Security Analysis And Portfolio Management

Syllabus
Risk and Return Modern Portfolio Theory Sharpes single index model Capital Asset Pricing Model Efficient Market Hypothesis Portfolio Performance measurement

Session Plan

Sr. No 1 2 3 4 5 6 7 8

Date 5/7/2011 12/7/2011 19/7/2011 26/7/2011 2/8/2011 9/8/2011 16/8/2011 23/8/2011

Topic Risk and Return Fundamental Analysis Equity Valuation Models Technical Analysis Portfolio Analysis Portfolio selection Capital Market Theory Efficient Market Hypothesis/Portfolio Performance measurement

Risk and Return

Investment alternatives
Non marketable financial assets Equity shares Bonds Money market instruments Mutual funds Life Insurance Real Estate Precious Objects Financial derivatives

Investment Attributes Rate of return Risk Marketability Tax Shelter Convenience

Rate of Return
Annual Income + (Ending price beginning price)

Rate of return

=
Annual Income

Beginning Price

Ending beginning price + Beginning price Capital gains/ losses

Beginning price Current Yield

Risk
Systematic risk Market risk Interest rate risk Purchasing power risk Unsystematic risk Business Risk Financial Risk

Measuring Risk

Variance Standard Deviation Beta

Marketability
Can it be transacted quickly? Cost of transaction? What is the depth of the market? What is the breadth of the market? What is the resilience?

Tax Shelter

Initial tax benefit? Continuing tax benefit? Terminal tax benefit?

Convenience

Can the investment be made readily? Can the investment be made looked after easily?

Investment Vs Speculation
Relatively longer planning horizon. Not willing to assume more than moderate risk. Seeks moderate rate of return Relies more on fundamental factors Typically uses his own funds Very short planning horizon. Willing to assume high risk. Looks for high rate of returns Relies more on technical charts , market psychology Normally resorts to substantial borrowing.

Portfolio Management process

Specification of investment objectives and constraints. Choice of asset mix. Formulation of portfolio strategy. Selection of securities. Portfolio execution. Portfolio revision. Performance evaluation.

Common errors in investment management

Inadequate comprehension of risk and return Vaguely formulated investment policy Simultaneous switching Misplaced love for cheap stocks Over and under diversification Buying shares of familiar companies Wrong attitude towards losses and profits Tendency to speculate

Every time the trade is made, somebody is wrong

To err is human , to hedge divine

No stock is inherently good or bad, it is the price that makes it so.

No price is too high for a bull and too low for a bear

Buy on a rumour and sell on a news

All generalizations are false , including this one