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Investment Reviewer
Investment Reviewer
ts have been introduced in c. STOCK SELECTION - A stock selection strategy could be ideal
Investing – is a means of gradually increasing one’s wealth. The fund formats that bare accessible to retail investors. for investors looking to maximize gains. One can leverage those
fundamental tenet of investing is the expectation of a positive VI.OPTIONS and OTHER DERIVATIVES - Derivatives are financial perceived advantages without hedging or diversifying into
return in the form of income or statistically significant price instruments that derive their value from another instrument, different industries by purchasing stocks and placing them in a
appreciation. such as stock or index. portfolio based on their strengths.
The main goal of investing - is to create a profit over a Options contracts are popular derivative that gives the buyer the d. INVESTMENT MONITORING - Tracking investments and
predetermined time period or to acquire an additional source of right but not the obligation to buy or sell security at a fixed price measuring the portfolio’s performance compared to measurable
income. within a specific time period. Derivatives usually employ leverage, objectives is essential.
Investing is the process of buying financial assets with the making them a high-risk, high-reward proposition. e. Portfolio Strategy and Implementation- Must be able to select,
potential to increase in value while controlling risk and following VIICOMMODITIES - Commodities include metals, oil, grain and prioritize, and overseas programs and projects that adhere to the
a long-term investment strategy animal products, as well as financial instruments and currencies. organization’s strategic objectives and delivery capacity
What is Investing? They can either be traded through commodity futures- which are
- investing is the process of using money to invest for a agreements to buy or sell a specific quantity of a commodity at a
while in projects or endeavors with the goal of making specified price on a particular future date- or ETFs. Commodities
a profit (i.e., profits that surpass the amount of the can be used for hedging risk or for speculative purposes
initial investment)
- It is the process of distributing resources, most CHAPTER TWO ‘’INTRODUCTION TO INVESTMENT
commonly capital, or money, with the goal of making a MANAGEMENT’’
profit or achieving other objectives What is an Individual Investor? - ‘’An individual who purchases
• TYPES OF INVESTMENTS small amounts of securities for themselves, as opposed to an
I.STOCKS - A buyer of a company’s stock becomes a fractional Institutional Investors, also called as Retail Investor or Small
owner of that company. Owners of a company’s stock are known Investor’’
as its shareholder and can participate in its growth and success - They are also someone who invest in securities and
through appreciation in the stock price and regular dividends paid assets on their own, usually is smaller quantities.
out of the company’s profits. - They typically buy stocks in round numbers such as 25,
II.BONDS - Bonds are debt obligations of entities, such as 50, 75 or 100. The stocks they buy are part of their
government, municipalities, and corporations. Buying a bond portfolio and do not represent those of any
implies that you hold a share of an entity’s debt and are entitled organization. III. ADVANTAGES AND DISADVANTAGES OF INVESTMENT
to receive periodic interest payments and the return of the - They are also known as ‘’retail investors’’ , an MANAGEMENT
bond’s face value when it matures. professional investors who buys and sells securities or
III.FUNDS - Funds are pooled instruments managed by funds that contain a basket of securities ADVANTAGES DISADVANTAGES
investment managers that enable investors to invest in stocks, BOOST INCOME COSTLY
bonds, preferred shares, commodities, etc. • Return of capital Investment managers can Investment management
Two types of funds • Return on capital help to increase the services can be expensive
Mutual funds do not trade on an exchange and like, stocks, are • Liquidity income from an in the form of high expense
valued constantly throughout the trading day. investment portfolio by ratios and sales charges.
ETFs - trade on stock exchanges and, like stocks, are valued I. INVESTMENT MANAGEMENT - Investment management is the identifying investments
constantly throughout the trading day. practice of managing assets to achieve specified investment goals. with higher returns and
IV. INVESTMENT TRUSTS The assets in questions are frequently liquid or categorized as implementing strategies
- Trust are another type of pooled investment. Real Estate securities but can include other commodities to maximize income.
