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31 Cards in this Set
- Front
- Back
Active Investors
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Buy or sell investments after an examination of whether they are mispriced, in order to earn exceptional rates of return. Compare with passive investors and defensive investors. 4
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Alpha
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An abnormal return over the expected return for the investment risk taken. 5
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Beta
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A measure of risk as prescribed by the capital asset pricing model (CAPM). 5
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Business model
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The concept or strategy under which a firm operates to add value from selling products or services to customers. 14
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Claim
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An enforceable contract for returns from an investment. 9
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Competitive advantage
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The ability to earn abnormal returns by resisting the "forces of competition." 17
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Defensive Investors
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Buy or sell investments after an examination of whether they are mispriced, in order to avoid trading at the wrong price. 4
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Enterprise value
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The value of the business (the firm), in contrast to the value of the various claims on the firm. 11
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Financial analyst
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A professional who evaluates aspects of investing; particular types are equity analysts, credit analysts, strategy analysts, risk analysts, and bank loan officers. 12
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Financial Statement Analysis
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A set of methods for extracting information from financial statements. 2
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Financing activities
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The transactions between a firm and its claimants that involve cash investments in the firm by claimants and cash returns to claimants by the firm. 12
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Forces of competition
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The challenges of others, in the pursuit of profit, to erode a firm's competitive advantage. This term tends to drive away abnormal returns. 17
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Fundamental analysis (or valuation analysis)
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A set of methods for determining the value of an investment. 3
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Fundamental investors
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These investors buy investments only after thoroughly examining information about firms and reaching conclusions about the underlying value that the information implies. 4
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Fundamental risk
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The chance of losing value because of the outcome of business activities. Compare with price risk. 5
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Index investing
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Involves buying and (passively) holding a market index of stocks. 5
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Intrinsic value
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What an investment is worth based on forecasted payoffs from the investment. Payoffs are forecasted with information so this term is sometimes said to be the value justified by the information. 4
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Intuitive investors
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Trade stocks based on their intuition, without submitting that intuition to analysis. 3
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Investing activities
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Firm's involvement with the acquisition and disposal of assets used in operations. 12
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Momentum investing
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Follows the rule: Stocks whose price has gone up will go up further. 7
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Operating activities
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Firm's involvement with using assets (acquired in investing activities) to produce and sell products in the markets. 12
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Passive investors
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Buy investments without an examination of whether they are mispriced. Compare with active investors. 3
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Payoff
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Value received from an investment. 10
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Price risk
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Chance of losing value from buying or selling investments at prices that differ from intrinsic value. 5
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Return
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Payoff of an investment less the amount paid for the investment. 10
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Security analysis
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Is set of methods for determining the value of an investment when securities like stocks and bonds are involved. 3
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Strategy analysis
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Involves articulating business ideas and discovering the value that might be generated by the ideas. 13
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Value-based management
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Involves making business plans by maximizing the likely value to be generated by the business, and monitoring and rewarding business performance with measures of value added. 13
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Value of the equity
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Is the value of the payoffs a firm is expected to yield for its shareholders (its owners). 10
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Value of the firm (or enterprise value)
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Is the value of the payoffs a firm is expected to yield for all its claimants. 11
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Value of the firm =
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= Value of Debt + Value of equity
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