INVESTMENT AND PORTFOLIO MANAGEMENT - MIDTERM

Definition of Investment (according to economics)

The utilization of resources in order to increase income or production output in the future.

Definition of Investment (according to finance)

The buying of a financial product or any valued item with anticipation that positive returns will be received in the future.

Benjamin Graham

Father of Value Investing

Louis Bachelier

The forefather of Mathematical Finance 

Paul Samuelson

Father of Modern Economics

Irving Fisher

Best remembered today in neoclassical economics for his theory of capital, investment, and interest rates, first exposited in his The Nature of Capital and Income (1906) and elaborated on in The Rate of Interest (1907).

Harry Markowitz

Introduced Modern Portfolio Theory (MPT) in 1952

3000-5000 BC MESOPOTAMIAN INVESTMENT

Investment was a privilege of the power elite, where only a small portion of the population could take part, and these investors had high economic, social, and political standing. Investment assets were almost exclusively limited to agriculture, land and estates, with most land owned by the temple or the state.

800-300 BC GREEK INVESTMENT

Greek civilization witnessed the development of partnership for long distance trade in the Mediterranean world, as well as banking partnerships for loan making activity and for investment management. Lending was common, including maritime loans and the use of interest for profit making.

500 BC-AD 400 ROMAN INVESTMENT

With the expansion of Roman territory, wealthy people owned estates in multiple locations, with local managers overseeing them. This period is notable for the first known pensions—Roman soldiers were sometimes granted estates for financial stability.

1000-1200 RISE OF CITIES AND ECONOMIC REBIRTH (Medieval)

The end of the Medieval stagnation led to economic expansion, population growth, and agricultural innovation. Cities rose as centers of trade, culture, and prosperity, and people gained power through municipal government, guilds, and merchant groups.

1200-1500 THE EUROPEAN RENAISSANCE

The Renaissance included the rise of merchant banks, double-entry bookkeeping, and commercial fairs, along with financial innovations that allowed for unprecedented economic growth and development of a modern financial system.

1550-1600 JOINT-STOCK COMPANIES

The first joint-stock companies were established, including the Muscovy Company (1555), British East India Company (1600), Dutch East India Company (1602), and London Company (1606), allowing shared ownership and investment.

1600-1787 ADVENT OF PUBLIC MARKETS

Public markets connected investors with investment opportunities, offering liquidity, publicized value, broadcast availability, and lowered transaction costs, while allowing diversification with relative ease.

1760-1910s INDUSTRIAL REVOLUTION

This period witnessed numerous technological innovations such as steam power and improved iron manufacturing, along with key innovations like the combustion engine, radio, and electric power that boosted economic activity.

1929-1939 THE GREAT DEPRESSION

The Great Depression brought a decade of economic contraction around the world, severely affecting industries, employment, and investment activities.

Early 17th century (Amsterdam, NYSE, Industrial Revolutions)

Amsterdam led the way for investors to connect with public markets in 1602, and 190 years later, the New York Stock Exchange followed in 1792, expanding access to investment opportunities.

Emergence of Stock Exchanges

The Amsterdam Stock Exchange (1602), now known as Euronext Amsterdam, is regarded as the predecessor to modern stock exchanges, whose main function is to connect investors with investment opportunities.

Industrial Revolution Investing

The First and Second Industrial Revolutions resulted in greater prosperity, enabling people to accumulate savings that could be invested and leading to the development of an advanced banking system.

2000s/21st Century Investing

Innovation and asset growth led to the rise of hedge funds and private equity managers, while the Great Recession marked a period of worldwide economic contraction with the global financial crisis peaking in 2008.

1960s

The Philippines was once a model of development and second only to Japan among East Asian economies. It produced consumer goods, processed raw materials, and had assembly plants for automobiles, televisions, and home appliances, along with industries producing cement, textiles, fertilizer, and chemicals.

Prior to 1970

Philippine exports consisted mainly of agricultural or mineral products in raw or minimally processed form, reflecting dependence on primary commodities and limited industrialization.

20th Century

A Filipino landowning elite developed on the basis of export crops such as abaca (Manila hemp), sugar, and other agricultural products, forming a dominant economic and political class during this period.

Economic Development in the Philippines in the 1950s and 60s

Manufacturing net domestic product (NDP) grew rapidly, averaging about 12 percent growth per annum in real terms, contributing significantly to overall economic expansion and industrial development.

Philippines Economy Under Marcos

The Philippine economy grew at an average annual rate of 6.4 percent during the 1970s, but this growth was financed largely by foreign-currency borrowing, leading to increased external debt and economic vulnerability.

Impact of Martial Law on the Philippine Economy in the 1970s and 80s

Monopolization, crony capitalism, and corruption during Martial Law severely crippled the economy, reducing efficiency and weakening economic institutions.

Impact of U.S. Military Bases on the Philippines Economy

Foreign investment was encouraged, export-processing zones were opened, and various incentives were created, positioning the Philippines as a country of low wages and industrial peace in the global market.

