Introduction to Investment

(ways to minimize or reduce investment risks)

Business Finance
 Specific Learning Outcomes
At the end of the unit lesson, the learners shall be able to:

• Measure the risk of different types of investment.

• Identify ways on how to reduce investment risk and

define how risk is lessened .
Essential questions
• What are the different types of
investments that you have learned?
• Do you understand the risks of each
investment?
• Do you know how to measure these risks?
The 30 biggest companies in the Philippines.
1. Ayala Corp. (AC)
2. Aboitiz Equity Ventures, Inc. (AEV)
3. Alliance Global Group, Inc. (AGI)
4. Ayala Land, Inc. (ALI)
5. Aboitiz Power Corp. (AP)
The 30 biggest companies in the Philippines.
6. BDO Unibank, Inc. (BDO)
7. Bloomberry Resorts Corp. (BLOOM)
8. Bank of the Philippine Islands (BPI)
9. DMCI Holdings, Inc. (DMC)
10. Energy Development Corp. (EDC)
The 30 biggest companies in the Philippines.
11. Emperador Inc. (EMP)
12. First Gen Corp. (FGEN)
13. Globe Telecom, Inc. (GLO)
14. GT Capital Holdings, Inc. (GTCAP)
15. International Container Terminal
Services, Inc. (ICT)
The 30 biggest companies in the Philippines.
16. Jollibee Foods Corp. (JFC)
17. JG Summit Holdings, Inc. (JGS)
18. LT Group, Inc. (LTG)
19. Metropolitan Bank & Trust Company
(MBT)
20. Megaworld Corp. (MEG)
The 30 biggest companies in the Philippines.
21. Manila Electric Company (MER)
22. Metro Pacific Investments Corp. (MPI)
23. Petron Corp. (PCOR)
24. Robinsons Land Corp. (RLC)
25. Semirara Mining and Power Corp. (SCC)
The 30 biggest companies in the Philippines.
26. SM Investments Corp. (SM)
27. San Miguel Corp. (SMC)
28. SM Prime Holdings, Inc. (SMPH)
29. PLDT (TEL)
30. Universal Robina Corp. (URC)
Illustration

Illustration on how your Php 10,000

could have changed value over time
if placed in Jollibee Foods Corp.
(“JFC”) and Philex Mining
Corporation
(“PX”).
JFC is a multinational chain of
fast food restaurants famous
for its Chickenjoy, Jolly
Spaghetti, and Peach Mango
Pie.
PX on the other hand, is the
largest mining company in the
Philippines with gold and
copper mining properties in
Benguet and Surigao.
Concept of risk and return
• Investments follow a high-risk, high-
return principle.
• Stocks are volatile and that they can lose
significantly from their investments
especially if their investment timeframe
is short.
Concept of risk and return
• If the stock investments of a good
company is invested over a much
longer period of time however, stock
investments can be financially
rewarding.
Concept of risk and return
• The value of a bank investment on the
other hand, follows a relatively
straight upward line, but only gives
low returns due to the low risk taken.
Concept of risk and return
• Some will choose bank time deposit
and others will prefer stocks. There is
no right or wrong answer because the
choice of an investor depends not just
on returns but also on his/her risk
appetite.
Concept of risk and return
• If you have savings, would you put it
in stocks or time deposit?
• If there is a way to measure the risk, will
it help you decide whether to place your
money in an investment or not?
Systematic and Non-Systematic Risk
Measuring Systematic and Non-Systematic Risk
Measuring Systematic and Non-Systematic Risk
The formula for beta is the covariance of the
investment asset’s returns with the returns of the
market divided by the variance of the market. Beta
can be easily computed through Microsoft Office
Excel but due to the complexity of the formula in
terms of manually computing beta, sources will be
cited instead on where beta can be found.
Measuring Systematic and Non-Systematic Risk
In getting an estimate of the non-systematic risk, the total
risk will be computed first then from this, the systematic
risk will be deducted.

