Email/ F.B : nusrat2008noori@yahoo.com Lec# 1 Chapter # 1 Introduction to Investment Analysis and Portfolio Management By: Nusrat ullah noori Email/ F.B : nusrat2008noori@yahoo.com

Course Objectives course objective is; To help entrepreneurs and practitioners to understand the investments field as it is currently understood and practiced for sound investment decisions making. Provide an appreciation of the theory and practice of investments Focus on investment portfolio formation and management issues Emphasize both theoretical and analytical aspects of investment decisions Deal with modern investment theoretical concepts and instruments.

Upon completion of this course you will be able: To describe and to analyze the investment environment, different types of investment vehicles; To understand and to explain the logic of investment process and the contents of its’ each stage; To use the quantitative methods for investment decision making – to calculate risk and expected return of various investment tools and the investment portfolio;

Investment Analysis and Portfolio Management putting your money to work for you. Analysis: The process of choosing best source to invest Portfolio: Collection of funds or the collection of different stocks invested in. Management: Proper handling of funds of investment.

Conti……. To distinguish concepts of portfolio theory and apply its’ principals in the process of investment portfolio formation; To analyze and to evaluate relevance of stocks, bonds, options for the investments; To understand the psychological issues in investment decision making; To know active and passive investment strategies and to apply them in practice.

Investment Analysis and Portfolio Management Definition: Investment is a conscious act of an individual or any entity that involves deployment of money (cash) in securities or assets issued by any financial institution with a view to obtain the target returns over a specified period of time. The person doing so is called investor.

Types of Investors There are two types of investors: individual investors Institutional investors Individual investors are individuals who are investing on their own. Sometimes individual investors are called retail investors. Institutional investors are entities such as investment companies, commercial banks, insurance companies, pension funds and other financial institutions.

Categories of Investment There are two categories of investing: Direct investment Indirect investment D.I is the investment in Financial markets. I.D.I is the investment in financial intermediaries such as investment companies, commercial banks, insurance companies, pension funds and other financial institutions.

Direct vs. indirect investment The primary difference between these two types of investing is that applying direct investing investors buy and sell financial assets and manage individual investment portfolio themselves. Consequently, investing directly through financial markets investors take all the risk and their successful investing depends on their understanding of financial markets, its fluctuations and on their abilities to analyze and to evaluate the investments and to manage their investment portfolio.

Direct vs. indirect investment Contrary, using indirect type of investing investors are buying or selling financial instruments of financial intermediaries (financial institutions) which invest large pools of funds in the financial markets and hold portfolios. As shareholders with the ownership, interest in the portfolios managed by financial institutions (investment companies, pension funds, insurance companies, commercial banks) are entitled to their share of dividends, interest and capital gains generated and pay their share of the institution’s expenses and portfolio management fee.

Direct vs. indirect investment The risk for investor using indirect investing is related more with the credibility of chosen institution and the professionalism of portfolio managers. But keep in mind, if a large amount of money is transferred only to one’s hands, it becomes very risky. There is a well known American proverb “don't put all your eggs in one basket” . That turns to the necessity to diversify your investments.

Email/ F.B : nusrat2008noori@yahoo.com Lec# 2 Types of Investments By: Nusrat ullah noori Email/ F.B : nusrat2008noori@yahoo.com

Investment Analysis and Portfolio Management Types of investments: There are five main type of investments: 1. Autonomous Investment 2. Induced Investment 3. Financial Investment 4. Real Investment 5. Planned Investment

Types of Investment 1. Autonomous Investment Investment which does not change with the changes in income level, is called as Autonomous or Government Investment. Autonomous Investment remains constant irrespective of income level. Which means even if the income is low, Investment remains the same. It refers to the investment made on houses, roads, public buildings and other parts of Infrastructure. The Government normally makes such a type of investment.

Types of Investment 2. Induced Investment Investment which changes with the changes in the income level, is called as Induced Investment. Induced Investment is positively related to the income level. That is, at high levels of income entrepreneurs are induced to invest more and vice-versa. At a high level of income, Consumption expenditure increases this leads to an increase in investment of capital goods, in order to produce more consumer goods.

Types of Investment 3. Financial Investment Investment made in buying financial instruments such as new shares, bonds, securities, etc. is considered as a Financial Investment. However, the money used for purchasing existing financial instruments such as old bonds, old shares, etc., cannot be considered as financial investment. It is a mere transfer of a financial asset from one individual to another. In financial investment, money invested for buying of new shares and bonds as well as debentures.

Types of Investment 4. Real Investment Investment made in new plant and equipment, construction of public utilities like schools, roads and railways, etc., is considered as Real Investment. Real investment is spending money in new machine tools, plant and equipment, factory buildings, etc. They increase employment, production and economic growth of the nation. Thus real investment has a direct impact on employment generation, economic growth, etc.

Types of Investment 5. Planned Investment Investment made with a plan in several sectors of the economy with specific objectives is called as Planned or Intended Investment. Planned Investment can also be called as Intended Investment because investors while making investment make a concrete plan of his investment.

Investment in Assets What is an asset?? An asset is anything of value that can be converted into cash. Assets are owned by individuals, businesses and governments. It may be tangible or intangible . Generally we can invest the funds in two type of assets. Financial Assets Real Assets

Assets of Investment 1. Financial Assets: 2. Real Assets: Bonds Stocks Certificates Bills Notes Etc…. 2. Real Assets: Buildings Plants Machineries Plots Lands Vehicles Etc. …

Financial assets Vs. Real assets Investment in financial assets differs from investment in physical assets in those important aspects: Divisibility Marketability (or Liquidity) Holding period Information availability

Email/ F.B : nusrat2008noori@yahoo.com Lec# 3 Investments Vehicles By: Nusrat ullah noori Email/ F.B : nusrat2008noori@yahoo.com

Types of Financial Investment Vehicles A product used by investors with the intention of having positive returns. The term "investment vehicle" refers to any method by which individuals or businesses can invest and grow their money. Following the main types of Financial Investment vehicles are: • Short term investment vehicles; • Fixed-income securities; • Common stock; • Speculative investment vehicles; • Other investment tools.

Types of Financial Investment Vehicles 1.The main short term investment vehicles are: • Certificates of deposit; • Treasury bills; • Commercial paper; • Bankers’ acceptances; • Repurchase agreements. We will discuss them in chapter 4 in details.

Types of Financial Investment Vehicles 2. main fixed income securities are: Bonds Preferred stocks 3. Common stocks These will be discussed in chapter 4 . 4. Speculative investment vehicles are: • Options; • Futures; They will be discussed in this chapter. 5. Other investment tools: Investment funds; Investment life insurance; Pension funds; Hedge funds. We will discuss them in chapter 2 in details.

Speculative investment vehicles Speculation is buying the investment vehicles at lower price and sell them at higher price. The person doing so is called speculators. (We will talk about its types in chapter 3) The only profit the speculator can earn is expected market price fluctuation. Speculative investment vehicle are also called derivative securities. (Options, Futures,) A derivative security is simply a financial instrument whose value is derived from or depend on another security. The derivative itself is merely a contract between two or more parties.

Options vs. Futures An option contract gives the owner of the contract the right, but not the obligation, to buy or to sell a financial asset at a specified price from or to another party at any time before expiry. A future contract is an agreement between two parties in which they agree to transact some financial asset at a predetermined price at a specified future date. One party agree to buy the financial asset, the other agrees to sell the financial asset. It is very important, that in futures contract case both parties are obligated to perform and neither party charges the fee.

Investment Analysis and Portfolio Management Assignment What are 3 main and major decisions in Finance? Importance of studying investment?

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