Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock.

Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. Technical analysis is the evaluation of securities by means of studying statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value but instead use stock charts to identify patterns and trends that may suggest what a stock will do in the future. The key difference between technical analysis and fundamental analysis are as follows. 1. Technical analysis mainly seeks to predict short-term price movements, whereas fundamental analysis tries to establish along term values. 2. The focus of technical analysis is mainly on internal market data, particularly price and volume data. The focus of fundamental analysis is on fundamental factors relating to the economy, the Industry and the firm. 3. Technical analysis appeals mostly to short term traders, whereas fundamental analysis appeals primarily to long term investor. 4. Technical analyst looks backward whereas fundamental analysis looks forward as well as backward. 5. Technical analyst thinks that stocks market behavior is 10% logical and 90% psychological whereas fundamental analyst thinks that the stocks market is 90% logical and 10% psychological.

Fundamental v/s Technical Analysis : Technical analysis differs from fundamental analysis in many respects. A fundamental analyst looks forward whereas the technical analyst looks backward. A fundamental analysts attempts to forecast company earnings through the company earnings, dividends of its shareholders. These earnings are then discounted to obtain the intrinsic value of a security by determing an appropriate rate of discount. The technical analyst believes that all relevant factors are reflected in the market price and volume of trading. He studies the historical price and volume patterns that provide clues for his future purposes and sale and profit from timely entering and exiting from the market. A fundamental analyst thinks that stock market behaviour is 90 percent logical and 10 percent psychological whereas, a technical analyst thinks that it is 10 percent logical and 90 percent psychological. Fundamental analysis provides a long run view of security pricing whereas the technical analysis usually provides a short run view of security pricing.

Q 1. Investment has different meanings in finance and economics. In economics, investment is the accumulation of newly produced physical entities, such as factories, machinery, houses, and goods inventories. In finance, investment is putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject, among other things, to inflation risk. It is indispensable for project investors to identify and manage the risks related to the investment.\ Distinguish Saving n Gambling

Investing When you gamble, you own nothing. When you invest in a stock, or a stock index fund, you own a share of the company or companies in which you invested. If the company is profitable and issues dividends, you benefit financially. If the price of the stock or stocks you own goes up, you can sell at a profit. Although the stock market has fluctuated up and down over the decades, the general trend has been up. Buy-and-hold stock market investors, therefore, have been rewarded with profits SEE: Volatility's Impact On Market Returns Investors in highly-rated corporate or guaranteed U.S. government bonds, have similarly profited long term with little, if any, risk. Well-chosen real estate investments, mainly residential housing, have also appreciated in value. So, despite periodic highs and lows, the stock market, U.S. government bonds and well-chosen real estate investments have been generally profitable over the years. Nevertheless, any smart financial advisor will tell you that past performance is no guarantee of future performance. The trend, however, is apparent investments in stocks, bonds and real estate, if held long term, usually pay off. However, a diversified portfolio is the key element. A mix of various investment products will protect the investor against a downturn in one or more sectors of the economy. Let's look at stock market data over a 10-year period from 2000 to 2009. The numbers show that market increases far outweigh declines.

What Is The Difference Between Savings And Investment?

Savings and investments are two totally different things, despite their initial similarities. Saving money is something we do automatically when we putmoney

into an account. It is not aimed to generate more money and has no risks of losing money, unlike investments. Savings accounts are designed however to have high interest or low tax. Saving accounts are designed so the customer can put aside their money to allow it to build up in interest or for another time. Some savings accountscharge for withdrawals which further makes it easier for the customer not to use that money. You can get online only savings accounts which usually have higher interest rates and carry higher security restrictions. Savings are essentially concerned with capital preservation and easy access (if you choose). Savings accounts include cash ISA where you can buy one for a period of time. Most of these require a minimum start amount and have limits or restrictions when it comes to withdrawals and payments in. Investments are designed so that you should gain a higher amount ofmoney over time, than to what you originally put in. You can invest in stocks, bonds, mutual funds and/or certificates of deposits. Many peopleinvest in stocks after doing their own research, but banks can supply advice and suggestions as to what will (hopefully) make money. Investments are used to take profits and dividends. They are usually longer term thansavings accounts. Investing is similar to gambling, in that there is always the risk of losing money. If you are choosing your investments yourself, make sure to research fully into what you are investing in. Other types of investment products available within banks include shares where you buy a share in a company. Pooled or Collective investments are where small contributions from several people are used to amount to a single investment fund. These include Authorised Unit Trusts, Open Ended Investment Companies, Investment Trusts and Exchange Trade Funds.

