How to Invest in the Stock Market

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Presented by:

Juan G. Barredo Vice President

CitisecOnline.com Inc.

“Investing in the Stock Market Today”

CitisecOnline

Presents

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CitisecOnline: Who we are?

Building of Wealth

How to pick stocks

Understanding Price

A Fundamental View

The Technical View

The Market Today

Tune in & Take Charge of your

Financial Future

CitisecOnline: Who we are?

Building of Wealth

How to pick stocks

Understanding Price

A Fundamental View

The Technical View

The Market Today

Tune in & Take Charge of your

Financial Future

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Who We Are

• CitisecOnline is the leading innovator in online stock trading

• Established in 1999, actively trading online since 2001

• Managed by professionals in the financial and information technology industries

• Capitalized at over Php400 Million:

– Listed in the PSE in July 2006

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Building of Wealth

PART ONE

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•Want to double your money?

•To figure out how much you need to

earn each compounded annually year to make your money double, decide on the number of years you plan to double it, then divide 72 by that number.

3 years = 24.0%

4 years = 18.0%

5 years = 14.4%

6 years = 12.0%

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Interest Rates

Interest Rates (91-day T-Bill)

0.00 2.00 4.00 6.00 8.00 10.00 12.00 14.00 16.00 18.00 20.00 22.00 1993 199 4 199 5 199 6 1997 1998 199 9 200 0 200 1 2002 200 3 200 4 200 5 2006 200 7

Rates have actually fallen to near all-time Lows! %

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Capital Market Investment Jobs = Income Savings Natural Resources Processing Manufacturing Economic Expansion Pension Funds Real Estate Insurance Policies Savings Accounts Bonds Stocks Capital Market Various Instruments

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•Like any market, it is a place where people converge to buy and sell.

•Instead of actual goods, shares of corporations (or Stocks) is what you buy and sell.

•A share of stock represents partial ownership of a company.

•A company lists its shares in the PSE to raise money to fund its growth.

The Stock Market

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What is a Share of Stock?

• Part ownership of a company

• Shareholders may make money through:

*Capital Appreciation

Where the value of stocks climb

*Dividends (Cash & Stock)

When a Company shares its profits

• Historically, investing in stocks has

been the best way to significantly build your wealth over a long period of time.

The Stock Market

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My Options

Comparative Yields for Different Investment Instruments 2003 – 2006 0 5 10 15 20 25 30 35 40 45 2003 2004 2005 2006 PHISIX

Top Mutual Funds 91 Day T-Bill

Time Deposit

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What is Price? What is Price? “The Market is a voting machine, whereon countless individuals register choices

which are the product partly of reason and partly

of emotion.” Graham & Dodd

“The Market is a voting machine, whereon countless individuals register choices

which are the product partly of reason and partly

of emotion.” Graham & Dodd

• PRICE

• That determined by Actual Value. – or the real value to which a stock can be said to be worth.

• That determined by Market Value – or that value determined by market forces or

opinion.

• It boils down to Demand and Supply.

• Shifts in Demand and Supply create Price movement.

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Fundamental Analysis

“Buy a stock the way you would

buy a house. Understand and like it - such that you’d be content to own it in the absence of any

market.” Warren Buffet

“Buy a stock the way you would

buy a house. Understand and like it - such that you’d be content to own it in the

absence of any market.” Warren Buffet

• Look for the Best overall value

• Make sure the company is solid and its profitability is strong.

• Is a Stock cheap or Expensive.

• If looked upon as Cheap = BUY

• If looked upon as Expensive = SELL

• If things look questionable, forget it.

• If you speculate, don’t buy a lemon! Study of Actual Value:

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• Economic Analysis

• Look into the Macro View; examine your economic surroundings.

• Industry Analysis

• Break it up into industry sectors, then look for the norm and evaluate outperformers.

• Company Analysis

• Filter out the Best options by

comparing company performances.