Investment Trusts (REIT’s) are one of the most popular in this II. INVESTMENT MANAGEMENT SERVICES - Investment
Minimizes Tax Liabilities Management Abuses
category. management services include managing portfolios of various
Investment managers can In some cases, investment
REITs invest in commercial or residential properties and pay investments such as stocks, bonds, mutual funds, and other
help minimize tax managers may abuse their
regular distributions to their investors from the rental income securities, to generate returns over the long term.
liabilities by reducing position and engage in
received from these properties. REITs trade on stock exchanges taxes on investment unethical or illegal
and thus offer their investors the advantage of instant liquidity. These services often offer a range of options to help clients
income and short term or practices, such as insider
V.ALTERNATIVE INVESTMENTS - Alternative investments is a achieve their financial goals, including:
long-capital gains. trading or misinterpreting
catch-all category that includes hedge funds and private equity. a. ASSET ALLOCATION - Asset allocation divides an investment
investment risks.
Hedge funds are so-called because they can hedge their portfolio among various asset categories, such as stocks, bonds,
Reduces Risks Volatile Investments
investments bets by going long and short on stocks and other and cash
Investment managers Investments in financial
investments. b. FINANCIAL STATEMENT ANALYSIS - Financial statement
can help to manage risk markets are subject to
- Private equity enables companies to raise capital without going analysis is an essential process that aids decision making.
in an investment volatility and can lose
public. Hedge funds and private equity were typically only External stakeholders gain insights into an organization’s overall
portfolio by diversifying value. Investment
available to affluent investors deemed ‘’accredited investors’’ health and value by examining a company’s financial statements.
investments and managers may be unable to
who met certain income and net worth requirements. However,
implementing strategies prevent or mitigate losses 13. Purchase and Install the software the required to run your II. DIVERSIFICATION - Involves spreading the risk and reward of
to reduce volatility. in all cases. investment firm individual securities within assets class, or between asset classes.
Outperforms the Market -You will need a financial analysis program to make informed III. REBALANCING - It is used to return a portfolio to its original
Investment managers can selections regarding which stock markets to invest in. target allocation at regular intervals, usually annually. This is done
help to outperform the 14. Open for Business to reinstate the original asset mix when the movements of the
market by actively managing - You are now prepared to start your investment firm. markets force it out of kilter.
an investment portfolio and IV. TAX-EFFICIENCY - A potentially material aspects of portfolio
making informed investment Chapter Three: Portfolio Management management relates to how your portfolio is shaped to minimize
decisions Portfolio Mnagement – the art and science of selecting and taxes in the long term. This pertains to how different retirement
IV. OPERATING AN INVESTMENT MANAGEMENT COMPANY overseeing a group of investments that meet the long term accounts are used, how long
Starting your investment firm can be quite profitable. You can financial objectives and risk tolerance of a client, a company,or an PROCESS OF PORFOLIO MANAGEMENT
succeed with proper preparation, execution, and hard effort. institution 1. Planning
1. SELECT A NAME FOR YOUR INVESTMENT COMPANY Active Portfolio management - requires strategically buying and • Identification of Objectives and Constraints - Identify the
- The first step in establishing your investment firm is to select a selling stocks and other assets in an effort to beat the investment objectives, which refer to any desired outcomes for
unique business name. performance of the broader market. the client regarding return and risk.
2. Create a Business Plan for your Investment Company Passive portfolio management- seeks to match the returns of the • Investment Policy Statement - Draft an effective investment
- Developing your plan guarantees you thoroughly understand market by mimicking the make up of an index or indexes. policy statement that provides valuable direction for investors'
your market and strategy. The strategy also includes a road map MAIN PORTFOLIO MANAGEMENT TYPES resource allocation decisions.
for you to follow and, if necessary, submit to funding sources to i. PASSIVE MANAGEMENT - Is the long-term set-it-and-forget-it • Capital Market Expectations - To help investors assess the
raise funds for your firm. approach. Purchasing one or more exchange-traded fund (ETF) potential investment returns and determine the long-term
3. Choose your Investment Company’s Legal Structure - Select a index funds could be part of it. This is sometimes known as index outlook, formulate expectations for risk and return of various
business structure for your investment firm and register it, as well investment or indexing. Modern portfolio theory (MPT) can assist asset classes.
