SECTION V - CHAPTER 32 - Forerunners to Behavioural Finance.pdf
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BEHAVIOURAL FINANCE - SECTION V - CHAPTER 32 - Forerunners to Behavioural Finance
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SECTION V - CHAPTER 32 - Forerunners to Behavioural Finance.pdf
- 1. Module - 51 The Forerunners to Behavioural Finance CMT LEVEL - I
- 2. Introduction to Technical Analysis Momentum Strategy & Mean Reversion Strategy Value Investing Noise in Financial News
- 3. Momentum Strategy & Mean Reversion Strategy • Momentum Strategy - Momentum investing seeks to take advantage of market volatility by taking short-term positions in stocks going up and selling them as soon as they show signs of going down. • A momentum investor looks to take advantage of investor herding by leading the pack in and being the first one to take the money and run. • Mean-reversion strategies work on the assumption that there is an underlying stable trend in the price of an asset and prices fluctuate randomly around this trend . Therefore, values deviating far from the trend will tend to reverse direction and revert back to the trend.
- 4. The Birth of Value Investing : Graham & Dodd • Value investing is an investment strategy that involves picking stocks that appear to be trading for less than their intrinsic or book value. • Value investors actively ferret out stocks they think the stock market is underestimating. • They believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond to a company's long-term fundamentals. • The overreaction offers an opportunity to profit by buying stocks at discounted prices—on sale.
- 5. How Value Investing Works • The basic concept behind every-day value investing is straightforward: If you know the true value of something, you can save a lot of money when you buy it on sale. • Most folks would agree that whether you buy a new TV on sale, or at full price, you’re getting the same TV with the same screen size and picture quality. • Stocks work in a similar manner, meaning the company’s stock price can change even when the company’s value or valuation has remained the same. • Value investing is the process of doing detective work to find these secret sales on stocks and buying them at a discount compared to how the market values them. • In return for buying and holding these value stocks for the long-term, investors can be rewarded handsomely.
- 6. Financial News in a world of TV & Internet • In Modern Financial Markets , there is constant news reporting on television and the internet on up & downs on individual securities and such information is known as “Noise” & Such News Audience could be described as “Noise Traders” • A Rational Investor have no interest in year end rallies or such noise in their investment decisions, they follow their own analysis.