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Investment management intro

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Investment - Principles and Concept by Charles. P Jones (11 ed)

Published in: Investor Relations
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Investment management intro

  1. 1. INVESTMENT MANAGEMENT AN INTRODUCTION Ahmed Abbas Preston University
  2. 2. RECENT TRENDS  Pakistan stock market termed Asia’s best stock market (17% vs 6% India)  PSX included in MSCI emerging market index  Growth of mutual funds in Pakistan  Real estate still the safe haven in Pakistan- but slow growth  Banks have invested most of their funds in treasury bills  NSS rates have fallen
  3. 3. DEFINITION  The commitment of funds to one or more assets that will be held over some future time period  Management of investor’s wealth  Sum of current income + present value of all future income  E.g. CD, stocks, bonds, mutual funds, warrant, puts and calls, future contracts, and convertible securities  Analysis and management
  4. 4. REAL ASSETS AND FINANCIAL ASSETS  The main difference between financial and real assets is that financial assets are cash and securities, such as stocks and bonds, whereas real assets represent tangible possessions, such as real estate, production equipment and inventory.  Securities represent stocks and bonds  Real assets create wealth. Financial assets represent claims to parts or all of that wealth. Financial assets determine how the ownership of real assets is distributed among investors.
  5. 5. PORTFOLIO PERSPECTIVE  Develop a financial plan– house purchase decision, insurance, emergency reserve fund  Portfolio perspective- optimal combination of assets
  6. 6. IMPORTANCE OF STUDYING INVESTMENTS  Personal aspects Retirement decisions- today we have defined contribution rather than defined benefit plans  time value of money
  7. 7. IMPORTANCE OF STUDYING INVESTMENTS  Investment as a Profession  Investment Bankers and Traders  Investment Bankers arrange the sale of new securities as well assist in mergers and acquisition  Security Analysis and Portfolio managers  Individuals working for financial institutions who are involved with the valuation and analysis of individual securities  Stock brokers and financial advisers  Stock brokers are selling and buying agents for securities
  8. 8. INVESTMENT DECISION PROCESS  Return and risk trade-off  securities offer higher expected rates of return also impose greater risks on investors.  The presence of risk, however, implies that actual returns can differ considerably from expected returns at the beginning of the investment period.  Competition among security analysts also promotes financial markets that are nearly informationally efficient  Prices reflect all available information concerning the value of the security. Passive investment strategies may make sense in nearly efficient markets.
  9. 9. INVESTMENT DECISION PROCESS- CONTD  Investors are risk averse- will not assume a given level of risk unless there is an expectation of adequate compensation for having done so  Investor’s risk tolerance – willingness to accept risk when investing
  10. 10. RISK-RETURN TRADE-OFF
  11. 11. STRUCTURING THE DECISION PROCESS It is a two step process • Security analysis The first part of the investment decision process, involves valuation and analysis of individual securities, which is referred to as security analysis • Portfolio management The second major component of the decision process, a portfolio should be constructed.
  12. 12. INVESTMENT DECISION PROCESS- TODAY’S INVESTORS  The great unknown Uncertainty- the realized return can vary substantially from expected return One can only make the best informed risk and return estimates possible, act on them and be prepared for shifting circumstances
  13. 13. INVESTMENT DECISION PROCESS- TODAY’S INVESTORS (CONTD)  Difference between individual and institutional investors
  14. 14. INVESTMENT DECISION PROCESS- TODAY’S INVESTORS -CONTD  Importance of the internet Wealth of information about investing Trade cheaply & quickly Obtain real time quotes Online portfolio tracking
  15. 15. INVESTMENT DECISION PROCESS- TODAY’S INVESTORS (CONTD)

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