Reading...
Play button
Play button
Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
83 Cards in this Set
- Front
- Back
|
fundamentalist
|
think you can beat the market and mkt will correct itself. Short term ineff. And longterm eff.
|
|
|
2 possible goals of investment analysis
|
beat the market, analyze risk/return tradeoff
|
|
|
if you believe that the market is efficient you should pursue the goal
|
risk/return tradeoff
|
|
|
most professional investment analysts pursue the goal of
|
beating the mkt
|
|
|
in order to beat the market, an investor must find
|
mispriced securities, after finding value
|
|
|
if an investor beats the market then the RAR is
|
positive
|
|
|
RAR=
|
AR-ER
|
|
|
CAPM: ER
|
Rf+B(E(Rm)-Rf)
|
|
|
Fama French
|
Rf+Bm(Rm-Rf)+Bs(smb)+BH(hml)
|
|
|
Beating the market is also stated as achieving
|
positive alpha
|
|
|
one might assume that the market is efficient because
|
investors are rational, irationality is random, professional money managers make mkt eff.
|
|
|
The EMH says that professsional analysts are efficient and professional analysts
|
hate the EMH
|
|
|
Three forms of EMH
|
Semistrong(can't use public info to beat mkt), weak-use TA to beat the MKT, strong(can't use any info to the beat the mkt)
|
|
|
most professional IA's consider themselves to be
|
fundamentalists
|
|
|
size premium
|
small firms better than large when adjusting for beta risk.
|
|
|
value premium
|
high btm,
|
|
|
3 steps macro first
|
study economy, industry study, company analysis.
|
|
|
Investment Analysis
|
process of studying assets to determine if it should be selected
|
|
|
2 goals of investment analysis
|
1. determine characteristics of asset; liquidity, tc, eom, initial investment size. 2. Determine risk/return tradeoff.
|
|
|
individual investors conduct indexing by
|
want less: S&P 500, more: Nasdaq:
|
|
|
beating the market means
|
portfolio must earn a greater return than justified by risk. Manager must find mispriced securities. Buy under or sell over priced securities and wait for mkt to correct itself.
|
|
|
Mkt Efficency
|
can't beat the market, prices unbiased estimator of value, there will be no mispriced securities
|
|
|
Market adjusted returns
|
how it's applied to mutal funds: MAR=Arit-Rmt(return of portfolio-return of mkt). Positive beats mkt either ignores risk or assumes mkt risk. Invest if fund has outperformed av. Return.
|
|
|
argument against mkt eff
|
nasdaq 100 on march 200 economy in recession- didn't change much
|
|
|
fundamentalist looking for value
|
find value and compare it to price. Value>mkt=buy. Value
|
|
|
tactical asset allocation
|
bond rates high (prices low) move more into bonds
|
|
|
Peter Lynch
|
first and highly successful manager of fidelity magellen fund
|
|
|
Three step approach: Top Down
|
explain tradtional view 1. Study economy- monetary, fiscal, unemployment, inflation, interest. Impact of the changes of the firm. 2. determine major events occurring w/I the industry. Govt regs, new tech, new entrants. 3. analytsts of company itself- ratio analysis
|
|
|
nine foci of company analysis
|
cost considerations, merger events, litigation/regulation, competition
|
|
|
goal of 3 step approach
|
predict quantity and quality of future earnings
|
|
|
industry analysis
|
corps are influenced by industries in which they operate; could be rapid growth/changes or decline
|
|
|
challenges and factors of IA
|
some firms produce a wide range of disparate prodcuts, term sector analysis is broader. Any development that will effect the industry.Pay attention to regulation and and legislatiion.
|
|
|
theme investing
|
indentifying a theme that effects product demand. Pick theme and choose industries that will benefit.
|
|
|
company drawbacks of financial statement analysis
|
companies in similar industries can have very different staements and be manipulated
|
|
|
common size
|
balance sheet=value/total assets, income statement=item/sales
|
|
|
measure of liquidity
|
Current ratio (CA/CL), Debt ratio=total debt/total assets, RoE=net income/book equity- doesn't display long term profit.
|
|
|
Themes of company analysis
|
bottom line for analysts- future EPS, DPS, use historical data to predict. 1 management, 2. Strategic Plan, 3. demand/sales growth.
