o Discounted cash fow techniques Attempts to estimate the value of In-class Notes: Investment strategies Passive: o Markets are ecient o !e aim to "e average market #S$P %&&' (&) of mutual fun* managers cannot "eat their "enchmarks+ Aim to keep costs lo, $ minimi-e the time spent on stock selection .eep ta/es *o,n "y not tra*ing 0y hol*ing your securities you may gain 1-1) of e/tra return+ Minimi-e portfolio *rag o No mispricing o All 2C2344M34C2 are useless+ o Passive strategy is a 5*o-nothing6 strategy Active: o 7echnical o 2un*amental 4C2 P38 89A :elative 9alue o Active people think that they have an e*ge ;ou nee* "oth strategies "ecause they "alance each other out Allocation is the most crucial thing #<&)' vs+ ,hich securities to invest in o It is more important to analy-e if you are going to get =&3>& "et,een stocks an* "on*s? or %&3%& for e/ample+ Secon* most crucial thing is to actually choose ,hich securities to pick+ 7hree ,ays of passive strategies: 0uy: @ol* in*ivi*ual stocks o Still some,hat active "ecause you *o the research an* select the stocks o .eep your transaction costs *o,n o 2igure out if you ,ant to reinvest *ivi*en*s o :e"alance ,hich is risk control+ o No fun*amental analysis o Ao, turnover Bse in*e/ #mutual' fun*s o A*vantages: 8/change tra*e* fun*s o A*vantages: Ao,er ta/es? cheaper Active strategies: Assumes you have superior kno,le*ge or skill 0eneCts are greater than the costs o @ave to "e a cost "eneCt analysis ;ou can select in*ivi*ual stocks using: o 44M? 2C2 #8Duity an* *e"t'? 89A? P30 Active strategies: o Ero,th investment: 2ocuses on 8PS gro,th 7esla o 9alue investment: Cheap stocks Ao, P30 an* P38? high *ivi*en* Aong-term contrarian approach Security Analyst: Fo" is to forecast earnings per share? stock returns #not really goo* at it' Eoo* at un*erstan*ing in*ustries 7,o types of analysts: o Sell-si*e: 7he typical !all Street analyst !ork for a "rokerage Crm #Morgan Stanley' 0roa*ly markete*? pu"lic research o 0uy-si*e 7he portfolio manager? he*ge funs managers? en*o,ments Private research Sell-si*e analyst recommen*ations: Sell G-1&) @ol* 1&-1%) 0uy >%) Sector rotation analysis #1& sectors': Chicken ,ay of picking stocks Consumer 4iscretion sector Consumer Surplus @ealth Care 7echnology Sector o 0uy via sectors etfs? you put a percentage of your money in *iHerent sectors+