Top-Down Approach

“Quality is never an accident; it is always the result of high intention, genuine effort, intelligent direction, and skillful execution.” William A. Foster “Quality is never an accident; it is always the result of high intention, genuine effort, intelligent direction, and skillful execution.” William A. Foster

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The Economy Fundamental Analysis 6.9% 6.9% 6.0 3.5 3.0 Inflation (%) Source: NSO, BSP *For the 1st _{Half ‘06}

(125) (146.50)

(187.10) (199.40)

(210.70)

Budget Deficit (US$ Bil)

52.10 55.10 56.00 54.20 51.60 Average Forex (Php/$) (1.6) (0.50) 1.30 2.50 2.40 Real interest Rate (%)

5.3 6.40

7.30 6.00

5.40 Ave 91-day T-Bill Rate (%)

5.60 5.10 6.00 4.50 4.40 GDP Growth (%) 2006F* 2005 2004 2003 2002

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The Economy

Philippines: Macro Outlook

• Government is expected to achieve a balanced budget by 2008, largely through an improvement in tax take (Note: This will be

achieved through implementation of EVAT and improvement in the government’s collection effort..)

• Positive outlook for economic growth, driven by rising OFW remittances and increasing government spending (Rising OFW remittances will fuel consumption while government, which historically did not have enough money to spend on important infrastructure, will now increase spending, given the improvement in its fiscal position)

• Interest rates to remain low due to the continuous improvement in the government’s fiscal position and highly liquid financial system

• Peso is expected to stabilize or even appreciate, driven by strong remittances and portfolio inflows

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Growth Stage of Philippine Industries

Industry View Consolidation Maturing Growth Turnaround Consumer Media Mining Power BPOs Banks Telcos Basic Industries Utilities Property Infrastructure

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Industrial View

Makati (Manila) CBD Commercial Lot Prices Pesos / Square Meter

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 85 87 89 91 93 95 97 99 2001 2003 2005 Fundamental Analysis Fundamental Analysis

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Bank’s Non Performing Loans (%) 0 2 4 6 8 10 12 14 16 18 91 92 93 94 95 96 97 98 99 '01 '02 '03 '04 '05 '06 Industrial View Fundamental Analysis Fundamental Analysis

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• Look at a company’s ability to G

RO

W

! Watch its Earnings… earnings… earnings!

• Try to find its assessed value.

• Look for a New Story, Product or Captured ‘Niche’ Market.

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Fundamental Analysis _{Looking for Value and Earnings}

Find it’s Assessed Value

• If I sell all the company’s assets how much can I raise?

• Fair Market Value

• Ex: Net Asset Value, Book Value, Discounted Cash Flow

• Value based on current market value of assets & earnings

• Look at it on a per share basis (divide it by # shares)

Look at Earnings Growth

• Look for a company’s ability to reproduce profits.

• Study its Earnings growth (or Earnings / share)

• EPS = Net Income / Total Shares outstanding

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Fundamental Analysis _{The Tale of the Tape}

15% 39% 43% 23% 15% 7% (Growth) 0.5% 13% 22.2% 22% 14% 21% (EPS Growth) 0.125* 0.124* 0.11 0.39 0.32 0.28 EPS 1.84 1.60 1.15 4.24 3.45 3.00 Recurring Earnings (Bil) 2007 2006 2005 2007 2006 2005 Stock “XYZ” P0.86 Stock “ABC” P6.10

Which would you invest in?

Fair Market Value P16.50 P2.10

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Fundamental Analysis _{ALI vs MEG: Winner is…?}

A B C X Y Z 9.90 (+62.3%) 1.20 (+39.5%) 13.75 (+38.8%) 1.56 (+30%)

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Fundamental Analysis _{The Tale of the Tape}

15% 39% 43% 23% 15% 7% (Growth) -7% 36% 22.2% 22% 14% 21% (EPS Growth) 0.14* 0.15* 0.11 0.39 0.32 0.28 EPS 1.84 1.60 1.15 4.24 3.45 3.00 Recurring Earnings (Bil) 2007 2006 2005 2007 2006 2005 Stock “XYZ” P0.86 Stock “ABC” P6.10

Which would you invest in?

Fair Market Value P16.50 P2.20

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Timing your

Investments

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“Technical Analysis is the study of Market Action, primarily through the use of Charts;

for the purpose of forecasting future price Trends.”

-- John J. Murphy ‘Technical Analysis of the Financial Markets’

Market Action

Charts

Forecasting future price Trends

Technical Analysis

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•Provides instant access to much needed information.

•Clearly illustrates Trend

drifts that would otherwise be overlooked.

•Enables the user to cover a great deal of stock price

information.

