INVESTMENT & PORTFOLIO MANAGEMENT

Course Instructor : Syeda Mahlaqa Hina

The Course

INVESTMENT ANALYSIS PORTFOLIO MANAGEMENT

WEEK 1 Understanding Investments

Learning Objectives
Define investment and discuss what it means to study investments. Explain why risk and return are the two critical components of all investing decisions. Outline the two-step investment decision process.

Investments Defined
Investment is a process in which an asset or item is purchased with the hope that it will generate income in the future. Investment is the purchase of goods that are not consumed today but are used in the future to create wealth. Money committed or property acquired for future income.

Contd
Investments is the study of the process of committing funds to one or more assets
Emphasis on holding financial assets and marketable securities Concepts also apply to real assets

Investment Objectives
Primary Objectives
Safety of principal Income Growth of capital

Secondary Objectives
Liquidity Tax minimization

Cont`d
As we have seen from each of the five objectives discussed above, the advantages of one often comes at the expense of the benefits of another. If an investor desires growth, for instance, he or she must often sacrifice some income and safety. Therefore, most portfolios will be guided by one preeminent objective, with all other potential objectives occupying less significant weight in the overall scheme.

Why Study Investments?

Most individuals make investment decisions sometime

Individuals need sound framework for managing and increasing wealth Security analyst, portfolio manager, investment advisor, financial planner, Chartered Financial Analyst

Essential part of a career in the field

Investment Decisions
Underlying investment decisions: the tradeoff between expected return and risk Return: expected return is not usually the same as realized return Risk: the possibility that the realized return will be different than the expected return

The Tradeoff Between ER and Risk

Investors manage risk at a cost lower expected returns (ER) Any level of expected return and risk can be attained

Stocks ER Bonds

Risk-free Rate Risk

The Investment Decision Process

Two-step process:

Security analysis

Necessary to understand security characteristics and applied to these securities to estimate their price or value or Examine Securities Selected securities viewed as a single unit How and when should it be revised? How should portfolio performance be measured?

Portfolio management

Contd
Portfolio Management is the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against. performance.

Contd
Portfolio management is all about strengths, weaknesses, opportunities and threats in the choice of debt vs. equity, domestic vs. international, growth vs. safety, and many other tradeoffs encountered in the attempt to maximize return at a given appetite for risk.

Good Luck !!