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Session 2 Introduction - IAPM 06.06.2024

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23 views12 pages

Session 2 Introduction - IAPM 06.06.2024

iapm

Uploaded by

f20180184h
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Investment Analysis & Portfolio Management

Session – 2

The Investment Environment


Reference: Investments by Bodie Kane, Marcus, McGrah Hill
Education
Investments
• why do we invest?
– Time value of money
– Opportunity lost
– Deferred consumption (Inflation protection)

• Why do expected return deviates from realized


one ?

• How to ensure the expected returns?


2
Role of financial assets in the economy
• Real vs. financial assets
• Real Assets • Financial Assets
• Determine the • Claims on real assets,
productive capacity and do not contribute
net income of the directly to the
economy productive capacity of
• Examples: Land, the economy.
buildings, machines, • Examples: Stocks,
knowledge used to bonds
produce goods and
services

3
Financial Assets
• Fixed income or debt
• Regular income, lower risk

• Common stock or equity


• Ownership shares in a company, higher risk

• Derivative securities
• Value is derived from underlying assets
• Leverage, lower transaction cost, very high risk

4
Other Investment Asset Classes
• Currencies

• Commodities

• Real Assets

5
Trading
• Exchange
• NSE and BSE

• MCX, NCDEX

6
Financial Assets and the Economy
• What stock prices reflect?

• Do capital market actually channel resources to the


most efficient use?

• How can you shift your purchasing power from high


earnings period to low earnings period.

• Allocation of risk

• Separation of ownership and management


– Agency problem

7
Investment Process
• Portfolio: Collection of investment assets.

• Asset allocation
• Choice among broad asset classes
• Security selection
• Choice of securities within each asset class

• Top down approach


• Bottom up approach
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The Investment Process

9
Are markets efficient?
• Risk-Return trade off
– No free lunch

• Passive vs Active management

• Why financial crisis?

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Participants
• Demanders of capital – Firms
• Suppliers of capital – Households
• Governments – Can be both borrowers or
lenders
• Financial Intermediaries:
• Mutual funds, Pension funds.
• I-Banks, provides financial services
• VC

11
Thank You!

12

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