Security Analysis & Portfolio

Management
Asst Prof. Raj Kumar Padhy
Introduction to Investment and
securities
 Objective
• To understand the meaning of investment.
• To describe the nature of securities market.
• To explain the process of investment.
• To get an idea of investment planning and
various types of securities.
 Investment
• It is the application of funds on assets with the
aim of earning income or capital appreciation.
• Investment has two aspects. Namely- Time
and Risk.
• Present consumption to get a return in the
future.
• The sacrifice made in the process is certain
but the return is always uncertain.
 Risk factor
• Investment sentiment by an investor for an
anticipated rate of return. i.e Risk . Broadly
there are two types of risk .Such as -
systematic & unsystematic risk.
• Systematic risk is a ‘market risk’
(macroeconomic factors)where as
unsystematic risk is with in the
organization(raw material supply , labor
problem) .
 Types of risk
• Liquidity risk. ...
• Concentration risk. ...
• Credit risk. ...
• Reinvestment risk. ...
• Inflation risk. ...
• Horizon risk. ...
• Longevity risk.
 Speculation
• Anticipation of an price rise of the stock.
• It is a short term gain.
• Involves buying and selling activities with the
expectation of making a profit from price
fluctuations .Example :
• The dividing line between speculation and
investment is very thin because people buy
stocks for dividends and capital appreciation.
 Time
• The time factor involved in speculation and
investment is different .The investor is interested
in a consistently good rate of return for a longer
period.
• The investor is primarily concerned with direct
benefits provided by securities in the long run.
• The interest of speculator lies with an abnormal
return. In simple terms , the investor wants a
higher rate of return than the normal return in
the short run. The speculators investment are
made for a short term.
• The speculator is more interested in market action and
it’s price movements.
• The investor constantly evaluates the worth of security
whereas the speculator evaluates the price movement.
• The investor would try to match the risk and return
whereas the speculator would like to assume greater
risk than the investor.
• Risk refers to the possibility of incurring loss in a
financial transaction.
• The negative short term fluctuations affect the
speculators more than the investor.
• The risk factor involved is also limited .
• The investor buys the stock after studying the
factors related to the company’s stock .This
limits the risk exposure.
• The investor prefers to invest in securities
where the principal would be safe.
THANK YOU