Investment
analysis and portfolio management 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. Following this objective,
key concepts are presented to provide an appreciation of the theory and
practice of investments, focusing on investment portfolio formation and
management issues. This course is designed to emphasize both theoretical and
analytical aspects of investment decisions and deals with modern investment
theoretical concepts and instruments. Both descriptive and quantitative
materials on investing are presented.
Upon completion of this course the
entrepreneurs shall 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;
•
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.
The structure of the course
The Course is structured in 8 chapters, covering both
theoretical and analytical aspects of investment decisions:
1. Investment
environment and investment process;
2. Quantitative
methods of investment analysis;
3. Theory of
investment portfolio formation;
4. Investment
in stocks;5. Investment
in bonds;
6. Psychological
aspects in investment decision making;
7. Using
options as investments;
8. Portfolio
management and evaluation.
Evaluation Methods
As has been
mentioned before, every chapter of the course contains opportunities to test
the knowledge of the audience, which are in the form of questions and more
involved problems. The types of question include open ended questions as well
as multiple choice questions. The problems usually involve calculations using
quantitative tools of investment analysis, analysis of various types of
securities, finding and discussing the alternatives for investment decision
making.
Summary for the Course
The course
provides the target audience with a broad knowledge on the key topics of
investment analysis and management. Course emphasizes both theoretical and
analytical aspects of investment decision making, analysis and evaluation of
different corporate securities as investments, portfolio diversification and
management. Special attention is given to the formulation of investment policy
and strategy.
The course
can be combined with other further professional education courses developed in
the project.
. Investment environment and
investment management process
Minicontents
1.1. Investing versus financing
1.2. Direct versus indirect
investment
1.3. Investment environment
1.3.1. Investment vehicles
1.3.2. Financial markets
1.4. Investment management process
Summary
Key terms
Questions and problems
References and further readings
Relevant websites
1.1.
Investing versus financing
The term
‘investing” could be associated with the different activities, but the common
target in these activities is to “employ” the money (funds) during the time
period seeking to enhance the investor’s wealth. Funds to be invested come from
assets already owned, borrowed money and savings. By foregoing consumption
today and investing their savings, investors expect to enhance their future
consumption possibilities by increasing their wealth.
But it is useful
to make a distinction between real and financial investments. Real investments
generally involve some kind of tangible asset, such as land, machinery,
factories, etc. Financial investments involve contracts in paper or electronic
form such as stocks, bonds, etc. Following the objective as it presented in the
introduction this course deals only with the financial investments because the
key theoretical investment concepts and portfolio theory are based on these
investments and allow to analyze investment process and investment management
decision making in the substantially broader context
Some
information presented in some chapters of this material developed for the
investments course could be familiar for those who have studied other courses
in finance, particularly corporate finance. Corporate finance typically covers
such issues as capital structure, short-term and long-term financing, project
analysis, current asset management. Capital structure addresses the question of
what type of long-term financing is the best for the company under current and
forecasted market conditions; project analysis is concerned with the
determining whether a project should be undertaken. Current assets and current
liabilities management addresses how to
manage the day-by-day cash
flows of the firm. Corporate finance is also concerned with how to allocate the
profit of the firm among shareholders (through the dividend payments), the government
(through tax payments) and the firm itself (through retained earnings). But one
of the most important questions for the company is financing. Modern firms
raise money by issuing stocks and bonds. These securities are traded in the
financial markets and the investors have possibility to buy or to sell
securities issued by the companies. Thus, the investors and companies,
searching for financing, realize their interest in the same place – in
financial markets. Corporate finance area of studies and practice involves the
interaction between firms and financial markets and Investments area of studies
and practice involves the interaction between investors and financial markets.
Investments field also differ from the corporate finance in using the relevant
methods for research and decision making. Investment problems in many cases
allow for a quantitative analysis and modeling approach and the qualitative
methods together with quantitative methods are more often used analyzing
corporate finance problems. The other very important difference is, that
investment analysis for decision making can be based on the large data sets
available form the financial markets, such as stock returns, thus, the
mathematical statistics methods can be used.
But at the same time
both Corporate Finance and Investments are built upon a common set of financial
principles, such as the present value, the future value, the cost of capital).
And very often investment and financing analysis for decision making use the
same tools, but the interpretation of the results from this analysis for the
investor and for the financier would be different. For example, when issuing
the securities and selling them in the market the company perform valuation
looking for the higher price and for the lower cost of capital, but the
investor using valuation search for attractive securities with the lower price
and the higher possible required rate of return on his/ her investments.
Together with the
investment the term speculation is frequently used. Speculation can be
described as investment too, but it is related with the short-term investment
horizons and usually involves purchasing the salable securities with the hope
that its price will increase rapidly, providing a quick profit. Speculators try
to buy low and to sell high, their primary concern is with anticipating and
profiting from market fluctuations. But as the fluctuations in the financial
markets are and become