Philippines Economy Under Cory Aquino

The economy was recovering from a severe political and economic crisis following the Marcos regime, focusing on restoring democratic institutions and rebuilding economic stability.

Economic Policy Under Cory Aquino

Government reforms focused on economic stabilization, debt restructuring, and restoring investor confidence, along with liberalization measures.

Economy Under Ramos

Economic liberalization, privatization, and deregulation policies were implemented, resulting in improved economic growth and increased foreign investment.

Economy Under Estrada

Economic growth was hindered by political instability, governance issues, and declining investor confidence during this period.

Economy Under Arroyo

Economic reforms, fiscal discipline, and improved revenue collection were implemented, contributing to macroeconomic stability and gradual growth.

Philippines Economy Picks Up in the Mid-2000s

Economic growth improved due to structural reforms, stronger global demand, and better fiscal management, leading to increased economic performance.

Philippine Economy Picks Up in the 2010s Under Benigno Aquino III

The economy experienced strong and sustained growth, improved governance, and increased investor confidence, making it one of the faster-growing economies in the region.

President Benigno Aquino III and the Failure to Create Jobs

Despite strong economic growth, job creation was insufficient, resulting in continued unemployment and underemployment issues.

Philippine Economy Grows 7.2 Percent in 2013

The economy recorded significant GDP growth of 7.2 percent, reflecting strong macroeconomic fundamentals and investor confidence.

Philippines Gets First-Ever Investment Grade Rating

The country achieved its first-ever investment-grade rating from international credit rating agencies, signaling improved economic stability and creditworthiness.

Philippine Economy in 2014

The economy continued to grow with stable macroeconomic conditions, supported by strong domestic demand, remittances, and service sector expansion.

Omnibus Investments Code of 1987: Investment incentives

Provides fiscal and non-fiscal incentives to encourage investments in preferred areas, promote industrialization, and support economic development.

PIONEER AREAS IN INVESTMENT

Refers to industries that are not yet widely established but are essential for national development, and are given incentives to encourage investment.

SUBIC AND ECONOMIC ZONES

Special economic zones established to attract foreign investors by offering tax incentives, simplified procedures, and infrastructure support for export-oriented industries.

Foreign Investments Act of 1991: Republic Act 7042 and Republic Act 8179

Governs foreign investment in the Philippines, allowing foreign participation in domestic enterprises except in areas restricted by law.

Related Issues on Philippine investments

Includes regulatory restrictions, bureaucratic processes, infrastructure limitations, and other challenges affecting the investment climate.

"Investment" - What Is Investing?

Investment is the utilization of resources in order to increase income or production output in the future, involving the commitment of funds with the expectation of returns.

Investment vehicle

Refers to financial products or assets such as stocks, bonds, or funds that investors use to allocate capital with the expectation of generating returns.

Capital Appreciation

Refers to the increase in the value of an investment over time, resulting in potential capital gains when the asset is sold.

Current Income

Refers to earnings generated from investments such as interest, dividends, or rental income, providing regular cash flow.

Capital Preservation

Focuses on protecting the original investment from loss, prioritizing safety and stability over high returns.

Speculation

Involves taking higher risks in the expectation of higher returns, often based on market trends and price movements.

Tax Minimization

Involves using strategies to legally reduce tax liabilities on investment income and capital gains.

Marketability/Liquidity

Refers to the ability to convert an investment into cash quickly without significantly affecting its price.

Financial investment

Investment in financial instruments such as stocks, bonds, and securities that generate returns through income or capital gains.

Economic investments

Investment in real assets such as land, buildings, and equipment that contribute to production and economic growth.

Stocks

Represent ownership shares in a corporation and provide returns through dividends and capital appreciation.

Bonds

Debt instruments issued by governments or corporations that provide fixed income through periodic interest payments.

Funds

Pooled investment vehicles managed by professionals, allowing diversification across various assets.

Investment Trusts

Collective investment schemes where funds are managed by trustees for the benefit of investors.

Alternative Investments

Non-traditional investments such as real estate, hedge funds, private equity, and other assets outside standard stocks and bonds.

Options and Other Derivatives

Financial contracts whose value is derived from underlying assets such as stocks, bonds, or commodities.

Commodities

Physical goods such as gold, oil, and agricultural products that are traded in markets and used as investment assets.

Concept of Risk

Refers to the possibility of loss or variability in investment returns due to uncertainty in the market.

Systematic Risk

Risk that affects the entire market or economy, such as inflation, interest rates, or economic recessions, and cannot be eliminated through diversification.

Unsystematic Risk

Risk specific to a company or industry, such as management decisions or operational issues, which can be reduced through diversification.

Concept of Return

Refers to the gain or loss generated from an investment over a period of time.

Return

The income or profit earned from an investment, including interest, dividends, or capital gains.

Total Return

The overall return from an investment, including both income and capital appreciation over time.