Investing vs Gambling What's Different?

Many beginning investors often wonder about the differences, if any, between investing and gambling. Stories in the media about stock market debacles and people losing their life savings create a fearful perception towards stock investing. Before we take a look at investing vs gambling, let's take a step back and make sure we understand what these terms mean.

Gamble: To play at any game of chance for stakes. To stake or risk money, or anything of value, on the outcome of something involving chance.

Invest: To put money to use, by purchase or expenditure, in something offering profitable returns.

1. Investing is a good thing, gambling is a bad thing. 2. In investing, the odds are in your favor; in gambling, the odds are against you. 3. Gambling can be addictive and destructive, but investing cant. 4. Gambling is entertainment, investing is business. 5. Investing is saving for specific goals, such as retirement, while gambling isnt. 6. Investors are risk-averse, while gamblers are risk-seekers. 7. Investing is a continuous process; gambling is an immediate event or series of events. 8. Investing is the ownership of something tangible; gambling i snt. 9. Investing is based on skill and requires the use of a system based on research, while gambling is based on luck and emotions.

Saving means keeping aside a part of your income . Investment means putting that money in financial products to earn returns and grow your wealth. Meaning
Saving money means keeping aside a part of your income regularly in order to deal with unexpected expenses. Investment means putting your saved money in various products in order to earn returns and grow your wealth.

Time

Savings are usually used to meet your short term needs. People save in order to deal with emergency situations and meet unexpected expenses. However, investment generally entails a longer horizon of six months or more. It is designed to provide returns and grow your money over a period of time.

Risk and reward

Another difference between savings and investment is the risk they bear and returns they offer. While savings stored in a safety vault are very safe, they will not generate any returns over the years. Even if money is kept in a savings account, it will provide a negligible rate of return. On the other hand, money invested in various products like stocks, mutual funds, gold, etc. is subject to more risks, but has the potential to grow over time. If invested wisely, your money can grow manifold over years.

Liquidity

When it comes to liquidity, your savings are the most liquid assets, as they can be accessed at any time. However, this is not the case with investments. It takes a few days for the money to reach your bank account after you decide to sell your investments.

Definitions Gambling, as defined by any reputable dictionary, is the act of betting on an uncertain outcome. Investing means committing money in order to earn a financial return. The definitions seem to indicate a higher element of chance or randomness in gambling, while investing appears to be more rational.

What Does "Real" Investing Mean Stock investing is usually associated with a mad frenzy of activity stock market floors with people feverishly trading, all kinds of hand signals, lots of emotion, stress, and excitement. But that really is trading not investing. The essence of true investing is buying into companies behind the stock and not just the stock itself. This means that you carefully research thefundamentals of the company, buy it at a good price, and hold it for a meaningful period (typically a few years, unless the reasons you bought the stock in the first place are not valid anymore.) As you can see, there is a lot of work that goes into investing. Buying stocks based on "hot tips", trading frequently by following the gyrations of the market, and holding on to certain stocks based on pure sentiment is not investing. It's speculation.

A Little More About Gambling Playing games of chance like slot machines or the roulette wheel have a statistically slim probability of winning. Players put down money and hope for a win despite hopeless odds. The lure of a large gain compels people to continue this act of betting. If gambling had higher odds of winning, casinos would be out of business.

Risk

There are card games, like poker, that demand skill. However, you cannotchoose the cards dealt out to you. In investing, you can choose your investment. This is the pivotal difference between investing vs gambling So how does risk play into this? Buying stock and betting on the roulette wheel both involve uncertain outcomes and therefore carry risk. The probability of a win is a lot higher when you do your homework and buy stock. Why? With a roulette wheel, every number on the board has an equal probability of winning. So the outcome is completely random. With stocks, when you buy companies with good fundamentals at attractive prices, the probability that they will grow and produce good returns on your investment is not random. True, there is always uncertainty in the future, but the chance of losing money in the long-term is relatively low. As Warren Buffett once said, "Risk comes from not knowing what you are doing."

