South-Western / Thomson Learning © 2004 by Robert A. Strong University of Maine PowerPoint Presentation by Yee-Tien Fu National Cheng-Chi University Taipei, Taiwan Practical Investment Management

CHAPTER ONE Practical Investment Management Robert A. Strong THE CONCEPT OF INVESTING

Thomson Learning/ South-Western ©  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings  Three Reasons for Investing  Income  Appreciation  Excitement Outline

Thomson Learning/ South-Western ©  The Academic Study of Investments  Theoretical Research  Empirical Research  Professors vs. Practitioners Outline

Thomson Learning/ South-Western © To consume, to save, or to invest a dollar that is earned ? Both saving and investing amount to consumption shifting through time. Investing Defined However, saving involves little, if any, risk, while investing is a risky endeavor.

Thomson Learning/ South-Western © Assets Financial AssetsReal Assets e.g. bond, stocke.g. land Assets are things that people own. Investment Alternatives Financial assets have a corresponding liability, while real assets do not.

Thomson Learning/ South-Western © Securitization is the process of converting an asset or collection of assets into a more marketable form. A security is a legal document that shows an ownership interest. Although securities are historically associated with financial assets, they are also applicable to real assets. Investment Alternatives

Thomson Learning/ South-Western © There are three broad categories of securities. Securities Equity Securities e.g. common stock Derivative Assets e.g. futures, options Fixed Income Securities e.g. bonds, preferred stock Investment Alternatives

Thomson Learning/ South-Western © Why invest ??? Three Reasons for Investing People invest to …  supplement their income  earn capital gains  Appreciation refers to an increase in the value of an investment.  experience the excitement of the investment process

Thomson Learning/ South-Western © Theoretical research involves building mathematical models and proposing pricing relationships rather than studying actual market data. E.g. arbitrage relationships, impact of stock splits and cash dividends on investors Theoretical models are frequently tested by conducting empirical research. The Academic Study of Investments

Thomson Learning/ South-Western © Empirical research uses actual market data rather than mathematical models. An anomaly is an observed result that defies explanation within the known theoretical framework. The Academic Study of Investments

Thomson Learning/ South-Western © The investment community can learn much from both rigorous academic research and from the life experiences of people on the front lines of the marketplace. The Academic Study of Investments vs. ProfessorsPractitioners

Thomson Learning/ South-Western ©  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings  Three Reasons for Investing  Income  Appreciation  Excitement Review

Thomson Learning/ South-Western ©  The Academic Study of Investments  Theoretical Research  Empirical Research  Professors vs. Practitioners Review