Chapter 1 - Introduction To Investment

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Chapter 1: Introduction to investment

Prof. Doan Quang Huy
Objectives
- Help student understanding primary theory, knowledge of investment and the most important principles of investment. - List common investment channels - List common tools of investment analysis
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Importance of Investment
- You face investment decision in all time of your life. - Without investment, you usually have nothing.
Definition of Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time. Investment is related to saving or deferring consumption. Investment is involved in many areas of the economy, such as business management and finance whether for households, firms, or governments.
Definition of Investment (cont)

In economic theory or in macroeconomics, investment is the amount purchased per unit time of goods which are not consumed but are to be used for future production.
Investment (cont)
According to Investment Dictionary, In finance, the purchase of a financial product or other item of value with an expectation of favorable future returns. In general terms, investment means the use money in the hope of making more money. In business, the purchase by a producer of a physical good, such as durable equipment or inventory, in the hope of improving future business.
Principles of Investment?
1. Safety When we invest we have to choose investment wherein our principal would be safer. Like buying shares of stable company not a newly established but those that are said to be well known company.
2. Profit Be sure that when we invest we will earn an income to that investment. Profit is the basic reason why a business is going on and doing its business activities.
3. Improve your capital In investment we can say it is successful if this will expand. Expanding means opening branches in other places domestically and internationally. If your capital increases means investment is growing and appreciating. your
4. Liquidity In investment, liquidity means your investment is easily converted into cash. When we invest, we have to select an investment that is easy to convert into cash. Example: Invest in blue chip stocks Invest in gold. Invest in stable banks
What is opportunity cost? Opportunity cost is the cost of any activity measured in terms of the value of the best alternative that is not chosen. Opportunity cost is a key concept in economics, and has been described as expressing "the basic relationship between scarcity and choice".
5. Diversification In order to reduce risk we need to use diversification for our investment. Diversification means investment in different types of investments. Meaning, if you have $1,000,000.00, invest it in the following: 1. $300,000.00 to real estate 2. $200,000.00 to common stocks 3. $300,000.00 to Government Securities 4. $200,000.00 to Corporate Bonds
5. Diversification In diversification, there are two further points to be considered: The investor should always try to diversify by industry and not by company only. In other words, it would be poor diversification to buy only copper issues, since if the copper market were not doing well; the investor would be losing all his stocks. On the other hand, if the investor holds the shares of various industries, he will be much safer and stable in the long run.
Individual investor should not over-diversify. In other words, the average individual can only watch perhaps six or seven issues at the most. If he is holding twenty issues, he will probably neglect many of these because of insufficient time to follow all of them closely.
6. Invest in things you know Peter Lynch said it best when he said, "Never invest in an idea you can't illustrate with a crayon. When you invest in something, you must have information about it and knowledge about its field also. Knowledge will let you know which can bring benefit and which can not? Information will be a good suggest for your investment decision and reduce risk.
6. Invest in things you know Peter Lynch said it best when he said, "Never invest in an idea you can't illustrate with a crayon. When you invest in something, you must have information about it and knowledge about its field also. Knowledge will let you know which can bring benefit and which can not? Information will be a good suggest for your investment decision and reduce risk.
7. Avoid fads and leapfrog Past performance of a stock is a rotten predictor of future results. If everyone is talking about hot stocks, like the conglomerates back then, like internet stocks in 2000, or like nano-technology today, you're too late. Stock lesson. Gold lesson.
Gold lesson
Adam Smith (16 June 1723 17 July 1790) was a Scottish moral philosopher and a pioneer of political economy. Smith is the author of The Theory of Moral Sentiments, An Inquiry into the Nature and Causes of the Wealth of Nations. Adam Smith is widely cited as the father of modern economics.
Invisible Hand
The term economists use to describe the selfregulating nature of the marketplace. The invisible hand was created by the conjunction of the forces of self-interest, competition, supply and demand.
Market Failure
Market
Failure
Externality: The impact of one persons actions on the well-being of a bystander.
Market Power: The ability of a single economic actor (or small group of actors) to have a substantial influence on market prices.
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Normal gold price
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Real gold price in Viet Nam
Reasons
World Price
Central Bank
Speculation
Domestic price relate very strong with world price.
Control import and export Gold for remain market.
Speculators cooperated, buy gold with large quantity for making fake demands.
What happen ?
Government Intervention
Information
Notice on communication channel abou Speculations.
Policy
Provide to 6 Commercial Bank quota o gold imports.
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Real gold price in Viet Nam
7. Avoid fads and leapfrog Past performance of a stock is a rotten predictor of future results. If everyone is talking about hot stocks, like the conglomerates back then, like internet stocks in 2000, or like nano-technology today, you're too late. Stock lesson. Gold lesson.
8. Keep your believes with long-term plan Market always changes everyday. So, if you follow this, you will be unconfirmed and easy got trouble. Gold investment for example. Real assets for example. Stock investment for example.
9. Pay attention to what's going on with your investments No stock is safe forever. Even the bluest blue chip can turn into a cow chip. The old maxim of "buy and hold forever" doesn't work very well in an economy as vibrant as exists in the world today.
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LOGO

Chapter 1: Introduction to investment

Definition of Investment (cont)

Externality: The impact of one persons actions on the well-being of a bystander.

Normal gold price

Real gold price in Viet Nam

Domestic price relate very strong with world price.

Control import and export Gold for remain market.

Notice on communication channel abou Speculations.

Provide to 6 Commercial Bank quota o gold imports.

Real gold price in Viet Nam

ThS. on Quang Huy

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