This document discusses recent trends in investment management in Pakistan including the Pakistan stock market outperforming India's, inclusion in the MSCI emerging market index, and growth of mutual funds. It defines investment management as committing funds to assets over time to manage wealth through current income and future returns. The document contrasts real assets that create wealth with financial assets that represent claims to real assets and how ownership is distributed. It outlines the investment decision process of considering risk and return tradeoffs, security analysis, and portfolio construction to achieve an optimal asset mix.

1. INVESTMENT
MANAGEMENT
AN INTRODUCTION
Ahmed Abbas
Preston University

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. 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. 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. PORTFOLIO PERSPECTIVE
 Develop a financial plan– house
purchase decision, insurance,
emergency reserve fund
 Portfolio perspective- optimal
combination of assets

6. IMPORTANCE OF STUDYING
INVESTMENTS
 Personal aspects
Retirement decisions- today we have
defined contribution rather than
defined benefit plans
 time value of money

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. 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. 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. RISK-RETURN TRADE-OFF

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. 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. INVESTMENT DECISION
PROCESS- TODAY’S
INVESTORS (CONTD)
 Difference between individual and
institutional investors

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. INVESTMENT DECISION PROCESS-
TODAY’S INVESTORS (CONTD)