|
|
|
neutral networks used by
|
quants
|
|
|
to be successful, investors must avoid
|
the value trap
|
|
|
first step of his model, Navellier trys to find
|
positive alpha stocks
|
|
|
Industry analysts
|
study a particular industry for a financial firm making buy and sell recommendations to the general public and or portfolio managers for the firm
|
|
|
the input variables for the dividen discount model are:
|
expected dividend, discount rate, present value of future dividends(current value of stock)
|
|
|
operationalists
|
people who use a modified version of fundamental analysis
|
|
|
3 step fundamental process and steps
|
after selecting a stock: analyze the appropriate economies in which the firm operates, determine the effect of economic conditions, analyze any industry changes, learn everything about company. Economic/Industry and company and their impact on earnings
|
|
|
screening
|
set of roles to identify a set of stocks w/ potential to outperform. Screen creation- to see if it can beat mkt if it passes
|
|
|
screen alone
|
use model to make choices after screen is made- but quantitatively
|
|
|
screen and dig
|
use screen as the first step then additional analysis
|
|
|
growth investors and screening
|
invest in stocks w. rapid or expected growth in sales/earnings or both. Seeking growth at resonable price. Screen and dig, focus on CA, mgmt to see if they'll allow it to continue. GARP
|
|
|
value investors and screening
|
look for stocks undervalued by mkt, low pe or high btm, they avoicd the value trap,
|
|
|
AAII screens
|
american association for individual investors; database of more than 100 different screens. Provides a descript of past returns, and those who passed, advocate screen and dig
|
|
|
earliest model
|
shadow stock. Search for stocks that avoided the scrutiny of wall street, mv not too large but not too small
|
|
|
constant dividend growth model
|
Po=D1/k-G
|
|
|
relative valuation models
|
compare a pe ratio to some standard to see if over/under. Buy if pe is lower pe of current company vs pe industry. Pe mkt and pE average of historic for current company
|
|
|
Bottoms up
|
used instead of Macro first approach, identify sock analyze company, industry, economy.
|
|
|
PEG
|
Pe ratio/growth
|
|
|
hit and miss analyst
|
probably won't do in depth econ analysis, but combo of all 3
|
|
|
quant
|
develop mathematical models to select stocks which may be viewed as a screen. Build sophisticated computer models to determine securitites
|
|
|
Navelliers quant process
|
1980- 3 stage using huge database of return financial data
|
|
|
quants and long short funds and Barra model
|
uses 13 firm factors, 50 industry indexes to predict returns. Factors: stock price, volatility, momentum, size, trading act. HTF are quants
|
|
|
Neuro network
|
as used by a quant data, past returns, computer generates model and decides stock
|
|
|
hedge funds
|
long short : all funds in same industry
|
|
|
valuation model
|
model for fundamentalists, either relative val or discount
|
|
|
rationale of DDM
|
discount future pmts, using appropriate raes to find PV of div, value of stock
|
|
|
Efficiency frontier
|
has alpha and risk loci of all possible portfolios that have highest ER and lowest risk
|
|
|
technicians
|
look at price changes not value. Want to get in longterm bull mkt, out of it bear
|
|
|
accumulation
|
smart money buys from dumb money
|
|
|
distribution
|
smart money sells to dumb money
|
|
|
Resistence
|
given from bears to price increases, bulls give support
|
|
|
odd lot
|
OL volume/total volume
|
|
|
confidence yield
|
yield on AAA/ yield on BB
|
|
|
David Dreman
|
says buy out of favor stocks bc they will come back around. He believes IA can't determine fundamental value. Favorite Tool: PE ratio (low)=buy, sell when above S&P 500
|
|
|
implication of Eff market hypothesis
|
for value of investment analysis- for individual and cmpet of IaA
|
|
|
To beat mkt
|
RAR>0, RAR=AR-ER. Calc ER using Capm
|
|
|
small firms
|
earned higher returns than larger given their betas
|
|
|
value firms
|
low pe/high btm, earned higher returns than beta
|
|
|
Growth firms
|
earned lower returns than they should. Value beats growth
|
|
|
relative infor argument
|
states mkt is efficient if p=v based on relevent info.
|
|
|
Data snooping
|
large # of mkt investigators trying to find exceptions to EMH w/ enough researchers, one will find exception that occurs by chance
|
|
|
trading costs
|
mkt ineff only exsists if a profit can be made on the ineff, given TC
|
|
|
Bubble and crashes
|
bubble occurs when stock prices rise well . Value mkt crash sometimes occurs when bubbles burst. Prosperous economic times, occur w/I in a sector, whole mkt, or just for a particular stock
|
|
|
Apple and Centenial bubble (price behavior)
|
dramatic rise in 2012 and fall at end. Price is up now but still below peak. Investors got excited, apple became overvalued- price rose to buying pressure
|
|
|
tulip mania
|
became 4th leading export for Netherlands 1637 height of bubble
|
|
|
south sea island co
|
developed to profit from trade
|
