bài giảng investment analysis and management chapter 01

Understanding
Investments
Chapter 1
Charles P. Jones, Investments: Analysis and
Management,
Tenth Edition, John Wiley & Sons
Prepared by
G.D. Koppenhaver, Iowa State University

1-1


Objectives






To understand the investments field as
currently practiced
To help you make investment decisions
that will enhance your economic
welfare
To create realistic expectations about
the outcome of investment decisions

1-2


Investments Defined



Investments is the study of the process
of committing funds to one or more
assets





Emphasis on holding financial assets and
marketable securities
Concepts also apply to real assets
Foreign financial assets should not be
ignored

1-3


Why Study Investments?


Most individuals make investment
decisions sometime




Need sound framework for managing and
increasing wealth

Essential part of a career in the field


Security analyst, portfolio manager,
registered representative, Certified
Financial Planner, Chartered Financial
Analyst
1-4


Investment Decisions


Underlying investment decisions: the
tradeoff between expected return and
risk




Expected return is not usually the same as
realized return

Risk: the possibility that the realized
return will be different than the
expected return


Investor risk tolerance affects expected

return
1-5


The Tradeoff Between
Expected Return and Risk




Investors manage
risk at a cost lower expected
returns (ER)
Any level of
expected return
and risk can be
attained

Stocks
ER

Bonds

Risk-free Rate
Risk
1-6


The Investment Decision
Process



Two-step process:


Security analysis and valuation




Necessary to understand security characteristics

Portfolio management






Selected securities viewed as a single unit
How efficient are financial markets in processing
new information?
How and when should it be revised?
How should portfolio performance be measured?

1-7


Factors Affecting the
Process



Uncertainty in ex post returns dominates
decision process










Future unknown and must be estimated

Foreign financial assets: opportunity to
enhance return or reduce risk
Quick adjustments needed to a changing
environment
The Internet and investment
opportunities
Institutional investors important
1-8


Copyright 2006 John Wiley & Sons, Inc. All rights reserved.
Reproduction or translation of this work beyond that
permitted in Section 117 of the 1976 United states
Copyright Act without the express written permission of

the copyright owner is unlawful. Request for further
information should be addressed to the Permissions
department, John Wiley & Sons, Inc. The purchaser may
make back-up copies for his/her own use only and not for
distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages, caused
by the use of these programs or from the use of the
information contained herein.

1-9