1. PowerPoint Presentation for Practical Investment Management by Robert A. Strong prepared by Yee-Tien Fu National Cheng-Chi University

2. South-Western College Publishing ©1998 2 CHAPTER ONE THE CONCEPT OF INVESTING Practical Investment Management Robert A. Strong

3. South-Western College Publishing ©1998 3 Outline  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings  Three Reasons for Investing  Income  Appreciation  Excitement  The Academic Study of Investments  Theoretical Research  Empirical Research  Professors v.s. Practitioners

4. South-Western College Publishing ©1998 4 Investing Defined ? ? ? ? ?To consume, to save, or to invest a dollar that is earned ? Both saving and investing amount to consumption shifting through time. However, investing is risky, saving is not.

5. South-Western College Publishing ©1998 5 Investment Alternatives Assets financial assetsreal assets e.g. bond, stocke.g. land Assets are things that people own. Financial assets have a corresponding liability, while real assets do not.

6. South-Western College Publishing ©1998 6 Investment Alternatives A security is a legal document that shows an ownership interest. Securitization is the process of converting an asset or collection of assets into a more marketable form. Securities are historically associated with financial assets, but are also applicable to real assets.

7. South-Western College Publishing ©1998 7 Investment Alternatives Securities Equity Securities e.g. common stock Derivative Assets e.g. futures, options These are the three broad categories of securities. Fixed Income Securities e.g. bonds, preferred stock

8. South-Western College Publishing ©1998 8 Three Reasons for Investing Why invest ??? People invest to …  supplement their income  earn capital gains Appreciation is an increase in the value of an investment.  experience the excitement of the investment process

9. South-Western College Publishing ©1998 9 The Academic Study of Investments Theoretical research builds mathematical models and proposes pricing relationships rather than studies actual market data. E.g. arbitrage relationships, impact of stock splits and cash dividends on investors Theoretical models are tested by conducting empirical research.

10. South-Western College Publishing ©1998 10 The Academic Study of Investments Empirical research uses actual market data rather than mathematical models. An anomaly is an observed result that defies explanation within the known theoretical framework.

11. South-Western College Publishing ©1998 11 The Academic Study of Investments v.s. ProfessorsPractitioners 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.

12. South-Western College Publishing ©1998 12 Review  Investing Defined  Investment Alternatives  Assets  Securities  Security Groupings  Three Reasons for Investing  Income  Appreciation  Excitement  The Academic Study of Investments  Theoretical Research  Empirical Research  Professors v.s. Practitioners