The components of the σ formula:

- xi – return
- x̄ – average of returns
- n – no. of data points
Measuring Systematic and Non-Systematic Risk
Diversification is a risk management
technique that combines a wide variety of
investments within a portfolio to reduce
risk. A well diversified portfolio can
eliminate non-systematic risk.
A more diversified portfolio can reduce the
standard deviation of the portfolio
JFC 2014
Portfolio Return x̄ (xi-x̄)2
Year Value Xi
30/1/2014 ₱ 152.00
28/2/2014 171.00 12.5% 3.3% 0.8%
31/3/2014 171.00 0.0% 3.3% 0.1%
30/4/2014 172.00 0.6% 3.3% 0.1%
30/5/2014 179.00 4.1% 3.3% 0.0%
30/6/2014 176.00 -1.7% 3.3% 0.2%
31/7/2014 176.00 0.0% 3.3% 0.1%
29/8/2014 180.00 2.3% 3.3% 0.0%
30/9/2014 196.00 8.9% 3.3% 0.3%
31/10/2014 196.00 0.0% 3.3% 0.1%
28/11/2014 207.00 5.6% 3.3% 0.1%
29/12/2014 215.00 3.9% 3.3% 0.0%
1.9%
σ 4.3% 4.3%
JFC 2014
Portfolio Return x̄ (xi-x̄)2
Year Value Xi
30/1/2014 ₱ 152.00
28/2/2014 171.00 12.5% 3.3% 0.8%
31/3/2014 171.00 0.0% 3.3% 0.1%
30/4/2014 172.00 0.6% 3.3% 0.1%
30/5/2014 179.00 4.1% 3.3% 0.0%
30/6/2014 176.00 -1.7% 3.3% 0.2%
31/7/2014 176.00 0.0% 3.3% 0.1%
29/8/2014 180.00 2.3% 3.3% 0.0%
30/9/2014 196.00 8.9% 3.3% 0.3%
31/10/2014 196.00 0.0% 3.3% 0.1%
28/11/2014 207.00 5.6% 3.3% 0.1%
29/12/2014 215.00 3.9% 3.3% 0.0%
1.9%
σ 4.3% 4.3%
GLO
Portfolio Return x̄ (xi-x̄)2
Year
Value Xi
1/30/2014 ₱ 1,710.00
2/28/2014 1,700.00 -0.6% 0.2% 0.0%
3/31/2014 1,664.00 -2.1% 0.2% 0.1%
4/30/2014 1,657.00 -0.4% 0.2% 0.0%
5/30/2014 1,690.00 2.0% 0.2% 0.0%
6/30/2014 1,600.00 -5.3% 0.2% 0.3%
7/31/2014 1,735.00 8.4% 0.2% 0.7%
8/29/2014 1,800.00 3.7% 0.2% 0.1%
9/30/2014 1,623.00 -9.8% 0.2% 1.0%
10/31/2014 1,685.00 3.8% 0.2% 0.1%
11/28/2014 1,750.00 3.9% 0.2% 0.1%
12/29/2014 1,730.00 -1.1% 0.2% 0.0%
2.5%
σ 5.0% 5.0%
GLO
Portfolio Return x̄ (xi-x̄)2
Year
Value Xi
1/30/2014 ₱ 1,710.00
2/28/2014 1,700.00 -0.6% 0.2% 0.0%
3/31/2014 1,664.00 -2.1% 0.2% 0.1%
4/30/2014 1,657.00 -0.4% 0.2% 0.0%
5/30/2014 1,690.00 2.0% 0.2% 0.0%
