Introduction (chapter 1)

Introduction (chapter 1)

Objectives of the course and text • To understand the investments field as currently practiced • Gain familiarity with the institutions and language of Wall Street so as to facilitate the development of an effective personal investment strategy. • To help you make investment decisions that will enhance your economic welfare • To create realistic expectations about the outcome of investment decisions • Acquire a framework for understanding the returns on all financial assets, including stocks, bonds and financial derivatives.

Buy High, Sell Low?! • It is obvious that investors should buy low and sell high in order to build wealth over time. • So why do investors frequently buy high and sell low? • The investment process involves analytical analysis of investment alternatives that are filtered through a decision process that is fraught with psychological biases. • To be a successful investor, you should be able to use the analytical tools and control your emotions and psychological biases!

Investment Industry Jobs • Working at • Commercial banks • Savings and credit unions • Securities firms • Investment banks • Companies • Credit rating agencies • Mutual funds • Life insurance companies • Securities exchanges • Jobs • Brokers • Traders • Portfolio managers • Financial planners • Investment bankers • Security analysts

Key Investment Concepts • A portfolio • Diversified (hopefully!) collection of stocks, bonds and other assets. • Individual investments are often evaluated on how they change the characteristics of the portfolio. • Risk • Chance of economic loss. • Sometimes measured as a variation in return. • Expected Return • Anticipated gain of a specific period of time. • Often evaluated as compensation for taking certain types of risks.

The Tradeoff Between Expected Return and Risk • Investors manage risk at a cost - lower expected returns (ER) • Any level of expected return and risk can be attained ER Bonds Risk-free Rate Risk

Getting information - Newspapers

Getting information - Magazines

Getting information - Online

The Investment Decision Process • Two-step process: • Security analysis and valuation • Necessary to understand security characteristics • Portfolio management • Selected securities viewed as a single unit • How and when should it be revised?

Introduction (chapter 1)

Introduction (chapter 1)

Presentation Transcript

Introduction – Chapter 1

Chapter 1: Introduction

Chapter 1: Introduction

Chapter 1: Introduction

Chapter 1: Introduction

Chapter 1: Introduction

Chapter 1 - Introduction

Chapter 1 - Introduction

Chapter 1: Introduction

Chapter 1: Introduction

Chapter 1: Introduction

Chapter 1 Introduction

Chapter 1. Introduction

Chapter 1 Introduction

Chapter 1: Introduction

Chapter 1 Introduction

Chapter 1: Introduction

Chapter 1—Introduction

Chapter 1: Introduction

Chapter 1: Introduction

CHAPTER 1: Introduction

Chapter 1: Introduction