CFMP – BLOOMBERG COURSE

your guide…
Melvin Jason S. De Vera,, CIS, CFMP
• Investment Consultant, First Metro Asset Management Inc. - FAMI
• President, Finance Educators Association of the Philippines (Fin.Ed)

melvin.devera@fami.com.ph
0905-381-8090
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What are Equities or
Stocks?
WHAT’S A STOCK?
Ownership interest in a
company

50% return
A stock represents a
in 1 day is
claim on the company's
assets and earnings possible!
Common Stock

• Common shares or Ordinary shares

• Corporations issue at least one class of common

stock in the form of shares.
• Shares of stock are a form of equity securities
because they represent ownership or equity in
the corporation.

Ex. If Mr. Reyes owns 10,000 of the 100,000 shares of

common stock that have been issued by XYZ
Company, he effectively owns 10% of the
company.
Common Stock

• Most common stocks are assigned a par value,

generally from P0.01 to P100.00. But some have
a “no par” designation and recorded as stated
value. These are bookkeeping items only and
bear no relationship to the shares’ book value or
market value.

• The book value is the tangible net asset value

per share.

• The market value is the price at which someone

is willing to pay for each share.
Common Stock

• Most corporations’ charters stipulate that current

common stockholders must be given the first
option to buy any additional shares that the
company may offer. This is known as the stock-
holders’ preemptive right. It allows the current
shareholders to maintain their proportionate
ownership in the corporation.

Ex. If XYZ Company issues 50,000 additional shares to

other people, Mr. Reyes’ 10% ownership in the
company will be reduced to only 6.67% (10,000 ÷
150,000). Preemptive rights will allow him to buy an
additional 5,000 shares and maintain his 10%
ownership in the company.
Common Stock

• New shares are offered at a subscription price,

which is usually at a discount from its current
market value. A shareholder receives one right
for each share owned. The actual offering will
dictate the number of rights needed to purchase
a new share.

Ex. Using XYZ Company’s plan to issue 50,000 new

shares on top of the 100,000 shares already issued:
100,000 rights (1 right for every share outstanding)
÷ 50,000 shares (no. of new shares to be issued)
2 rights to purchase 1 “new” share
9
Common Stock

• Dividends are declared out of the unrestricted

retained earnings (accumulated profits) of the
company and stockholders have the right to
receive such dividends.

• However, it is only the Board of Directors that can

declare dividends. Stockholders cannot demand
that dividends be paid out even if the company
is profitable.

• There are basically three types of dividends that

a corporation can declare: cash dividends,
stock dividends and property dividends.
Common Stock

1. Cash Dividends

• As the name implies, cash dividends are paid to

stock-holders in cash.

• They are usually quoted in peso amounts (say P0.50

per share) or as a percentage of the par value
(hence, a 5% cash dividend on a common stock with
a par value of P10.00 is equal to P0.50).

Ex. If the Board of Directors of XYZ Company declares a

cash dividend of P0.50/share, Mr. Reyes will receive
P5,000.00 on his 10,000 shares.
Common Stock

2. Stock Dividends
• In order to conserve cash, the Board of Directors may
decide to declare stock dividends instead of cash
dividends. In this case, stockholders are given
additional shares of the company.
• Stock dividends are quoted as a percentage of the
company’s outstanding shares.

Ex. If the Board of Directors of XYZ Company declares a

25% stock dividend, Mr. Reyes will receive an
additional 2,500 shares (25% x 10,000 shares).
Common Stock

• Adjusted Market Price after a stock dividend

Adjusted Price = Market price before the stock div EX-DATE

1 + Stock Div Rate

Ex. If XYZ Company declares a 25% stock dividend, the

market price of its shares is expected to drop to
P16/share from the current P20/share
P20.00/1.25 = P16.00
Common Stock

3. Property Dividends

• Although rarely done, the Board of Directors may

also pay-out dividends in the form of assets (such as
shares of another corporation owned by the
company). This is called a property dividend.
Common Stock

• There are four dates to remember when

dividends are declared:

1.DECLARATION DATE

2.EX-DIVIDEND DATE

3.RECORD DATE

4.PAYMENT DATE
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Common Stock

• Another feature of common stock is that holders

of these shares have voting rights.

• There are two methods of voting:

1.STATUTORY VOTING

2.CUMULATIVE VOTING
 Statutory Cum. A Cum. B Cum. C
Director A 100 300 500 100
Director B 100 0 0 100
Director C 100 200 0 300
Director D 100 0 0 0
Director E 100 0 0 0
TOTAL 500 500 500 500
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Preferred Stock

• Preferred stock are called as such because they

are senior to or has preference over common
stockholders as to dividends and claims on the
assets of the company in the event of liquidation.

• However, it is junior to bondholders and other

creditors of the company.

• Preferred stock does not usually carry voting

rights (i.e. the right to elect members of the
Board). Nevertheless, holders of such stock are
still entitled to vote on certain issues affecting the
company.
Preferred Stock

• Preferred stockholders are entitled to receive

dividends which is set at a fixed rate based on
the par value of the preferred stock. For instance,
the holder of a preferred stock with a par value
of P1,000 and a dividend rate of 10% is entitled to
receive a dividend of P100 per year.

• These dividends are not automatically given to

preferred stockholders but must likewise be
declared by the Board of Directors. However, no
dividends may be distributed to common stock-
holders unless the dividends due preferred
shareholders are paid.
So those are the
types of stocks…

What about the

different forms of
stocks?
 FORMS OF STOCKS
• Bluechip
• Income
• Growth
• Speculative
• Defensive
• Cyclical
• Seasonal
Capital Gains

• Aside from dividends, another way to profit from

an equity investment is through capital gains or
capital appreciation. Capital gains (or loss) is
simply the difference between the price at which
a security is sold and the price at which it was
originally purchased.

