FUND MANAGEMENT

LECTURE NOTES
BF 3Y1-1

Owners

FUNDAMENTALS OF
EQUITY INVESTMENTS
Equity
Trading: Stock or any other security representing an
ownership interest.
Accounting: Amount of the funds contributed by the
owners (stockholders) plus the retained earnings.
Finance: Ones ownership in any asset after all debts
associated with that asset are paid off.
Equity = Assets Liabilities
Real Estate: Difference between an assets market
value and the debt owed on the asset.
Shareholders Equity
Represents the equity of a company as divided
among shareholders of common or preferred stock.
Ownership Equity
Equity which remains after all liabilities have been
paid.
Equity Investments
Refers to the buying and holding of shares of stock
on a stock market by individuals and firms in
anticipation of income from dividends and capital
gains.
Investors hire fund managers to manage their equity
investments.
Stocks VS. Bonds
Kind of
Instrument
Meaning

Centralizatio
n
Holders

Kind
Participants
Issued By

BOND
Debt

STOCK
Equity

Authorized issuer
owes the holders a
debt and is obliged to
repay the principal
and interest
Often do not have a
centralized exchange
or trading system
Bond holders are in
essence lenders to the
issuer

Offer an ownership stake

in a company

Securities
Investors,
Speculators,
Institutional Investors
Public
sectorauthorities,
credit institutions,
companies and

marthacabral

Have a centralized
exchange or trading
system
The stock holders own a
part of the issuing
company (have an equity
stake)
Securities
Market maker, Floor
trader, Floor broker
Corporation or joint-stock
companies

Page 1

supranational
institutions
Bondholders

Stockholders/shareholder
s
Derivatives
Bond option, Credit
Credit derivative, Hybrid
derivative, Credit
security, Options, Futures,
default swap
Forwards, Swaps
No. of Types
12
4
Source: http://www.diffen.com/difference/Bond_vs_Stock

Classification of Stocks
According to Rights:
Ownership
Voting Rights
Board
Representatio
n
Company
Liquidation
Return on
Capital
(Divivdends)

Sale of
Company

COMMON
Yes
Yes
Represented and in
control

PREFFERED
No
No
Sometimes represented
but seldom in control

Paid back investment

after debtors and
Preffered Stock
holders
Not guaranteed and
paid only when
company has excess
profit. Never paid
before Preferred
dividends
Shares in return of
sale

Paid back investment

after debtors but before
Common Stock holders
Guaranteed by a coupon
rate that is similar to a
bond interest payment.
Paid before any
distributions to
Common Stock holders
Usually convertible to
common stock upon this
type of event and shares
in return of sale

Source:
http://www.mortgagenewsdaily.com/garrett_watts/143208.aspx

According to Ownership:
Class A These are stocks that can be exclusively
traded by Filipino investors.
Class B These are stocks that can be bought and
sold by both Filipino and foreign investors.
According to Sectors:
Financials Sector includes companies engaged in
banking, investments, and finance.
Industrial Sector includes companies involved in
the following:
a) Electricity, Energy, Power, and Water
b) Food, Beverage, and Tobacco
c) Construction, Infrastructure, and Allied
Services
d) Chemicals
e) Diversified Industrials
Holding Firms Sector includes companies or firms
that control or manage partial or complete interest in
another company or other companies. Usually, these
companies do not produce goods or services itself;
rather, its purpose is to own shares of other
companies.

Property Sector includes companies involved in

land and property development.
Services Sector includes companies involved in the
following:
a) Media
b) Telecommunications
c) Information Technology
d) Transportation Services
e) Hotel and Leisure
f) Education
g) Diversified Services
Mining and Oil Sector includes companies engaged
in mineral extraction, oil exploration, extraction and
production.

According to Characteristics:
Blue Chip stocks are shares of well-established and
financially sound companies that have demonstrated
their ability to pay dividends in both good and bad
times.
They also exhibit more modest but
dependable returns and are relatively of lower risk.
Income stocks are shares of those companies with
good dividend payment history due to steady profits.
Since they are stable, income stocks generally have a
lower level of volatility.
Growth stocks also called glamour stocks, are
shares of corporations whose earnings are expected to
grow at an above-average rate relative to the market.
A growth stock does not usually issue dividends as
earnings are reinvested in capital projects.
Defensive stocks are shares that provide regular
dividends and stable earnings, regardless of the
overall condition of the stock market. Defensive
stocks remain stable under difficult economic
conditions. Generally, these are stocks of food, oil,
and utilities companies, which are characterized by
steady demand amidst hard times.
Cyclical stocks are those sensitive to business
conditions or cycles strongly tied with the economys
performance. These companies produce or offer
services that are low in demand during slowdown and
increase when business peaks.
Speculative stocks are those that rise quickly when
economic growth is strong and falls rapidly when
growth is slowing down. A speculative stock is
considered very risky because of its volatility. It
increases or decreases rapidly depending on the
economic conditions
Private Equity
Equity capital that is not quoted on a public
exchange.
Private equity consists of investors and funds that
make investments directly into private companies or
conduct buyouts of public companies that result in a
delisting of public equity.

