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32 Cards in this Set
- Front
- Back
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IPS - Investment Policy Statement |
Establishes RRTTLLU - Risk tolerance, Return requirements, Taxes, Timeline, Liquidity, Legal regulatory, & Unique circumstances |
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Margin position |
Equity position of the investor |
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Margin Call / Maintenance margin |
Loan / (1- Maintenance margin) Maintenance marginbis the % equity required in the account - as prices drop, the investor mayvneed to add equity to maintain minimum required % ownership |
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Required equity |
Stock price x maintenance margin Compared to actual equity and obligated to pay any shortfall for each share |
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Value Line |
Rates stocks - 1-5 ... 1 is best (buy 1s, best value), 5 is worst (sell these stocks) |
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Ex-dividend rate |
Last date when you must have your stock in your name to earn the dividend. 3 business days prior to date of record (to ensure proper updating) |
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Sec Act 1933 |
Regulates issuance of new securities (Primary Market), |
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Sec Act 34 |
Regulates secondary market for trading investments - Created / managed by the SEC |
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Investment Company Act 1940 |
Authorized SEC to regulate companies too Identified 3 types of investment companies - Open, Closed & Unit Investment Trusts |
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Investment Advisors act 1940 |
Requires advisors to register with SEC or State |
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Securities Investors Protection Act |
SIPC was created to cover investores from losses due to Firm failures Does NOT cover "any" losses, just firm failure losses |
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Insider Trading & Securities Act 1988 |
Restricts trading for anybody with inside knowledge cannot act or advise on that info |
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Money Market Securities |
T-Bills (mature 30, 91, 182 days, 4, 13, 26 & 52 weeks) Commercial Paper - btwn corps in large denoms ($100k), must mature in 270 days or less Bankers acceptance - import / export, 9mo or less, can be held to maturity Eurodollars - deposits in foreign banks denominated in US $ $ |
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BF - Overconfidence |
Investors overestimate their ability to successfullybpredict future market events through both data gathering and analysis processes Can lead to increased risk taking and/or overtrading |
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BF - hindsight |
A type of overconfidence related to believing they predicted an event they didnt actually predict With hindsight an investor might ask whyvan advisor missed something that the client "knew" would happen |
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BF - Cognitive Dissonance |
Overconfidence from memories of oast results being better than they actually were Forgetting about past losses or Exxagerating past gains |
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BF - Anchoring |
Inability tobobjectively review new info, "anchored" in their original info Leads to returns that dont match expectations or Buying securities that have fallen because "they must" get back to a recent high |
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BF - Belief perseverance |
Suggests people are unlikely to change views based on new info - Avoid looking for new/ contradictory info, and when they hear or see it, they treat it with excessive skepticism Leads to avoiding changing beliefs based on new info, and Sticking to a flawed approach |
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BF - Regret Approach aka Disposition Effect |
Investos take action too early to minimize regret - Sell winners too soon, or Holding losers too long |
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BF - Herd Mentality |
Buying because others are buying (typically too high) or selling because others are selling (typically too low) |
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BF - Naive Diversification |
Choosingbevery option to not miss anything, and keeping it weighted evenly, without individual analysis |
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BF - Familiarity |
Investingbin companies we are familiar with (eg an employer) |
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BF - Loss Aversion |
Preference to avoid losses rather than experiencing gains Not selling abloser in hopes it will come back Investors feel more oain from losses than the plrasure they get from experiencing gains |
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Portfolio Theory - Standard Deviation |
Measures Total Risk in an Undiversified portfolio Measured by variations of returns from the Mean 68% within 1 deviation 95% within 2, and 99% within 3 |
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Coefficient of Variation |
Determines riskiness of an asset Likelihood of returns being close to the mean Calc'd as Std Dev / Avg Ret |
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Coefficient of determination Aka Rsquared |
Measures oortion of return due to market vs individual investment - Calc'd by squaring the Correlation Coefficient If Rsquared is greater than .7, the portfolio is considered adequately diversified and Beta can be used to measure risk (rather than standard deviation) |
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Covariance |
Measure of relative risk between two securities - identifying how closely they move related to each other |
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Correlation / correlation coefficient |
Represented by greek letter Rho or little r, calc'd as Covariance between two assets / Divided by standard deviation of the two assets multiplied together Ranges between -1 & 1 Positive 1 means no diversifications, and anything less starts to diversify |
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Syetematoc risks |
PRIME Purchasing power risk (dollar wont buy as much) Reinvestment risk (cant get same return on renewal) Interest rate risk (changes in interest rates impact prices of stocks and bonds - inversely) Market risk (ups and downs of daily market prices) Exchange rate risk (dollar calue in ontl equities)... |
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Treynor Index |
Measures relative performance of assets Actual perf minus risk free Divided by beta Choose the bigger result |
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Information Ratio |
Relative risks of asset compared to a benchmark (eg s&p500) (active return) Divided by the standard deviation of that asset Compare different assets and choose highest |
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Sharpe Index |
Measures portfolio performance using risk adjusted measure to standardize returns forbcomparison Realized return less riskbfree return Divided by Standard deviationbof the portfolio Bigger is better Does NOT measure manager performance vs Market |
