Transcript Investments
FIN352 Vicentiu Covrig Introduction (chapter 1) 1 FIN352 Vicentiu Covrig 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. 2 FIN352 Vicentiu Covrig 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! 3 FIN352 Vicentiu Covrig Investment Industry Jobs Jobs - Brokers - Traders - Portfolio managers - Financial planners - Investment bankers - Security analysts 4 Working at - Commercial banks - Savings and credit unions - Securities firms - Investment banks - Companies - Credit rating agencies - Mutual funds - Life insurance companies - Securities exchanges FIN352 Vicentiu Covrig 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. 5 FIN352 Vicentiu Covrig 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 6 FIN352 Vicentiu Covrig Getting information - Newspapers Barron’s http://www.barrons.com/ Biting market commentary once a week, portfolio analysis and databank. Investor’s Business Daily http://www.investors.com/default.asp Founder William O’Neal dispenses stock picking, charting, and momentum strategies. Big on investor education. The Wall Street Journal http://online.wsj.com/home/us The daily paper when it comes to financial news and information. Print subscribers get interactive access at a bargain price. USA Today http://www.usatoday.com/money/front. htm Don’t underestimate “McPaper’s” Money Section when it comes to business, economic, and financial news. It’s terrific! 7 Vicentiu Covrig Getting information - Magazines FIN352 Business Week http://businessweek.com/index.html Timely business news and analysis, useful business school, career and small business information. The Economist http://www.economist.com/ Offers analysis and opinion on the business and political events of the week. Forbes http://forbes.com/ Terrific commentary on economics and financial markets from an allstar stable of regular columnists. Fortune http://www.fortune.com/fortune Famous for Fortune 500 company list. Interesting advice on career development. Kiplinger's Personal Finance http://www.kiplinger.com Provides practical guidance on saving, investing, planning for retirement, and major purchases. Money http://money.cnn.com/ Interesting market commentary, company and mutual fund analysis aimed at novice investors. Smart Money http://www.smartmoney.com/ Serves the need for personal finance information for affluent, sophisticated, professional, and managerial Americans. 8 Vicentiu Covrig Getting information - Online FIN352 CBS MarketWatch http://cbs.marketwatch.com Focused on financial news and information. Individual investors can find news, commentary, advice, and stock price information. The Motley Fool www.fool.com An online forum designed to "educate, amuse and enrich investors." A constant stream of witty investment advice on active message boards. MSN Money http://moneycentral.msn.com/home.asp Investing highlights for customized portfolios, market reports, mutual fund directory, retirement and personal finance. TheStreet.com www.thestreet.com A full menu of stock analysis, market commentary, and biting satire. U.S. Securities and Exchange Commission http://www.sec.gov/ This is the place to find free access to official SEC filings by individual companies, obrain information about individual brokers, or file a complaint about shady business practices Yahoo! Finance http://finance.yahoo.com/ A terrific web site with U.S. markets, world markets, quotes, financial news, and data. 9 FIN352 Vicentiu Covrig 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? 10