Practice investment managerment pim3 ch01

Practical Investment Management by Robert A Strong University of Maine PowerPoint Presentation by Yee-Tien Fu National Cheng-Chi University Taipei, Taiwan South-Western / Thomson Learning © 2004 CHAPTER ONE THE CONCEPT OF INVESTING Practical Investment Management Robert A Strong Outline  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings  Three Reasons for Investing  Income  Appreciation  Excitement Thomson Learning/ South-Western © 2004 1-3 Outline  The Academic Study of Investments  Theoretical Research  Empirical Research  Professors vs Practitioners Thomson Learning/ South-Western © 2004 1-4 Investing Defined To consume, to save, or to invest a dollar that is earned ? Both saving and investing amount to consumption shifting through time However, saving involves little, if any, risk, while investing is a risky endeavor Thomson Learning/ South-Western © 2004 1-5 Investment Alternatives Assets are things that people own Financial assets have a corresponding liability, while real assets not Assets Financial Assets e.g bond, stock Thomson Learning/ South-Western © 2004 Real Assets e.g land 1-6 Investment Alternatives A security is a legal document that shows an ownership interest Although securities are historically associated with financial assets, they are also applicable to real assets Securitization is the process of converting an asset or collection of assets into a more marketable form Thomson Learning/ South-Western © 2004 1-7 Investment Alternatives There are three broad categories of securities Securities Equity Securities e.g common stock Fixed Income Securities e.g bonds, preferred stock Thomson Learning/ South-Western © 2004 Derivative Assets e.g futures, options 1-8 Three Reasons for Investing Why invest ??? 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 Thomson Learning/ South-Western © 2004 1-9 The Academic Study of Investments 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 by conducting empirical research Thomson Learning/ South-Western © 2004 - 10 The Academic Study of Investments Empirical research uses actual market data rather than mathematical models An anomaly is an observed result that defies explanation within the known theoretical framework Thomson Learning/ South-Western © 2004 - 11 The Academic Study of Investments vs Professors Practitioners 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 Thomson Learning/ South-Western © 2004 - 12 Review  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings  Three Reasons for Investing  Income  Appreciation  Excitement Thomson Learning/ South-Western © 2004 - 13 Review  The Academic Study of Investments  Theoretical Research  Empirical Research  Professors vs Practitioners Thomson Learning/ South-Western © 2004 - 14 ... an increase in the value of an investment  experience the excitement of the investment process Thomson Learning/ South-Western © 2004 1-9 The Academic Study of Investments Theoretical research...CHAPTER ONE THE CONCEPT OF INVESTING Practical Investment Management Robert A Strong Outline  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings... framework Thomson Learning/ South-Western © 2004 - 11 The Academic Study of Investments vs Professors Practitioners The investment community can learn much from both rigorous academic research and