• If an equity investment has not been actually

sold but has increased in price or value over its
original cost, such increase is called capital
appreciation. The difference between the market
value and the cost is also referred to as
unrealized gain (or loss) or paper profits.
 Capital Appreciation

Stock 22-Jun-03 22-Jun-07 22-Jun-10 08-16-2017

ABS-CBN 20.50 31.50 38 41.75
AC 139.26 471.69 317.00 900.00
ALI 4.48 18.25 13.5 42.50
BPI 25.80 58.62 45.5 106.10
BDO 18.75 71.00 44.00 128.80
GLOBE 538.16 1,213.07 875 2,050.00
JFC 17.20 54.06 68.5 239.00
MER 8.73 90.45 190 277.40
PLDT 484.08 2,456.91 2,395 1,740.00
URC 4.22 19.00 28.00 147.00
How are stocks
issued?
ISSUING COMPANY

UNDERWRITERS

BROKERS

INVESTORS 26
Investment Banking

Underwriting
• Underwriting is the outright purchase of a new
issue from the issuing corporation at a fixed price
and the resale of such issue to the public.

• The issuer appoints an investment banker as

syndicate manager or a group of investment
bankers as co-managers to market the securities
being issued.

• The difference between the price paid to the

issuing corporation and the offering price to the
public is called the underwriting spread.
Investment Banking

Types of Underwriting
• In a firm commitment underwriting (or simply firm
underwriting), the underwriters agree to
purchase the entire issue and absorb any
securities that are not sold.
• In a best efforts underwriting, the investment
banker agrees to act as an agent for an issuer
but state that any shares not sold will be returned
to the issuer.
• Sometimes, an issuer may require that the entire
issue must be sold or the underwriting agreement
will be cancelled. This is known as the all-or-
none underwriting.
Investment Banking

Types of Offerings
• If the proceeds from the sale of the securities go
to the issuing corporation, it is called a primary
offering.

• If the proceeds go to the existing shareholders,

then it is known as a secondary offering.

• If it is the first time for a corporation to offer its

securities to the public, it is called an initial
public offering or IPO.
Securities Markets

Primary and Secondary Markets

• Securities markets are mechanisms that bring
together buyers and sellers of securities and
facilitate the exchange of such financial assets.

• The market for a new stock or bond issue, where

the proceeds go to the issuing company or
entity, is known as the primary market.

• When securities already in the marketplace are

sold to someone else, this is referred to as the
secondary market.
Securities Markets

Exchange Markets
• The stocks of most large corporations are listed
and traded on an exchange. Exchanges are
operated as double auction marketplaces,
where buyers and sellers congregate in one
place (centralized) to trade securities.
• In a single auction, there are many buyers but
only one seller for each item being traded. In a
double auction, there are many buyers and
many sellers for each item being traded. For
each stock, buyers post successively higher bid
prices while sellers post successively lower asked
or offering prices until a trade is consummated at
a price satisfactory to both parties.
Securities Markets

Exchange Markets
• The buyers and sellers themselves cannot post
their bid and asked prices. They have to open
an account with and place their orders through
stockbrokers, who will then execute the orders.
• Another important function of a stockbroker is to
advice their clients on what stock to buy at what
price and when to sell such stock.
• The stockbroker gets a commission on every
done or completed transaction (whether buying
or selling).
BUYERS BROKERS BROKERS SELLERS

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 How do I start
investing in stocks?
 INVESTMENT PROCEDURES

 See www.pse.com.ph for list of trading participants and

choose your broker
 Open a trading account (fill out CAIF, Specimen Signature
Card, Submit 2 Valids IDs)
 Link an active bank account accredited with your chosen
broker (ex. Metrobank, BDO or BPI)
 Fund your trading account
 Choose company stocks to buy
 Place your buy orders to the broker
 Get the confirmation receipt
 Monitor price movements, set your exit price and
place your sell order when decided to sell
BROKERS DIRECTORY
36
 ONLINE
BROKERS
37
SAMPLE FUND
TRANSFER
38
Are there charges?
How much?
CHARGES

BUY SELL

Brokers’ Commission (BC) - minimum of

0.25/maximum of 1.5% + 12 VAT  

Clearing Fee of .0001  

PSE Transaction Fee (1/200 of 1% of value of stocks)  

Stock Transaction Tax (1/2 of 1% of value of stocks) 

 SAMPLE

TRADE

CALCULATOR

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How many shares
can I buy?
Minimum Maximum
Fluctuation Board Lot
Price Price
0.0001 0.0099 0.0001 1,000,000
0.01 0.049 0.001 100,000
0.05 0.249 0.001 10,000
0.25 0.495 0.005 10,000
0.5 4.99 0.01 1,000
5 9.99 0.01 100
10 19.98 0.02 100
20 49.95 0.05 100
50 99.95 0.05 10
100 199.9 0.1 10
200 499.8 0.2 10
500 999.5 0.5 10
1000 1999 1 5
2000 4998 2 5
5000 1,000,000 5 5
SAMPLE
BUY
ORDER
44
45
THE ELECTRONIC BOARD

NAME BID ASK HIGH LOW L/T VOL

ABS 59.40 59.50 59.50 59.10 59.40 82,000

AC 782.00 782.50 782.00 768.00 782.00 67,160
JFC 228.00 228.20 229.00 227.80 228.20 279,700
TEL 1875.00 1896.00 1900.00 1856.00 1896.00 4,810,000
SM 960.00 962.00 967.00 959.00 962.00 51,370
URC 210.60 211.00 214.60 209.00 211.00 18,000