Venture Capital- refers to investments made in

young companies with no or limited revenues. This
stage emphasises entrepreneurial undertakings and
focuses on less mature businesses and industries.
Growth capital- refers to equity investments, most
frequently minority investments, in relatively mature
companies that are looking for capital to expand or
restructure operations, enter new markets or finance a
major acquisition without a change of control of the
business.
Buyout- investments consist in acquiring a stake in a
private company (non-listed or public to be taken
private) with the intention toexercise influence on the
company.
Special situations- funds invest in restructuring,
turnaround, distressed debt for control and any other
unusual circumstances that a company can face.

Stock Market
Secondary market that facilitates the exchange of
securities between buyers and sellers, reducing the
risks of investing.
What Causes Stock Prices to Change?
Share prices change because of supply and demand.
If more people want to buy a stock (demand) than
sell it (supply), then the price moves up. Conversely,
if more people wanted to sell a stock than buy it,
there would be greater supply than demand, and the
price would fall.
Buying Stocks
Brokerage
Dividend reinvestment plans (DRIPs) and direct
investment plans (DIPs)
How to Read A Stock Table/Quote

Columns 1 & 2: 52-Week High and Low - These are the

highest and lowest prices at which a stock has traded over the
previous 52 weeks (one year). This typically does not include
the previous day's trading.
Column 3: Company Name & Type of Stock - This column
lists the name of the company.
Column 4: Ticker Symbol - This is the unique alphabetic
name which identifies the stock.

Private Equity Strategies

marthacabral

Page 2

Column 5: Dividend Per Share - This indicates the annual

dividend payment per share. If this space is blank, the
company does not currently pay out dividends.
Column 6: Dividend Yield - The percentage return on the
dividend. Calculated as annual dividends per share divided by
price per share.
Column 7: Price/Earnings Ratio - This is calculated by
dividing the current stock price by earnings per share from the
last four quarters.
Column 8: Trading Volume - This figure shows the total
number of shares traded for the day, listed in hundreds. To get
the actual number traded, add "00" to the end of the number
listed.
Column 9 & 10: Day High and Low - This indicates the price
range at which the stock has traded at throughout the day. In
other words, these are the maximum and the minimum prices
that people have paid for the stock.
Column 11: Close - The close is the last trading price
recorded when the market closed on the day. The close is
merely an indicator of past performance and except in extreme
circumstances serves as a ballpark of what you should expect
to pay.
Column 12: Net Change - This is the dollar value change in
the stock price from the previous day's closing price. When
you hear about a stock being "up for the day," it means the net
change was positive.

Dont commit all your cash at once.

Have a plan.
Understand that taking profits is not a sin:
Discover hedging techniques.
Find out which events move markets.
Check the stocks trading history.

marthacabral

Use stop-loss and limit orders.

Use discipline and patience versus emotion and
panic.
9. Minimize transaction.
10. Understand the beta of a stock. Beta is a statistical
measure of how volatile a particular stock is relative
to a market standard.
11. Read and learn from top traders.

Dont gamble. Take all your savings and buy

some good stock and hold it till it goes up; then sell
it. If it doesnt go up, dont buy it.
-Will Rogers

References:
o http://www.investopedia.com/
o file:///C:/Users/Martha
%20Cabral/Downloads/introduction_privateequity_en.pdf
o https://en.wikipedia.org/wiki/Equity_(finance)
o http://www.pseacademy.com.ph/LM/investors~detail
s/id-1316266249549/Types_of_STOCKS.html
o http://www.investopedia.com/university/stocks/stocks
6.asp
o http://www.dummies.com/how-to/content/the-basicrules-of-stock-trading.html

Bulls make money, bears make money, but

pigs get slaughtered!

Basic Rules of Stock Trading

1.
2.
3.
4.
5.
6.

7.
8.

Page 3