as your business name, with the Secretary of State in each state those who construct indexed portfolios in optimizing the mix. • Asset Allocation Strategy - There are two strategies to consider
where you do business. ii. ACTIVE MANAGEMENT - Involves actively purchasing and here, strategic and tactical. A strategic asset allocation strategy is
4. Obtain Start up Capital for your Investment Company disposing of individual stocks and other assets in an effort to a long-term strategy that necessitates regular rebalancing to
- Personal savings, family and friends, credit card financing, bank outperform an index. ensure you do not deviate from your goals
loans, crowdsourcing and angel investors are the primary sources Discretionary Management - This type of portfolio management 2. Execution
of finance for an investment firm to consider. allows professionals to make decisions about a client's holdings • Portfolio Selection - This involves an investor deciding which
5. Choose a location for your company without the need for ongoing authorization from the investor. assets to include in their portfolio. It requires balancing risk and
- When looking for a place for your investment firm, finding a Non-Discretionary Management - This approach requires the return expectations while accounting for external factors, such as
location that will benefit your organization is critical such as a city investor to be actively involved in every decision, including what inflation and taxes, to ensure a favorable outcome.
with a robust economy receptive to new enterprises. investments are bought and sold • Portfolio Implementation - Poorly timed and managed portfolio
6. Register your Investment Company with the Internal Revenue executions can result in significant transaction costs. When
Service (IRS) KEY ELEMENTS OF PORTFOLIO MANAGEMENT executing a portfolio, it is essential to consider both explicit and
-You must register your company with the IRS, which result in the I. ASSET I.ALLOCATION - refers to the placement of assets within implicit costs.
IRS awarding you an Employer Identification Number (EIN) various accounts, such as 3.Feedback
7. Establish a Business Bank Account • Monitoring and Rebalancing - A portfolio manager should
- Opening a bank account in the name of your investing regularly monitor and evaluate risk exposures within the portfolio
organization is critical. to rebalance it according to the strategic asset allocation.
8. Apply for a Business Credit Card • Performance Evaluation - Evaluating a portfolio using absolute
- To help you separate personal and company costs, you could and relative returns gives a complete picture of its strengths and
obtain a corporate credit card for investing firm. weaknesses
9. Obtain the necessary Business Licenses Permits
- To establish an investing firm, you must first register with the Chapter FOUR: Risk and Return of Investment
Securities and Exchange Commission (SEC) and obtain the Financial Risk and Return - in investing are perhaps the most
necessary state securities license. crucial parameters considered by investors while choosing an
10. Purchase Commercial Insurance for your Investment investment option
Company -The sort of insurance required to run your investment Risk - can be defined as the uncertainty related to the
firm is determined by the type of business you run. investment, market, or company.
11 . Purchase or Lease the appropriate Investment Company Return on investment, or ROI. - It can be defined as the monetary
Equipment You will need a computer, a phone, an internet profits from making a particular investment. Individuals should
connection, and promotional materials to establish your own tax-advantaged or taxable accounts. is based on the ideally favor investments that yield larger returns, such as
12. Create Marketing Materials for your Investment Company understanding that different types of assets do not move in equities of companies like Google, Amazon, etc
- You will need marketing materials to acquire and retain clients concert, and some are more volatile than others. A mix of assets Risk and Return in Financial Management
for your investment firm. provides balance and protects against risk High risk – High returns
Low risk – Low returns - a derivative is a financial security with a value that is
reliant upon, or derived from, an underlying asset or
• TYPES OF RISK a group of assets
i. Market Risk – It is also called systematic risk and arise due to ✓ Stocks
various market related factors like economic and political ✓ Bonds
problems, interest rate and currency fluctuations, etc ✓ Commodities
ii. Specific Risks – They are related mostly to company itself. ✓ Currencies
They may be controlled through diversification a monitoring. ✓ Interest Rates
iii. Credit Risk – This is related to credit worthiness of the ✓ Market indices
company or business. If the financial conditions of the business is • FOREX MARKET - The FOREX Market (Foreign Exchange Market)
good, it will be able to meet its current and future obligations and is where participants can buy, sell, hedge, and speculate on the
repay its debt on time. exchange rates between currency pairs. The forex market is the
iv. Liquidity Risk- This is the result of the business not being able most liquid market in the world, as cash is the most liquid of
to earn good revenue to meet its financial obligations and • STOCK MARKETS - are among the most common financial assets.
