Investments: Principles of Portfolio and Equity Analysis

Overview

Investment success requires both breadth and depth of knowledgeof markets, industries, companies, and securities. Investmentprofes-sionals must possess a broad understanding of the financialmarkets to be able to judge opportunities and risks. They must alsohave the ability to evaluate in detail industries and individualcompanies to make sound judgments about individual holdings. Aspart of the CFA Institute Investment Series, Investments:Principles of Portfolio and Equity Analysis has been specificallydesigned to ...

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Investments: Principles of Portfolio and Equity Analysis

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Overview

Investment success requires both breadth and depth of knowledgeof markets, industries, companies, and securities. Investmentprofes-sionals must possess a broad understanding of the financialmarkets to be able to judge opportunities and risks. They must alsohave the ability to evaluate in detail industries and individualcompanies to make sound judgments about individual holdings. Aspart of the CFA Institute Investment Series, Investments:Principles of Portfolio and Equity Analysis has been specificallydesigned to provide you with the knowledge you need to effectivelyand efficiently manage portfolios in today's volatile markets anduncertain global economy.

With Investments: Principles of Portfolio and Equity Analysis, adistinguished team of senior investment professionals and leadingbusiness school authorities provides you with complete coverage ofthe most important issues in this field.

Written with both the established and aspiring financial analystin mind, this book will help you understand the mechanics ofprofessional money management, including:

  • Portfolio management
  • Portfolio planning and construction
  • Portfolio risk and return
  • Equity security analysis and valuation

Along the way, you will also become familiar with marketorganization and structure, security market indices, marketefficiency, the types of equity securities, industry and companyanalysis, technical analysis, and a range of equity valuationtechniques.

And to enhance your understanding of the tools and techniquespresented here, don't forget to pick up the Investments Workbook:Principles of Portfolio and Equity Analysis. This companion guidecontains carefully constructed problems with detailed solutions aswell as concise learning outcome statements and summary chapteroverviews.

Straightforward and accessible, Investments: Principles ofPortfolio and Equity Analysis provides you with in-depth insightsand expert advice on investment analysis and portfolio management,and the practical guide does so with a continuity of coverage thatis critical to the learning process.

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Product Details

  • ISBN-13: 9780470915806
  • Publisher: Wiley
  • Publication date: 2/8/2011
  • Series: CFA Institute Investment Series , #37
  • Edition number: 1
  • Pages: 620
  • Sales rank: 1,011,370
  • Product dimensions: 7.00 (w) x 10.00 (h) x 1.60 (d)

Meet the Author

MICHAEL G. MCMILLAN, CFA is Director, Ethics andProfessional Standards in the Education Division of CFA Institute.Dr. McMillan joined CFA Institute in 2008 after more than a decadeas a professor of accounting and finance at Johns HopkinsUniversity's Carey Business School and The George WashingtonUniversity's School of Business. He has a doctorate in accountingand finance from The George Washington University, an MBA fromStanford University, and a BA from the University of Pennsylvania.Dr. McMillan is a member of the CFA Society of Washington, DC andthe East African Society of Investment Professionals.

JERALD E. PINTO, CFA is Director, Curriculum Projects, inthe Education Division of CFA Institute. Before coming to CFAInstitute in 2002, he consulted to corporations, foundations, andpartnerships in investment planning, portfolio analysis, andquantitative analysis. He has also worked in the investment andbanking industries in New York City and taught finance at New YorkUniversity's Stern School of Business. He holds an MBA from BaruchCollege, a PhD in finance from the Stern School, and earned his CFAcharter in 1992.

WENDY L. PIRIE, CFA is Director, Curriculum Projects, inthe Education Division of CFA Institute. Prior to joining CFAInstitute in 2008, she taught finance, accounting, statistics,taxation, business law, and marketing for over twenty years at bothlarge and small, public and private universities, religiouscolleges, and military academies. Her work has been published inJournal of Financial Research and Journal of Economics and Finance.She holds a PhD from Queen's University in Kingston, Ontario andMBAs fromthe Universities of Toronto and Calgary.

