Investment in Stocks

Chapter 6
 Learning Objectives

• Define what is investment

• Define share of stocks
• Define and discuss the classifications of stocks
• Discuss market capitalization and stocks value and
other terminologies.
• Discuss the different effects in stocks investments.
 Investment
refers to acquisition of shares
of stocks of other corporations
to receive profit upon their sale
and for periodic income (in the form of
dividends).

A share of stocks is a unit of ownership in a

corporation so that investment is in effect
an investment in a portion of the equity in a
corporation.
 Classifications of Stocks
Based on Rights of Shareholders

•Common Stock . This represents the basic ownership

in a corporation carries with the right to vote on
corporate matters, shares in profits after providing for
the shares of preferred stock therein, and absorbs
corporate loss before any portion thereof is charged to
preferred stocks.
Preferred Stocks. This refers to the portion
of owners’ equity that enjoys preferences
over common stocks.

Preferred shares generally have a dividend that

must be paid out before dividends to
common shareholders, and the shares usually
do not carry voting rights.
 Based on Risk and Earnings Potential

1. Blue Chips- these

belong to large
companies which have a
long record of earnings
and dividends
payment. They are also known as “value
stocks”.
 Blue Chips Company in
the Philippines
Ayala Corp. (Conglomerates)
Ayala Land, Inc. (Property)
Aboitiz Power Corp. (Power)
Banco De Oro (Bank)
Bank of the Philippine Islands (Bank)
PNOC Energy Development Corp. (Power)
Int’l Container Terminal Services (Port
Operations)
Jollibee Foods Corp. (Consumer)
Metropolitan Bank & Trust Company / Metrobank
(Bank)
Metro Pacific Investments (Infrastructure)
SM Investments Corp. (Conglomerates)
SM Prime Holdings (Property)
TEL PLDT (Telecom)
Universal Robina Corp. (Consumer)
2.Growth Stocks- these belong to corporations
with growth rate faster than that of the general
economy.
3.Cyclical Stocks- their earnings and prices
move with the changes in the national
economy.
4.Defensive Stocks- their earnings are not
affected so much by changes in the economy.
5.Speculative Stocks- is a stock with a high
degree of risk.
- refersto the total market value of shares of
stock listed in the stock exchanges.
refers to the market value of the total number
of shares outstanding of a corporation. It is
computed as follows:

Market capitalization= no. of shares

outstanding x market value per share
 isa stock that tends to trade at a lower
price
relative to its fundamentals (e.g., dividends,
earnings and sales) and thus
undervalued by a value investor. considered

Stocks have par value, net asset value, and market

value per share.

Par value is the nominal value assigned to a share

appearing on the stock certificate. It is the minimum
amount at which a share of stock may be originally
issued.
 is a value of a stock based on the value
of stockholders’ equity per books of account.

NET ASSET VALUE

is the value of an entity's assets minus
the value of its liabilities.

MARKET VALUE
Market value of a stocks is its current market
price. It is the closing price in the day-to-day
trading in the stock market.
 Also known as the equity market

 refers to the collection of markets and

exchanges where the issuing and trading of
equities (stocks of publicly held companies),
bonds and other sorts of securities takes
place, either through formal exchanges or
over-the-counter markets.
is an exchange (or bourse) where stock
brokers and traders can buy and sell shares of
stock, bonds, and other securities.

OVER-THE-COUNTER MARKET
is not a physical location. Prices
are negotiated, and trades are
made through computer networks,
phones and email.
 also called a Registered Representative,
investment advisor or simply, broker
a professional individual who executes buy
and sell orders for stocks and other securities
through a stock market, or over the counter,
for a fee or commission.
STOCKDEALER is one who buys and sells
stocks for his own account. He may be a
stockbroker or one who trades through a stock
broker.
 A dealer is a person who will buy and
sell securities on their account. A broker
is one who will buy and sell securities for
their clients.
is used to describe price fluctuations of a
commodity. Volatility is measured by the
day-to-day percentage difference in the price
of the commodity.

refers to the speed at which prices go up and

down.
refers to the range within which the price of a
stock may change in one day’s trading .

DOMINO EFFECT
refers to the similar price behavior of other
stocks as brought about by the price behavior
of another.
 A market said to be bullish when prices
increasingly move upward.
BEARISH MARKET
A market said to be bearish when prices are
dropping continuously.

DOWN AVERAGING
Refers to lowering average unit cost by
buying more at lower prices.
 refers to an investors order to sell his shares
if prices go below a certain level in order to
minimize his loss.

This is done when prices are going down at a

very fast rate and are therefore expected to
go down further.
Example:
A trader buys 100 shares of XYZ Company
for $100 and sets a stop-loss order at $90. The
stock declines over the next few weeks and
falls below $90. The trader's stop-loss order
gets triggered and the position is sold at
$89.95 for a minor loss.
 means that an investor buys stocks but does
not fully pay for them.

refers to the initial or down

payment made to the broker
for the asset being purchased;
the collateral for the
borrowed
funds is the marginal securitiesin the investor's
account.
is a method of budgeting in which all
expenses must be justified for each new
period. Zero-based budgeting starts from a
"zero bases,” and every function within an
organization is analyzed for its needs and
costs.
Assignment:
• What are the Commercial banks?
• Give at least 5 commercial banks in
the philippines and provide it’s
functions or services offered.
• What are the 8 types of commercial
banks? Discuss each type.