SECURITY ANALYSIS
FM 414
(TERM PAPER)
Members:
Caro, Danice Marielle G.
Dalimot, Roselle T.
Flores, Ma. Reynalin Quilina Rofhel A.
Resuelo, Normelyn S.
Vedra, Mia Flor G.
FM 4-1
- Introduction
“Do not save what is left after spending; spend what is left after saving” as Warren Buffet said. Our life will always involve earning and spending, so we have to be witty enough on how to control our spending that will not exceed our earnings. Savings is one way, but depositing in a bank will not be enough, other alternatives can make it grow and profitable and that is through investment.
Investment is the amount of money or asset that you put in a fund to anticipate any return. Returns can be in a form of profit or an increased in value of assets invested. There are lots of investment opportunities that an investor may engage, and investing in securities is one of the options. It may either be in debt securities or equity securities. Debt securities are financial instrument in which the firm (serves as a borrower) that sells the security to investors (serves as the creditor) in a form of bonds. Bonds is a fixed asset, the amount invested will be realized in some future time in a form of interest. This kind of investment is usually engaged by conservative investors since it is less risky. Investment in bonds may be available in the initial public offering of government or corporations or in the secondary market. On the other hand, equity securities like stocks are a risky investment because of its high volatility and the future of an investor will depend on the prevailing market prices. To lessen the risk associated, the portfolio of stocks must be diversified meaning it is not putting all your eggs in one basket. But, the higher the risk the higher the return they say. Many investors preferred stocks because aside from capital gain, they will also be a part owner of the firm they wished to invest and themselves from inflation because their return in investment will exceed the prevailing inflation rate. To have a superior profit in investing in stocks, the first thing that an investor do is to buy low and sell high and to know the trend of the type of stocks you are investing. In technical analysis, trends could be uptrend, downtrend or consolidated. Usually investors avoid downtrend and consolidated and prefer uptrend stock prices. There will be times that the market prices are losing due to different economic causes but, investors can take advantage on that through short selling.
Investing is a gamble; the more important is you understand what an investment is all about. It is either you win or you lose but what is essential you tried.
- Economic Analysis
There are several fundamental information the people in the business world should take into consideration because of its great effects in a business or investment value. This informations, commonly known as “economic factors”, also affects the price of stocks in the market. First economic factor is the interest rate. Interest rate is the amount that a lender charged to its borrowers to the principal amount that was loaned or borrowed. This is usually expressed in percentage. Philippines prevailing interest rate is 4%. When the interest rate increases, stock prices will also increase because the demand for bonds and securities increases. If interest rate decreases, there will be also a decrease in the demand and stock prices.
The second economic factor that affects the price of stocks is inflation.This is defined as the rising in the prices of commodities.During inflation, there is a decline in the money supply circulating in the economy. In the year 2015, month of August, the inflation rate is 0.6. Due to the increase in inflation, the purchasing power of the consumers decreases, and this result to the decrease of the security price. There will be an increase in the security price if the inflation decreases.
The Philippine Gross Domestic Product is also one of the factors that affect the stock prices. Gross Domestic Product is the value of the goods and services produced within Philippines’ border. According to the Bureau of Economic Analysis (BEA), the Gross Domestic Product: Second Quarter 2015 increased at an annual rate of 3.7%. In the first quarter, real GDP increased by 0.6%. The Gross Domestic Product comprises the investments made in the Philippines and when the demand for investments increases, the price of stocks also increase. If the GDP decreases, the demand for investments will be low, and will result to the decrease in price of stock.