1. F Chapter 17 FUNDAMENTAL ANALYSIS vs TECHNICAL ANALYSIS 7/30/2018
Dr.P.S DoMS, SAPM, IV unit

2. Fundamental Analysis versus Technical Analysis
the practice of evaluating the information contained in financial statements, industry reports, and economic factors to determine the intrinsic value of a firm
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

3. Fundamental Analysis versus Technical Analysis
Intrinsic value
the “true” or economic, value of a firm
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

4. Fundamental Analysis versus Technical Analysis
Fundamentalists
analysts who utilize fundamental analysis in an attempt to forecast future stock price movements
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

5. Fundamental Analysis versus Technical Analysis
examination of supply and demand for securities to determine trends in price movements of stocks or financial instruments
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

6. Fundamental Analysis versus Technical Analysis
Technicians
the term given to analysts who examine stocks and financial markets using technical analysis
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

7. Economic Analysis Forecasting business cycles
to determine when to expect changes in the business cycle, or the direction in which aggregate economic activity is moving
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

8. Economic Analysis Business cycle
the movement in aggregate economic activity as measured by the gross domestic product (GDP)
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Dr.P.S DoMS, SAPM, IV unit

9. Economic Analysis Expansion increasing economic activity 7/30/2018
Dr.P.S DoMS, SAPM, IV unit

10. Economic Analysis Contraction decreasing economic activity 7/30/2018
Dr.P.S DoMS, SAPM, IV unit

11. Economic Analysis Gross Domestic Product (GDP)
a measure of all of the goods and services produced in the economy during a specified time period
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

12. Economic Analysis Recession
two consecutive quarters of economic contraction, or decline, in the GDP
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

13. Recessions and Stock Price Movements 1975 - 2005
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Dr.P.S DoMS, SAPM, IV unit

14. Economic Analysis Economic indicators Leading economic indicators
economic measures that tend to move prior to, or precede, movements in the business cycle
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

15. Economic indicators Lagging economic indicators
economic measures that tend to move after, or follow, movements in the general economy (business cycles)
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

16. Economic indicators Coincident indicators
economic measures that tend to mirror, or move at the same time as, business cycles
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

17. Business Cycle Indicators
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

18. Business Cycles - Monetary Policy and Fiscal Policy
the means by which the Federal Reserve influences economic conditions by managing the nation’s money supply
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

19. Business Cycles - Monetary Policy and Fiscal Policy
Government spending, which is primarily supported by the government’s ability to tax individuals and businesses
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

20. Business Cycles - Monetary Policy and Fiscal Policy
Deficit spending
situation that occurs when the government spends more than it collects in taxes
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

21. Industry Analysis Cyclical industries
industries that tend to be directly related to business cycles such that they perform best during expansions and worst during contractions
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

22. Industry Analysis Defensive, or countercyclical, industries
industries that tend to perform best when the economy is in a contraction or recession, but are generally the poorest performers in expanding economies
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

23. Industry Analysis Industry life cycle
the various phases of an industry with respect to its growth in sales and its competitive conditions
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Dr.P.S DoMS, SAPM, IV unit

24. Industry Life Cycle Industry Sales Mature Expansion (Growth)
Life-Cycle Stages
Introductory
Expansion (Growth)
Mature
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

25. Evaluating the Firm’s Financial Position
Financial statement analysis
comparison to other similar firms
forecast direction for future
predict earnings and dividends
risk evaluation
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

26. Stock Valuation Techniques
Dividend discount models (DDM)
a model that utilizes the discounted cash flow principle to value common stock
value is represented by the present value of the dividends expected to be received from investing in the stock
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

27. Stock Valuation Techniques
Dividend discount models (DDM)
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Dr.P.S DoMS, SAPM, IV unit

28. Stock Valuation Techniques
Valuation using P/E ratios
ratio computed by dividing the current market price per share, P0, by the earnings per share, EPS0
used to estimate the value of a stock; P0 ≈ (P/E) x EPS0
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

29. Stock Valuation Techniques
Evaluation using the economic value added (EVA) approach
method used to evaluate if the earnings generated by a firm are sufficient to compensate the suppliers of funds - both the bondholders and the stockholders
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

30. Stock Valuation Techniques
Evaluation using the economic value added (EVA) approach
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

31. Economic Value Added (EVA)
Changing the capital structure can change value because the WACC is affected
Increasing the efficiency of the firm through reductions in operating expenses or increases in revenue will increase operating income and thus increase value
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

32. Technical Analysis Bar chart Charting - using charts and graphs
a graph that indicates the high, low, and closing price movements for a stock during a specified period
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Dr.P.S DoMS, SAPM, IV unit

33. Technical Analysis Charting - using charts and graphs Trend line
a line that indicates the direction of the stock price movements
it is drawn so that it touches either the high prices or the low prices for some of the trading days
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

34. Technical Analysis Charting - using charts and graphs
Trend line penetration
the point at which the trading line crosses the trend line
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35. Trend Line Penetration
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36. Technical Analysis Measures and indicators used by technical analysts
The Dow Theory
a technique used to predict reversals in market patterns by examining the movements of the Dow Jones Industrial Average and the Dow Jones Transportation Average
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

37. Measures and indicators used by technical analysts
Moving averages
stock price averages for a fixed time frame, say 100 days, computed for a particular period of time
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

38. Measures and indicators used by technical analysts
Technical indicators
measures used by technical analysts to forecast future movements in stock prices
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

39. Measures and indicators used by technical analysts
Market breadth indicators
measure the trading volume and the range of trading that takes place in the market
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

40. Measures and indicators used by technical analysts
Advance/decline line
a graph that depicts the results computing the difference between the number of advancing stocks and the number of declining stocks over some time period
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

41. Measures and indicators used by technical analysts
Sentiment indicators
technical indicators that are used to monitor the “mood” or psychology of the market
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

42. Stock Selection Criteria
Growth stocks
stocks of firms that have many positive net present value opportunities
in general, these firms exhibit sales and earnings growth that significantly exceed the industry averages
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

43. Stock Selection Criteria
Value stocks
stocks of firms that are mispriced, especially those that are undervalued
$1.99
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44. Investment Professionals’ Advice
Be disciplined with your investment approach
Know the company in which you invest
Choose firms that are in strong financial positions
Stay with the investment until it no longer satisfies your investment goals
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

45. Investment Selection in Efficient Markets
Abnormal returns
returns that exceed the returns earned by investments with similar risks
Weak form efficiency
current market prices reflect all historical information, including any information that might be provided by examining past price movements and trading volume data
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

46. Investment Selection in Efficient Markets
Semistrong form efficiency
current market prices reflect all publicly available information, including information contained in historical data and information contained in current financial statements
Strong form efficiency
current market prices reflect all information, whether it is public or private
7/30/2018
Dr.P.S DoMS, SAPM, IV unit

47. Investment Selection in Efficient Markets
Even if we accept that abnormal returns cannot be earned on a consistent basis, we still need to evaluate the investments we select to ensure the risk position is appropriate and that our investment goals are being met
7/30/2018
Dr.P.S DoMS, SAPM, IV unit