The Graphic Advantage

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0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 91 92 93 94 95 96 97 98 99 2000 200 1 2002 2003 2004 2005

Land prices and Ayala Land

Technical Analysis TOP

BOTTOM

•Who topped out first?

•Why?

•Market moves ahead as people act in

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TRENDS

UP TREND

•Higher Highs and

Higher Lows

•Trendlines drawn by

connecting lows.

DOWN TREND •Lower Highs and

Lower Lows •Trendlines drawn by connecting highs. NO TREND • Sideways shift/ Consolidation • Prices must breakout to re-trend

Trends & Consolidations

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Our Roadmap

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The Market Today

Our Map

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PART FOUR

Tune in and Take

Charge of your

Financial Future

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How do I Start? _{What you need to invest online} Internet Service Provider (ISP) Computer Online Broker

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Online Needs

• Choose an Online Broker

– Direct execution and Off Hours Order Placement

– Live quotes

– Portfolio monitoring capabilities

– Timely and useful research

– Charting tools

– 24/7 online service

– Customer Service

– Best commission rates

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Stock Browsing

• Look for a Lead

– Scan the news and broker reports

• Do your homework

– Study the data – Review the basics

• Get a quote and Evaluate performance

– Evaluate its demand-supply – Evaluate its Trend

• Assess your risk-reward

– Identify your potential gains and maximum loss

• Create a watch list and Monitor your portfolio

– Monitor your stock’s progress

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Stock Browsing _{Look for a Lead or Story}

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Stock Browsing _{Do your Homework}

*Target Price = Estimated Fair Market Value (NAV, PER, DCF…)

< 9% 3 < 9% 3 9%-16% 2 9%-16% 2 >16% 1 >16% 1 SELL (Downside) BUY (Upside) COL Rating:

BUY – Good and solid fundamentals SELL – Unexciting or poor fundamentals

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Stock Browsing _{Do your Homework} Sort by: Rating: 3- Best 1- Low 0- NC

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Stock Browsing _{Examine its Trend!}

What is the current trend? Bullish or Bearish?

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Stock Browsing _{Assess your Risk vs Reward}

RISK: Support of P 7.60 PRICE TARGET: P10.00 Risk/Reward:

0.6 / 1.80 = 1:3

(1 pt risk for every 3 pts gain) GOOD TRADE!

(Try to maintain a 1:3 ratio)

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Buy / Sell _{How to Execute an Order}

Note: Market trades between 9:00 AM to 12:10 PM

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Stock Browsing _{Reassess your Risk vs Reward}

RISK: Support of P 8.10 PRICE TARGET: P10.00 Risk/Reward:

1.10 / 0.80 = 1.373 : 1

(1.37 pt risk for every 1pt gain)

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Portfolio MGT _{Money Management}

“This is the art of preserving one’s capital and keeping whatever one can make.”

• Diversify your portfolio into 3 to 5 stocks.

• Equally distribute your capital into them.

• Do not play the ‘all or nothing game’.

• Do not use Martingale’s System of ‘Doubling

up’ after a loss!

• Never trade more that what you can

reasonably afford to lose.

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Portfolio MGT _{How to Allocate funds}

Realize this:

“While losses grow arithmetically, profits required to recoup them increase geometrically!”

Lose 10% = you need to gain 11% to recoup. Lose 20% = 25% to recoup! Lose 40% = 67% to recoup!! Lose 50% = 100% to recoup!!! Scale up correctly!

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Remember the Plan _{Uphold Discipline = Success}

• Look for a Lead

• Do your homework

• Get a quote and track performance

• Assess your risk-reward

• Create a watch list

• Plan your trades and Trade the plan

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1. The building of Wealth 2. The Stock Market Option 3. Understanding Price 4. A Fundamental View 5. The Technical View 6. The Market Today

7. Tuning into your Financial Future

Summary

“Knowledge born from actual experience is the answer to why one profits; lack of it is the reason one loses…”

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www.citiseconline.com

Thank you!

Take charge of your

financial future and

Maximize your investments

online today!

Log on to www.citiseconline.com and Get your Free 7-day Trial Password today! For more info,

call our Customer Service agents 6-333-777

Log on to www.citiseconline.com and Get your Free 7-day Trial Password today! For more info,