  this  growth
Suggested  Reading  Materials
• How  to  Make  Money  in  Stocks  – William  J.  O’neal
• Trade  like  a  Stock  Market  Wizard  – Mark  Minervini
• Introduction  to  Fundamental  Analysis:  
http://www.investopedia.com/university/fundamentalanalysis/
• Introduction  to  Technical  
Analysis: http://www.investopedia.com/university/technical/
• Basic  Technical  Analysis  Tutorial:  
http://stockcharts.com/school/doku.php?id=chart_school
Any  questions  for  me?
THANK  YOU!