An Analogy The best way to reinforce the investing vs gambling difference is to look at a simple analogy. Let's consider the flipping of a coin. There is an equal chance (or probability) of "heads" or "tails." But what if the coin were biased? In other words, what if the coin were weighted such that it had a much higher chance of showing us "heads"? Now the coin flipping is no longer random. Picking "heads" greatly increases your odds of winning. By picking stocks with the right kind of fundamental research, you are picking "heads" on our biased coin. And the wider the economic moataround the company, the higher the probability of "heads".

To wrap up, investing in stocks, when you use the right methods to pick them, is completely unlike gambling. Speculating, as opposed to investing, is more like gambling the odds of winning are slim. Another way of looking at the investing vs gambling question the odds of losing your money are painfully high with gambling (and speculating). ***************************************************************************************************************

Big Answers

Q9. Sources of Information for Making

Investment Decisions
Investment decisions refer to decisions made to put money in different asset classes, all with the objective of protecting and increasing wealth. There are many factors to consider when an investment decision is made: What are the risks involved? What financial instruments to use? Should you invest in bonds, stocks ,real estate or other asset classes?

Financial and Economic Theory

Financial and economic theory provides a strong foundation on which to base investment decisions. It serves as a guide in the wide array of choices available to investors these days. For example, in periods of high inflation, economic theory tells us that investors would be better off putting money in stores of value that rise with inflation, such as gold, while fixed-income securities like bonds should be avoided, as they yield a much lower return.

Financial Intelligence

There are many source of financial intelligence. The primary sources of commentary and analysis are well-established publications, such as the Wall Street Journal or the Economist, as well as more specialized business intelligence products from business news agencies such as Thomson-Reuters or Bloomberg Business & Financial News.
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Historical Performance

Historical performance of assets (stocks, real estate, bonds and other vehicles) can often provide information about which way the asset prices will go in the future. While past is not always the best guide to what will happen, the underlying trends often hold sway for prolonged periods of time. If gold has been rising for the past five years, for example, the chances are that it will also rise in the next six months.

Additional Information

There are additional, asset-specific sources of information that investors can employ to help them make investment decisions. For example, if investors invest in bonds, they can read bond prospectuses, documents that accompany the issuance of bonds. If the assets in question are stocks, than annual and quarterly reports to the regulators and shareholders (primarily the annual financial report) can be accessed, with particular attention given to the profit and loss statement and the balance sheet.

Q 12 FUNDAMENTAL ANALYSIS : INDUSTRY ANALYSIS At any stage in the economy, there are some industries which are growingwhile others are declining. The performance of companies will depend amongother things upon the state of the industry as a whole and the economy. If theindustry is prosperous, the companies, within the industries may also beprosperous although a few may be in a bad shape. The performance of acompany is thus a function not only of the industry and of the economy, but more importantly, on its own performance. The share price of the company is empirically found to depend up to 50% on the performance of the industryand the economy. The economic and political situation in the country has thusa bearing on the prospects of the company. Following factors are consideredin the industry analysis. Product Line & stage in the life cycle Raw Material and Inputs, utilities Installed & utilised Industry Characteristics Demand & Market Pricing & government controls on prices, distributionControl on Imports & exportsGovernment Policy with regard to IndustryTaxation Policy & incentives offeredLabour & other Industrial problems.Prospects of growthProtection or Tariff preferencesQuality of ManagementLevels of R&D. IMPORTANCE OF INDUSTRY ANALYSIS The performance of the companies will depend upon the state of the industryas a whole. Through industry analysis future projections of growth will get highlighted. The demand & supply, the market conditions and untapped market potentialwill be decided by the industry analysis.

Q10 2.5.

Capital Asset Pricing Model (CAPM)

CAPM uses the concept of Beta to link risk with return. Using CAPM, investors can assess the risk return trade off involved in any investment decision. The Capital Asset Pricing Model is used to calculate the expected return on an investment. Beta for a company is a measure of the relative volatility of the given investment with respect to the market, i.e., if Beta is 1, the returns on the investment (stock/bond/portfolio) vary identically with the markets returns. Here the market refers to a well diversified index such as the S&P 500. Beta is a measure of non-diversifiable risk (Systematic Risk). It shows how the price of a security responds to changes in market prices. The equation for calculation of Beta is Ri = i + iRm + ei

