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South-Western / Thomson Learning 2004
by
Robert A. StrongUniversity of Maine
PowerPoint Presentation
byYee-Tien Fu
National Cheng-Chi University
Taipei, Taiwan
Practical Investment Management
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CHAPTER ONE
Practical Investment Management
Robert A. Strong
THE CONCEPT OF INVESTING
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Thomson Learning/ South-Western 2004 1 - 3
Investing Defined
Investment Alternatives Assets
Securities Security Groupings
Three Reasons for Investing Income Appreciation Excitement
Outline
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Thomson Learning/ South-Western 2004 1 - 4
The Academic Study of Investments
Theoretical Research Empirical Research Professors vs. Practitioners
Outline
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Thomson Learning/ South-Western 2004 1 - 5
To consume, to save, or to invest
a dollar that is earned ?
Both saving and investing amount to
consumption shifting through time.
Investing Defined
However, saving involves little, if any,
risk, while investing is a riskyendeavor.
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Assets
Financial Assets Real Assetse.g. bond, stock e.g. land
Assets are things that people own.
Investment Alternatives
Financial assets have a
corresponding liability, while real
assets do not.
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Securitization is the process of converting an
asset or collection of assets into a moremarketable form.
A securityis a legal document thatshows an ownership interest.
Although securities are historically
associated with financial assets, they arealso applicable to real assets.
Investment Alternatives
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There are three broad categories of securities.
Securities
Equity
Securities
e.g. common
stock
Derivative
Assets
e.g. futures,
options
Fixed Income
Securities
e.g. bonds,
preferred stock
Investment Alternatives
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Why invest ???
Three Reasons for Investing
People invest to
supplement their income
earn capital gains Appreciation refers to an increase in the value of
an investment.
experience the excitement of the investment
process
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Theoretical research involves
building mathematical models and
proposing pricing relationships
rather than studying actual market
data.E.g. arbitrage relationships, impact of stock
splits and cash dividends on investors
Theoretical models are frequently tested byconducting empirical research.
The Academic Study of Investments
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Empirical research uses actual market datarather than mathematical models.
An anomalyis an observed result that defies
explanation within the known theoreticalframework.
The Academic Study of Investments
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The investment community can learn much
from both rigorous academic research and
from the life experiences of people on the
front lines of the marketplace.
The Academic Study of Investments
vs.
Professors Practitioners
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Investing Defined
Investment Alternatives Assets
Securities Security Groupings
Three Reasons for Investing Income Appreciation Excitement
Review
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