CHAPTER ONE THE CONCEPT OF NVESTING Practical Investment Management Robert A Strong
CHAPTER ONE Practical Investment Management Robert A. Strong THE CONCEPT OF INVESTING
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 Strong Cl-The Concept of Investing 12
1 - 2 Strong C1 – The Concept of Investing 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 risky endeavor
Investment alternatives Assets are things that people own Financial assets have a corresponding liability, while real assets do not Assets Financial Assets Real Assets e.g. bond, stock e. g. land Strong Cl-The Concept of Investing 13
1 - 3 Strong C1 – The Concept of Investing Assets Financial Assets Real Assets e.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
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 Strong Cl-The Concept of Investing 14
1 - 4 Strong C1 – The Concept of Investing Securitization is the process of converting an asset or collection of assets into a more marketable form. 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. Investment Alternatives
Investment alternatives There are three broad categories of securities Securities Equity Fixed Income Derivative Securities Securities Assets e.g. common e. g. bonds,-x e.g. futures, stock preferred sto options Strong Cl-The Concept of Investing 15
1 - 5 Strong C1 – The Concept of Investing 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
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 Strong Cl-The Concept of Investing 16
1 - 6 Strong C1 – The Concept of Investing 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
The Academic study of Investments Theoretical research involves 7de building mathematical models and 6 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 Strong Cl-The Concept of Investing 17
1 - 7 Strong C1 – The Concept of Investing 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. The Academic Study of Investments
The Academic study of Investments Empirical research uses actual market data rather than mathematical models 2MHq7自51 772 03n9:IB52475n522755.3235.3009:127 mH:bUt,非:bb.b.|数:2: 2mn9:533m53:55.4B35.46009:1:2M I 7F0971525.145.11|?7H HFR97T5m否A5们1;55.n5.166n.l2R 01N二v9:IB5.1B05.1c05.2a5.259:12 08HV9:B52325D521255.3535.3409:127M An anomaly is an observed result that defies explanation within the known theoretical framework Strong Cl-The Concept of Investing 18
1 - 8 Strong C1 – The Concept of Investing Empirical research uses actual market data rather than mathematical models. An anomaly is an observed result that defies explanation within the known theoretical framework. The Academic Study of Investments
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 Strong Cl-The Concept of Investing 19
1 - 9 Strong C1 – The Concept of Investing 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
Review ◆ Investing Defined Investment Alternatives o Assets Securities Security Groupings Three Reasons for Investing 口 ncome 口 Appreciation o Excitement Strong Cl-The Concept of Investing 1-10
1 - 10 Strong C1 – The Concept of Investing Investing Defined Investment Alternatives Assets Securities Security Groupings Three Reasons for Investing Income Appreciation Excitement Review
