This document discusses investment management and the investment decision process. It covers why people invest, the risks and returns of different asset classes, and the steps involved in making investment decisions. The key points are:
1) People invest to increase future consumption and earn returns on their savings. Different assets have different risk-return tradeoffs, with more risk generally requiring more potential return.
2) Making investment decisions involves analyzing individual securities, building a portfolio, and managing it over time either passively or actively.
3) Common errors include misunderstanding risk and return, not having a clear investment policy, and making emotional or irrational decisions rather than thoughtful assessments.
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MODULE 3:
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risk and return. Defining Return, Return Example, Defining Risk,Determining Expected Return , How to Determine the Expected Return and Standard Deviation, Determining Standard Deviation (Risk Measure), Portfolio Risk and Expected Return Example, Determining Portfolio Expected Return, Determining Portfolio Standard Deviation, Summary of the Portfolio Return and Risk Calculation, Total Risk = Systematic Risk + Unsystematic Risk,
MODULE 3:
Credit Risks Credit Risk Management models - Introduction, Motivation, Funtionality of good credit. Risk Management models- Review of Markowitz’s Portfolio selection theory –Credit Risk Pricing Model – Capital and Rgulation. Risk management of Credit Derivatives.
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Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
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This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
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Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
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Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
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Investment management chapter 3 the basic of investment decisions
1. Investment Management
Chapter 3-The Basic of
Investment Decisions
Lectured by : Mr. HENG Leangpheng (MBA)
Tel: 095 433 369 / 081 895 695
E-mail: leangpheng.heng@yahoo.com
1
2. Why to invest?
Investment increases future consumption
possibilities
• By foregoing consumption today and investing
the savings, investors expect to increase their
future consumption possibilities by increasing their
wealth
2
3. If we do not invest, then?
If we have savings and we do not invest, we
can’t earn anything on our savings.
Second, the purchasing power of cash
diminishes in inflation
This means that if savers do not invest their
savings, they will not only lose possible return on
their savings, but will also lose value of their
money due to inflation
3
4. But investment has problems
Investment has the following three problems:
A. Sacrifice - While investing, investor delay their
current consumption (delaying consumption is
kind of sacrifice)
B. Inflation - Investment loses value in periods of
inflation
C. Risk - giving your money to someone else
involves risk
4
5. Compensation to investors
Due to the three problems, investors will not
invest until they are compensated for these
problems
Required rate of return = compensation for
(sacrifice , inflation, risk)
RRR= opportunity cost + risk premium
5
6. Understanding the investment decision
process
The basis of all investment decisions is to earn
return and assume risk
By investing, investors expect to earn a return
(expected return)
6
7. Expected return and risk
Realized returns(actual return) might be more or
less than the expected return
The chance that the actual return on an
investment will be different from the expected
return is called risk
This way T-bills has no risk as the expected return
and actual return are the same
But actual returns on common stock have
greater chances of deviating from expected
return and hence have high risk
7
9. The expected risk-return is depicted in the graph
The line from RFR shows risk-return relationship of
different investment alternatives.
It shows that at zero level of risk, investor can
earn risk free rate (RFR) which is equal to the
rate on T-bills
To earn a little higher return than the risk free
rate, investors can invest in corporate bonds,
but the investors will have to take some risk as
well
9
10. Ex-ante and ex-post risk-return
To earn even higher return than on corporate
bonds, investor can invest in common stocks,
but the risk is also high
The risk return trade-off depicted in the graph in
ex-ante i.e. before the fact or before the
investment is made
Ex-post (after fact or actual) trade-off may be
positive, flat or even negative
10
11. Different approaches to investment
decision making
Fundamental Approach: Believed that there is
an intrinsic value of a security that can be
company, industry and economy.
Psychological Approach: This approach based
on the premises that stock prices are guided by
the emotions. It is more important to analyze
that how investor tend to behave as the market
is swept by the waves of optimism and
pessimism.
11
12. Different approaches to investment
decision making
Academic Approach: Suggest that:
• Stock market is efficient in reacting quickly and
rationally hence it reflects intrinsic value fairly well.
• Stock price behavior correspond to the random
walk, hence past price behavior can not be used
to predict the future price.
• There is positive relationship between risk and
return.
12
13. Different approaches to investment
decision making
Electric Approach: This approach draws on all
the three approaches.
• Fundamental analysis is helpful in establishing
basic standard benchmarks.
• Technical analysis is useful in broadly gauging the
mood of the investor.
• there is a strong correlation between risk and
return.
13
14. Steps in the decision process
Traditionally, the investment decision process
has been structured using two-steps:
• Security analysis
• Portfolio management
14
15. Security Analysis
Security analysis: this is the first part of investment
decision process
• It involves the analysis and valuation of individual
securities
• To analyze securities, it is important to understand
the characteristics of the various securities and
the factors that affect them
• Then valuation model is applied to find out their
value or price
15
16. • Value of a security is a function of estimated
future earnings from the security and the risk
attached
• For securities valuation, investors must deal with
economy, industry or the individual company
• Both the expected return and risk must be
estimated keeping in view the economic, market
or company related factors
16
17. Portfolio Management
The second major component of the decision
processes is portfolio management
• After securities have been analyzed and valued,
portfolio of selected securities is made
• Once a portfolio is made, it is managed with the
passage of time
• For management, there can be two approaches
17
18. Approaches to portfolio management:
A. Passive investment strategy
B. Active investment strategy
• In Passive Strategy, investors make few
changes in the portfolio so that transactions
costs, time and search costs are minimum
• In Active Strategy, investors believe that they
can earn better returns by actively making
changes in the portfolio
18
19. Common Errors in Investment Decision
Making
Inadequate comprehension of return and risk.
Investor do not has correct understanding of risk
& return and misled by:
• Tall and unjustified claims made by people.
• Exceptional performance of some portfolios due
to fortuitous factors.
• promises made by the tipsters, operators etc.
19
20. Investment policy is not clearly defined
• Investment policy and risk disposition is not clearly
spelled out.
• conservative investors become aggressive when
the market is bullish.
• Aggressive investor become over cautious in
bearish market.
20
21. Naïve exploration of the past
• Investor is inexperienced and excessively rely on
the past
Cursory of decision making
• Decision are taken on tips and fads rather than
on thoughtful assessment.
• Risks are not considered as greed overpower.
• Try to follow bandwagon decisions due to lake of
confidence in their own judgment.
21
22. Stock switching
• Irrational start-and-stop.
• Entry (after the market advance has long been
underway)
• Exit (after a long period of stagnation and
decline)
High Cost Love for a cheap stock
• Cost of transaction is ignored in the greed of
quick profits
22
23. Over and Under-diversification
• Over diversification caused difficulties and
excessive cost in portfolio management.
• Under diversification exposes to risk.
Wrong attitude towards profit and losses
• Investor try to dilute the loses by averaging the
price of its holdings.
• Try to sell when the prices more or less equal to
holding price even there are chances of further
increase.
23