1 / 15

Investment Overview Investment: Find the business worth dollar and buy it in 50 cents

Investment Overview Investment: Find the business worth dollar and buy it in 50 cents. Investment Characteristics. Commitment of funds currently available or that will be available in future Acquisition of land , house or shares (physical or financial assets)

kiley
Download Presentation

Investment Overview Investment: Find the business worth dollar and buy it in 50 cents

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Investment OverviewInvestment: Find the business worth dollar and buy it in 50 cents

  2. Investment Characteristics • Commitment of funds currently available or that will be available in future • Acquisition of land , house or shares (physical or financial assets) • Both type of assets will give certain benefit in future (interest, appreciation, dividend) • Investment is postponed consumption

  3. Trade off between current and future consumption

  4. Questions • Why should a person postpone his/her present consumption? Answer: Inflation erodes wealth • How much large the return must be to attract investment? Answer: investor's required rate of return would be an aggregate of the risk-free real rate, expected rate of inflation, and risk premium

  5. Speculators

  6. Benefits of Speculation • They essentially provide liquidity for the securities and often match the demand and supply of the market. A. positive news on a firm may attract a large demand for the stock. In the absence of any sellers, the price will shoot up. Some speculators may take a different view and willing to sell the stock to meet the excess demand of the market

  7. Benefits of Speculation • B. mutual fund may wants to sell 1 lakhs shares of a company. If there are limited buyers for the stock, the stock price would crash. Again, speculators would buy the stock in anticipation of selling the same at a small profit once the demand for the stock picks up in the market.

  8. Expected Risk-Return Tradeoff

  9. General Investment Decision Process • A typical investment decision undergoes a five-step procedure 1) Determine the investment objectives and policy 2) Undertake security analysis 3) Construct a portfolio 4) Review the portfolio 5) Evaluate the performance of the portfolio

  10. 1. Determine Investment Objective and Policy • Objective: Return Target. Example 12% return against risk-free rate of 9% Risk Target: 80% below market risk • Policy : • Some avoid Derivatives • Some use both equities and derivative to hedge risk • Some invest in tax exempt policy

  11. 2. Undertake security analysis • Three stages: a) Economic Analysis b) Analysis of broad trends of industry c) Fundamental of specific companies

  12. 3. Portfolio Construction • Allocate wealth into different stocks • Main goal diversification: Diversification does not mean owning more than one stock but stock whose future performance is not highly correlated • Portfolio is not done once and for all • It is constructed over a period of time

  13. 4. Portfolio Revision • Two reasons for liquidation of earlier portfolio and investing in the new portfolio occurs • a) Risk or Expected Return of security change over period of time ( Example tech stocks after dot com bubble) • b) Change in investment objective (Example investment objective of young man and old pensioner)

  14. 5. Evaluate the performance of the portfolio • Portfolio return needs to be evaluated with certain benchmark • Various ratios such as treynor index, sharpe ratio etc is used

  15. Assignment • Visit the broker or Invest firm of your choice. Interview at least 10 people using the Risk Tolerance Questionnaire • Ask them additional question on their knowledge of EPS, Technical analysis, P/E ratio • Put in Excel sheet and submit 25 June

More Related