© 2001 south-western college publishing practical investment management 2nd edition by robert a....
TRANSCRIPT
© 2001 South-Western College Publishing
Practical Investment Management2nd Edition
by
Robert A. StrongUniversity of Maine
PowerPoint Presentationby
Yee-Tien FuNational Cheng-Chi University
Taipei, Taiwan
CHAPTER ONE
THE CONCEPT OF INVESTING
3
Outline
Investing Defined
Investment Alternatives Assets Securities Security Groupings
Three Reasons for Investing Income Appreciation Excitement
The Academic Study of Investments Theoretical Research Empirical Research Professors vs. Practitioners
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Investing Defined
?
??To consume, to save, or to invest
a dollar that is earned ?
Both saving and investing amount to consumption shifting through time.However, investing is risky, saving is not.
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Investment Alternatives
Assets
financial assets real assets e.g. bond, stock e.g. land
Assets are things that people own.Financial assets have a corresponding liability, while real assets do not.
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Investment Alternatives
Securitization is the process of converting an asset or collection of assets into a more marketable form.
A security is a legal document that shows an ownership interest.
Securities are historically associated with financial assets, but are also applicable to real assets.
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Investment Alternatives
There are three broad categories of securities.
Securities
EquitySecurities
e.g. common stock
Derivative Assets
e.g. futures, options
Fixed IncomeSecurities
e.g. bonds,preferred stock
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Three Reasons for Investing
Why invest ???
People invest to …
supplement their income
earn capital gainsAppreciation is an increase in the value of an investment.
experience the excitement of the investment process
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The Academic Study of Investments
Theoretical research builds mathematical models and proposes pricing relationships rather than studying actual market data.
E.g. arbitrage relationships, impact of stock splits and cash dividends on investors
Theoretical models are tested by conducting empirical research.
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The Academic Study of Investments
Empirical research uses actual market data rather than mathematical models.
An anomaly is an observed result that defies explanation within the known theoretical framework.
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The Academic Study of Investments
The investment community can learn much from both rigorous academic research and from the life experiences of people on the front lines of the marketplace.
vs.
Professors Practitioners
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Review
Investing Defined
Investment Alternatives Assets Securities Security Groupings
Three Reasons for Investing Income Appreciation Excitement
The Academic Study of Investments Theoretical Research Empirical Research Professors vs. Practitioners