Practical Investment Management

by
Robert A. Strong
University of Maine

PowerPoint Presentation
by
Yee-Tien Fu
National Cheng-Chi University
Taipei, Taiwan

South-Western / Thomson Learning © 2004

 CHAPTER ONE
THE CONCEPT OF INVESTING

Practical Investment Management

Robert A. Strong
 Outline

 Investing Defined
 Investment Alternatives
 Assets
 Securities
 Security Groupings
 Three Reasons for Investing
 Income
 Appreciation
 Excitement

Thomson Learning/ South-Western © 2004 1-3

 Outline

 The Academic Study of Investments

 Theoretical Research
 Empirical Research
 Professors vs. Practitioners

Thomson Learning/ South-Western © 2004 1-4

 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, saving involves little, if any,
risk, while investing is a risky
endeavor.

Thomson Learning/ South-Western © 2004 1-5

 Investment Alternatives

Assets are things that people own.

Financial assets have a
corresponding liability, while real
assets do not.

Assets

Financial Assets Real Assets

e.g. bond, stock e.g. land

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 Investment Alternatives

A security is a legal document that

shows an ownership interest.

Although securities are historically

associated with financial assets, they are
also applicable to real assets.

Securitization is the process of converting an

asset or collection of assets into a more
marketable form.

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 Investment Alternatives

There are three broad categories of securities.

Securities

Equity Fixed Income Derivative

Securities Securities Assets
e.g. common e.g. bonds, e.g. futures,
stock preferred stock options

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 Three Reasons for Investing

Why invest ???

People invest to …
 supplement their income
 earn capital gains
 Appreciation refers to an increase in the value of
an investment.
 experience the excitement of the investment
process

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 The Academic Study of Investments

Theoretical research involves

building mathematical models and
proposing pricing relationships
rather than studying actual market
data.
E.g. arbitrage relationships, impact of stock
splits and cash dividends on investors

Theoretical models are frequently tested by

conducting empirical research.

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 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.

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 The Academic Study of Investments

vs.

Professors Practitioners

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.

Thomson Learning/ South-Western © 2004 1 - 12

 Review

 Investing Defined
 Investment Alternatives
 Assets
 Securities
 Security Groupings
 Three Reasons for Investing
 Income
 Appreciation
 Excitement

Thomson Learning/ South-Western © 2004 1 - 13

 Review

 The Academic Study of Investments

 Theoretical Research
 Empirical Research
 Professors vs. Practitioners

Thomson Learning/ South-Western © 2004 1 - 14