Ri = Estimated return on ith stock = Expected return when market return is zero (intercept) i = Beta, a measure of stocks sensitivity to the market index Rm = Return on market index ei = the error term Using the Beta concept the Capital Asset Pricing Model will help to define the required return on a security. Normally the higher is the risk we take, the higher should be the return as otherwise we avoid risk. So, the higher the , the higher should be the return. The equation for CAPM is Ri = Rf + i (Rm Rf) Ri is the required return (48)
FM-304

Rf is the risk free return Rm is the average market return Bi is the measure of systematic risk which is non-diversifiable. Presently, the risk free return is 6% as the Treasury Bill rate and market return is expected to vary with the chosen. Let us take as 1.2 and expected market return is 18%, then the return on the stock i is as follows: Ri = 6% + 1.2 (18 6) = 0.06 + 1.2 (0.12) = 0.06 + .144 = 20.4% If the investor is risk taker and chooses a Beta of 1.8, then the expected return will be higher as shown below. Ri = 6 + 18 (18-12) = .06 + 1.8 (.12) = .06 + .216 = .276 = 27.6%

Q 15. An efficient capital market is a market that reflects all available news and information. An efficient market is also quick to absorb new information and adjust stock prices relative to that information. This is known as an informationally efficient market. Generally, efficient markets are expected to reflect all available information. If that is not the case, investors with the information may benefit leading to abnormal returns.
Efficient Market Hypothesis (EMH) is an important concept in portfolio investmentand diversification. This concept is gaining significance because of integration of international markets helping in movement of investment across national boundaries.This paper tries to test the weak form efficiency for one of the major equity marketsin India-Bombay Stock Exchange for the period April 1999 to March 2010. Theevidence suggests that the series do not follow random walk thus rejecting the weak form efficiency hypothesis

There are three assumptions for the Efficient Market Hypothesis: 1.All investors are independent, rational, well-informed and hope for the highest profit; 2.All information are free and randomly available in the market, thats mean no one can predict any new information. Once the information is released in the market, the price will be responded as soon as possible; 3.There are no taxes or transaction fees in the market.
Investors are rational. Markets are rational. There are no taxes or, more specifically, taxes play no part in financial decision-making. There are no transaction costs. An investor is indifferent between a dollar in dividends and a dollar in capital gains. A company (and its investors) are indifferent between a dolar of aditional debt and a dollar of additional equity .Information must be free and quick to flow. There are no transaction costs and bottlenecks. Taxes do not impact investment policy. Every investor can borrow or lend at the samerate. Investors behave rationally. Market prices are efficient and absorb themarket information quickly and efficiently. Future price changes will be due to newinformation not available earlier.

Q11.

VALUATION OF SECURITIES

Investment process invariability requires the valuation of securities in which the investments are proposed. The value of a security may be compared with the price of the security to get an idea as to weather a particular security is overpriced, under-priced or correctly priced. A number of concepts of valuation have been used in the literature. Some of these are: 1. Book Value (BV). BV of an asset is an accounting concept based on the historical data given in the balance sheet of the firm. BV of an asset may either be given in the balance sheet or can be ascertained on the basis of figures contained in the balance sheet. For example, the BV of a debenture is the face value itself and is stated in the balance sheet. The BV of an equity share can be ascertained by dividing the net worth of the firm by the number of equity shares. 2. Market Value (MV). MV of an asset is defined as the price for which the asset can be sold. MV of a financial asset refers to the price prevailing at the stock exchange. In case a security is not listed, then its MV may not be available. 3. Going Concern Value (GV). GV refers to the value of the business as an operating, performing and running business unit. This is the value which a prospective buyer of a business may be ready to pay. GV is not necessarily the MV or BV of the entire asset taken together. GV may be less than or more than the MV/BV of the total business. Rather, GV depends upon the ability to generate sales and profit in future. If the GV is higher than the MV, then the difference between the two represents the synergies of the combined assets. 4. Liquidation Value (LV). LV refers to the net difference between the realizable value of all assets and the sum total of the external liabilities. This net difference belongs to the owners/shareholders and is known a LV. The LV is a factor of realizable value of an asset and therefore, is uncertain. The LV may be zero also and in such a case, the owners/shareholders do not get anything if the firm is dissolved. 5. Capitalized Value (CV). CV of a financial asset is defined as the sum of present value of cash flows

from an asset discounted at the required rate of return. In order to find out the CV, the future expected benefits are discounted for time value of money.