6/30/2014 1,600.00 -5.3% 0.2% 0.3%
7/31/2014 1,735.00 8.4% 0.2% 0.7%
8/29/2014 1,800.00 3.7% 0.2% 0.1%
9/30/2014 1,623.00 -9.8% 0.2% 1.0%
10/31/2014 1,685.00 3.8% 0.2% 0.1%
11/28/2014 1,750.00 3.9% 0.2% 0.1%
12/29/2014 1,730.00 -1.1% 0.2% 0.0%
2.5%
σ 5.0% 5.0%
URC
Portfolio Return x̄ (xi-x̄)2
Year
Value Xi
1/30/2014 ₱ 116.00
2/28/2014 139.00 19.8% 5.0% 2.2%
3/31/2014 141.00 1.4% 5.0% 0.1%
4/30/2014 145.00 2.8% 5.0% 0.0%
5/30/2014 148.00 2.1% 5.0% 0.1%
6/30/2014 153.00 3.4% 5.0% 0.0%
7/31/2014 161.00 5.2% 5.0% 0.0%
8/29/2014 161.00 0.0% 5.0% 0.3%
9/30/2014 186.00 15.5% 5.0% 1.1%
10/31/2014 185.00 -0.5% 5.0% 0.3%
11/28/2014 194.00 4.9% 5.0% 0.0%
12/29/2014 195.00 0.5% 5.0% 0.2%
4.4%
σ 6.6% 6.6%
DMC
Portfolio Return x̄ (xi-x̄)2
Year
Value Xi
1/30/2014 ₱ 11.77
2/28/2014 13.66 16.1% 2.6% 1.8%
3/31/2014 13.78 0.9% 2.6% 0.0%
4/30/2014 14.13 2.6% 2.6% 0.0%
5/30/2014 14.02 -0.8% 2.6% 0.1%
6/30/2014 14.56 3.9% 2.6% 0.0%
7/31/2014 14.38 -1.3% 2.6% 0.2%
8/29/2014 15.74 9.5% 2.6% 0.5%
9/30/2014 15.54 -1.3% 2.6% 0.2%
10/31/2014 15.94 2.6% 2.6% 0.0%
11/28/2014 16.04 0.6% 2.6% 0.0%
12/29/2014 15.45 -3.7% 2.6% 0.4%
3.2%
σ 5.6% 5.6%
URC
Portfolio Return x̄ (xi-x̄)2
Year
Value Xi
1/30/2014 ₱ 116.00
2/28/2014 139.00 19.8% 5.0% 2.2%
3/31/2014 141.00 1.4% 5.0% 0.1%
4/30/2014 145.00 2.8% 5.0% 0.0%
5/30/2014 148.00 2.1% 5.0% 0.1%
6/30/2014 153.00 3.4% 5.0% 0.0%
7/31/2014 161.00 5.2% 5.0% 0.0%
8/29/2014 161.00 0.0% 5.0% 0.3%
9/30/2014 186.00 15.5% 5.0% 1.1%
10/31/2014 185.00 -0.5% 5.0% 0.3%
11/28/2014 194.00 4.9% 5.0% 0.0%
12/29/2014 195.00 0.5% 5.0% 0.2%
4.4%
σ 6.6% 6.6%
DMC
Portfolio Return x̄ (xi-x̄)2
Year
Value Xi
1/30/2014 ₱ 11.77
2/28/2014 13.66 16.1% 2.6% 1.8%
3/31/2014 13.78 0.9% 2.6% 0.0%
4/30/2014 14.13 2.6% 2.6% 0.0%
5/30/2014 14.02 -0.8% 2.6% 0.1%
6/30/2014 14.56 3.9% 2.6% 0.0%
7/31/2014 14.38 -1.3% 2.6% 0.2%
8/29/2014 15.74 9.5% 2.6% 0.5%
9/30/2014 15.54 -1.3% 2.6% 0.2%
10/31/2014 15.94 2.6% 2.6% 0.0%
11/28/2014 16.04 0.6% 2.6% 0.0%
12/29/2014 15.45 -3.7% 2.6% 0.4%
3.2%
σ 5.6% 5.6%