Intro To Investment Mgt.


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Intro To Investment Mgt.

  1. 1. Investment Management Prof. Sheevun Di O. Guliman,MSF,CPA
  2. 2. Introduction to Investment Management • Commitment of current resources in the expectation of deriving greater resources in the future
  3. 3. REAL VS. FINANCIAL ASSETS • Real assets - assets used to produce goods and services. Examples are land, buildings, machines and knowledge that can be used to produce goods and services. • Financial assets – claims on real assets or the income generated by them. It is the allocation of income or wealth among investors.
  4. 4. TAXONOMY OF FINANCIAL ASSETS • Fixed-income securities - Pay a specified cash flow over a specific period • Equity-An ownership share in a corporation • Derivative securities - Securities providing payoffs that depend on the values of other assets. Derivative securities are so named because their values derive from the prices of other assets
  5. 5. FINANCIAL MARKETS AND THE ECONOMY • Consumption Timing • you can “shift” your consumption over the course of your lifetime, thereby allocating your consumption to periods that provide the greatest satisfaction • Thus, financial markets allow individuals to separate decisions concerning current consumption from constraints that otherwise would be imposed by current earnings.
  6. 6. FINANCIAL MARKETS AND THE ECONOMY • Allocation of Risk • investors are able to select security types with the risk-return characteristics that best suit their preferences, each security can be sold for the best possible price. • allow the risk that is inherent to all investments to be borne by the investors most willing to bear that risk.
  7. 7. FINANCIAL MARKETS AND THE ECONOMY • Separation of Ownership and Management • financial assets and the ability to buy and sell those assets in the financial markets allow for easy separation of ownership and management
  8. 8. THE INVESTMENT PROCESS • Asset allocation- • Security selection - Allocation of an choice of which investment portfolio particular securities across broad asset to hold within classes each asset class. Top-down approach Bottom-up approach
  9. 9. MARKETS ARE COMPETITIVE • There are several implications of this no- free-lunch proposition • The Risk-Return Trade-Off – returns depends on the appetite for risk, if you prefer low risk then expect low returns; same is true for high risk- high returns • Efficient Market Hypothesis – as new information about a security becomes available, the price of the security quickly adjusts so that at any time, the security price equals the market consensus estimate of the value of the security.
  10. 10. MARKETS ARE COMPETITIVE • Efficient Markets – • Passive management: calls for holding highly diversified portfolios without spending effort or other resources attempting to improve investment performance through security analysis. • Active management: is the attempt to improve performance either by identifying mispriced securities or by timing the performance of broad asset classes—e.g., increasing one’s commitment to stocks when one is bullish on the stock market.
  11. 11. THE PLAYERS From a bird’s eye view, there would be three major players in the financial markets • Firms are net borrowers • Households typically are net savers • Governments can be borrowers or lenders, depending on the relationship between tax revenue and government expenditures
  12. 12. THE PLAYERS • Financial Intermediaries - Institutions that “connect” borrowers and lenders by accepting funds from lenders and loaning funds to borrowers Investment companies – Firms managing funds for investors. An investment company may manage several mutual funds Investment bankers - Firms specializing in the sale of new securities to the public, typically by underwriting the issue
  13. 13. MARKETS AND MARKET STRUCTURE • Direct Search Market(s) the least organized market. Buyers and sellers must seek each other out directly • Brokered Markets In markets where trading in a good is active brokers find it profitable to offer search services to buyers and sellers. Primary market- a market in which new issues of securities are offered to the public.
  14. 14. MARKETS AND MARKET STRUCTURE • Dealer Markets Markets in which traders specializing in particular assets buy and sell for their own accounts. Secondary markets - already existing securities are bought and sold on the exchanges or in the OTC market. • Auction Market(s) A market where all traders meet at one place to buy or sell an asset. It is the most integrated market, e.g., NYSE, PSE
  15. 15. RECENT TRENDS Four important trends have changed the contemporary investment environment: (1) globalization (2) Securitization (3) financial engineering (4) information and computer networks.