Download - What is Investment(MBA B&F)
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Investment
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InvestmentInvestment
Investment is the thing that really
makes our economy go and grow! Investment is any NEW Plant and equipment
Investment is any NEW Additional inventory
Investment is any NEW Residential housing
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Inventory Investment
Includes only net change
Date Level of Inventory
Jan. 1, 2003 $120 million
July 1, 2003 145 million
Dec. 31, 2003 130 million
Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e# 6-1$
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Inventory Investment
Includes only net changeDate Level of Inventory
Jan. 1, 2003 $120 million
July 1, 2003 145 million
Dec. 31, 2003 130 million
Started the year ith $120 million
!nded the year ith 130 million
"he net chan#e i a %&' 10 million
6-16Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e#
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Inventory Investment (Continued)
Includes only net change
Date Level of Inventory
Jan. 1, 2003 $130 million
July 1, 2003 145 million
Dec. 31, 2003 120 million
Started the year ith $130 million
!nded the year ith 120 million
"he net chan#e i a %(' 10 million
Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e# 6-1%
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6-1&Copyright 2002 by The McGraw-Hill Companies, Inc !ll rights reser"e#
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50
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1960 1965 1970 1975 1980 1985 1990 1995 2000
In"entory In"estment, 1'60-2000 (in
billions o) 1'&% #ollars*
This is the most "olatile sector o) in"estment +ote that
in"estment was actally negati"e #ring three recessions
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Types of investment
Cash investment
Debt securities Stocks
Mutual funds
Derivatives
Commodities
eal estates
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Cash investments
hese include savings bank accounts" certificatesof de#osit$ hese investments #ay a low rate of
interest and are risky o#tions in #eriods of inflation Debt securities:
The standard definition of a security is:
"A legal contract representing the right toreceive future benefits under a stated set ofconditions"
his form of investment #rovides returns in the
form of fi%ed #eriodic #ayments and#ossible ca#ital a##reciation at maturity$ &t is asafer and more 'risk(free' investment tool thane)uities$ *owever" the returns are also generally
lower than other securities
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Stocs:
+uying stocks ,also called e)uities- makesyou a #art owner of the business and entitles
you to a share of the #rofits generated by thecom#any$Stocksaremorevolatileandriskierthanbonds$
!utual funds: his is a collection of stocks . bonds and
involves #aying a #rofessional manager toselect s#ecific securities for you$ he #rimeadvantage of this investment is that you donot have to bother with tracking theinvestment$
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Commodities:
he items that are traded on thecommodities market are agricultural andindustrial commodities$ heseitems need to be standardi/ed and must
be in a basic" raw and un#rocessedstate$ he trading of commodities isassociated with high risk and highreward$ rading in commodity futuresre)uires s#eciali/ed knowledge and in(de#th analysis
$
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Real estate
0his investment involves a long(term commitment offunds and gains that are generated through rental or
lease income as well as ca#ital a##reciation$ hisincludes investments into residential or commercial#ro#erties
Derivatives0
hese are financial contracts the values of which arederived from the value of the underlying assets" suchas e)uities" commodities and bonds" on whichthey are based$ Derivatives can be in the form of
futures" o#tions and swa#s$ Derivatives are used tominimi/e the risk of loss resulting from fluctuations inthe value of the underlying assets ,hedging-$
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The Investment Process
A description of the process is: "# Set investment policy
$b%ectives
Amount
Choice of assets Conduct security analysis
'(amine securities )identify those *hich are mis
priced+,
-se a# Technical analysis . the e(amination of past prices for
trends
b# /undamental analysis . true value based on future
e(pected returns
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The Investment Process
0# Portfolio Construction
Identify assets
Choose e(tent of diversification
1# Portfolio Evaluation
Assess the performance of portfolio
2# Portfolio Revision Repeat previous three steps