Definition of Fundamental Analysis Fundamental analysis of stocks is defined as the practice of examining the fundamentals of an organization in order to determine if a business has turned out to be a good investment. Fundamental analysis aims are answering questions related to the business finance and capital investment, such as “what are the probabilities that this business investment is going to fail or become bankrupt” and “how sure can a portfolio manager be that the stock continues to pay dividends?” In other words, fundamental analysis involves detailed study in regards to financial statements like the balance sheet. It is considered as a complete contrast to technical analysis of stocks. Fundamental analysis of stocks deals with the analysis of the financial, economic, as well as other quantitative and qualitative elements associated with a security with the sole intention of determining its intrinsic value. Even though this technique is employed for Continue reading
Investment Management
Portfolio Investment Process
The ultimate aim of the portfolio manager is to reduce the risk and increase the return to the investor in order to reach the investment objectives of an investor. The manager must be aware of the portfolio investment process. The process of portfolio management involves many logical steps like portfolio planning, portfolio implementation and monitoring. The portfolio investment process applies to different situation. Portfolio is owned by different individuals and organizations with different requirements. Investors should buy when prices are very low and sell when prices rise to levels higher that their normal fluctuation. Portfolio Investment Process Portfolio investment process is an important step to meet the needs and convenience of investors. The portfolio investment process involves the following steps: Planning of portfolio. Implementation of portfolio plan. Monitoring the performance of portfolio. 1. Planning of Portfolio Planning is the most important element in a proper portfolio management. The success of Continue reading
Portfolio Selection and Revision in Investment Portfolio Management
Portfolio Selection Portfolio analysis provides the input for the next phase in portfolio management, which is portfolio selection. The proper goal of portfolio construction is to generate a portfolio that provides the highest returns at a given level of risk. A portfolio having this characteristic is known as an efficient portfolio. The inputs from portfolio analysis can be used to identify the set of efficient portfolios. From this set of efficient portfolios the optimum portfolio has to be selected for investment. Harry Markowitz portfolio theory provides both the conceptual framework and analytical tools for determining the optimal portfolio in a disciplined and objective way. Portfolio Revision Once the portfolio is constructed, it undergoes changes due to changes in market prices and reassessment of companies. Portfolio revision means alteration of the composition of debt/equity instruments, shifting from the one industry to another industry, changing from one company to another company. Any Continue reading
Steps Involved in Investment Planning
Investors like to invest through the instinct and want to gain profit from the market by investing. However, while financial institutions are undoubtedly a part of the process of investing. As investors, it is not surprising that we focus so much of our energy and efforts on investment philosophies and strategies, and so little on the investment process. It is far more interesting to read about how Peter Lynch picks stocks and what makes Warren Buffett a valuable investor, than it is to talk about the steps involved in creating a portfolio or in executing trades. Though it does not get sufficient attention, understanding the investment process is critical for every investor for several reasons: Investment planning centrally depends upon the portfolio of the investor; as a result the primary step of the investment process is to make a portfolio. By emphasizing the sequence, it provides for an orderly way Continue reading
Socially Responsible Investment (SRI)
Socially responsible investment (SRI) can be defined broadly as an investment process that considers the social and environmental consequences of investments, both positive and negative, within the context of rigorous financial analysis. SRI funds aim to integrate personal, social and environmental concerns with financial considerations, their objective is to increase investors’ wealth while ensuring that the selected companies have a positive impact on people and the Planet. Often called ethical investments or sustainable investments, this type of investment has become increasingly popular in recent years. The early stages of the SRI movement can be traced back to the nineteenth century, especially amongst religious movements such as the Quakers and Methodists. Specifically, these groups excluded investments that would go against their beliefs. Such non-financial ‘exclusionary’ behavior in investment choice became a highlight in 1960s during the Vietnam War, where funds like the PAX World Fund was set up with a mission Continue reading
Treasury Bills and Inflation Control
Treasury Inflation-Protected Securities (or TIPS) are the inflation-indexed bonds issued by the RBI Treasury. These securities were first issued in 1997. The principal is adjusted to the Consumer Price Index, the commonly used measure of inflation. The coupon rate is constant, but generates a different amount of interest when multiplied by the inflation-adjusted principal, thus protecting the holder against inflation. TIPS are currently offered in 5-year, 7-year, 10-year and 20-year maturities. 30-year TIPS are no longer offered. In addition to their value for a borrower who desires protection against inflation, TIPS can also be a useful information source for policy makers: the interest-rate differential between TIPS and conventional Treasury bonds is what borrowers are willing to give up in order to avoid inflation risk. Therefore, changes in this differential are usually taken to indicate that market expectations about inflation over the term of the bonds have changed. The interest payments Continue reading