GERHARD VAN DE VENTER, CFA is Deputy Head of the Schoolof Finance and Economics at University of Technology, Sydney. Hewas previously director, Curriculum Projects, in the EducationDivision of CFA Institute. He began his career in South Africa as afinancial analyst and later as a dealer at the Bond Exchange, wherehe traded fixed income securities. He holds a PhD in finance fromthe University of Technology, Sydney. He is a member of CFAInstitute and the New York Society of Security Analysts.

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Table of Contents

Foreword xiii

Acknowledgments xv

Introduction xvii

CHAPTER 1 Market Organization and Structure 1

Learning Outcomes 1

1. Introduction 1

2. The Functions of the Financial System 2

3. Assets and Contracts 10

4. Financial Intermediaries 24

5. Positions 35

6. Orders 41

7. Primary Security Markets 47

8. Secondary Security Market and Contract Market Structures51

9. Well-Functioning Financial Systems 56

10. Market Regulation 58

11. Summary 61

CHAPTER 2 Security Market Indices 73

Learning Outcomes 73

1. Introduction 73

2. Index Definition and Calculations of Value and Returns 75

3. Index Construction and Management 78

4. Uses of Market Indices 90

5. Equity Indices 91

6. Fixed-Income Indices 94

7. Indices for Alternative Investments 96

8. Summary 101

CHAPTER 3 Market Efficiency 109

Learning Outcomes 109

1. Introduction 109

2. The Concept of Market Efficiency 111

3. Forms of Market Efficiency 118

4. Market Pricing Anomalies 124

5. Behavioral Finance 131

6. Summary 134

CHAPTER 4 Portfolio Management: An Overview 139

Learning Outcomes 139

1. Introduction 139

2. A Portfolio Perspective on Investing 140

3. Investment Clients 149

4. Steps in the Portfolio Management Process 156

5. Pooled Investments 160

6. Summary 172

CHAPTER 5 Portfolio Risk and Return: Part I 175

Learning Outcomes 175

1. Introduction 175

2. Investment Characteristics of Assets 176

3. Risk Aversion and Portfolio Selection 200

4. Portfolio Risk 209

5. Efficient Frontier and Investor’s Optimal Portfolio222

6. Summary 234

CHAPTER 6 Portfolio Risk and Return: Part II 243

Learning Outcomes 243

1. Introduction 243

2. Capital Market Theory 244

3. Pricing of Risk and Computation of Expected Return 256

4. The Capital Asset Pricing Model 267

5. Beyond the Capital Asset Pricing Model 284

6. Summary 287

CHAPTER 7 Basics of Portfolio Planning and Construction295

Learning Outcomes 295

1. Introduction 295

2. Portfolio Planning 296

3. Portfolio Construction 312

4. Summary 326

CHAPTER 8 Overview of Equity Securities 331

Learning Outcomes 331

1. Introduction 331

2. Equity Securities in Global Financial Markets 332

3. Types and Characteristics of Equity Securities 338

4. Private versus Public Equity Securities 345

5. Investing in Nondomestic Equity Securities 347

6. Risk and Return Characteristics of Equity Securities353

7. Equity Securities and Company Value 356

8. Summary 362

CHAPTER 9 Introduction to Industry and Company Analysis369

Learning Outcomes 369

1. Introduction 370

2. Uses of Industry Analysis 370

3. Approaches to Identifying Similar Companies 371

4. Industry Classification Systems 374

5. Describing and Analyzing an Industry 385

6. Company Analysis 412

7. Summary 417

CHAPTER 10 Equity Valuation: Concepts and Basic Tools425

Learning Outcomes 425

1. Introduction 426

2. Estimated Value and Market Price 426

3. Major Categories of Equity Valuation Models 428

4. Present Value Models: The Dividend Discount Model 430

5. Multiplier Models 445

6. Asset-Based Valuation 457

7. Summary 461

CHAPTER 11 Equity Market Valuation 469

Learning Outcomes 469

1. Introduction 469

2. Estimating a Justified P/E Ratio 470

3. Top-Down and Bottom-Up Forecasting 484

4. Relative Value Models 491

5. Summary 506

CHAPTER 12 Technical Analysis 515

Learning Outcomes 515

1. Introduction 515

2. Technical Analysis: Definition and Scope 516

3. Technical Analysis Tools 520

4. Elliott Wave Theory 563

5. Intermarket Analysis 566

6. Summary 568

Problems 570

Glossary 575

References 589

About the Authors 595

About the CFA Program 601

Index 603

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