maintain high working capital. marketplaces. These are the platforms where businesses list their • COMMODITIES MARKETS - Commodities markets are venues
v. Interest Risk Rate – The fluctuation in the interest rates in an shares for purchase and sale by investors and traders. where producers and consumers meet to exchange physical
economy can affect the business’s borrowing capacity. Brokers - are third parties that facilitates trades between buyers commodities such as agricultural products (e.g., corn, livestock,
vi. Inflation- The inflation leads to erosion of value of the cash and sellers but who do not take an actual position in a stock. soybeans) energy products (oil, gas, carbon credits), precious
flow in future. • OVER-THE-COUNTER MARKETS - An Over-the-counter (OTC) metals (gold, silver, platinum), or soft commodities (such as
market is a decentralized market – meaning it does not have cotton, coffee and sugar)
TYPES OF RETURN physical locations, and trading is conducted electronically- in
i. Capital gains- The value of any wise investment will increase which market participants trade securities directly (meaning Through an Initial Public Offering (IPO), businesses can sell shares
over time. Therefore, if the assets are sold later on, their worth without a broker). of themselves to the general public in order to raise the necessary
will be higher than their acquisition price, resulting in a capital • BOND MARKETS - A bond is a security in which an investor funds.
gain. The Initial Public Offering (IPO) also offers early investors in the
ii. Dividends- they are a steady source of income for investors company an opportunity to cash out part of their stake, often
who invest in shares of companies giving regular dividends which reaping very handsome rewards in the process.
are a part of the profits set aside for investors.
iii. Interest- Borrowers like individuals or corporates borrow INITIAL PUBLIC OFFERING PROCESS
money for meeting expenses or capital requirements. The lenders Step 1 : Proposal Creation
give the funds to get interest on the principal amount which is a Step 2 : Underwriting Selection
return on investment for the lenders. Step 3 : Team Assembly
iv. Rental Income- Any property rented out can earn rent on a Step 4 : SEC Filings
regular basis, which is also a return in the real estate property. Step 5 : Road Show Marketing
v. Return from currency trading- Profits earned from trading in loans money for a defined period at a pre-established interest Step 6 : Pricing
exchange rates by using the difference is exchange rate of rate. Step 7 : Trading
different currency is also a form of return for those who do -a fixed- income instrument that represents a loan made by an Step 8 : Post – IPO
currency trading investor to a borrower typically corporate or government.
• MONEY MARKETS - The money market often deals in highly 7 Functions Of Financial Markets
Chapter FIVE: The Financial Market liquid products with short maturities (less than a year) that offer 1.Price Discovery – Decides the worth of an asset
comparatively lower interest returns than other markets while 2. Fund Mobilization – Raising funds for expanding services
Financial Market - is a place where securities and other financial maintaining a high level of safety. 3. Market Efficiency – Information available in the financial
assets are bought and sold. It distributes scarce resources within • MONEY MARKET ACCOUNTS market
the country's economy Pros 4. Liquidity – Provides liquidity for buying and selling
- Higher interest rate 5. Risk Sharing – Manage risk with derivatives trading
-refers broadly to any marketplace where securities trading - Safe and Insured 6. Capital Formation – Increment in the productive asset stocks
occurs, including the stock market, bond market, forex market, - Debit cards and checks 7. Intermediary – Facilities transactions between buyers and
and derivatives market Cons sellers
- Small Interest Earnings
- Higher Minimum Balance
- Limits on Monthly Transactions
• DERIVATIVES MARKETS - A Derivative is a contract between
two or more parties whose value is based on an agreed-upon
TYPES OF FINANCIAL MARKETS underlying financial assets (like security) or set of assets (like an
index).
Chapter SIX: The Stock Market capitalization of its listed companies with billions of trades III. NORTH ASIA
happening daily.
HOW DOES STOCK MARKET WORKS? 3. National Association of Securities Dealers Automated
• The PRIMARY MARKET - is where securities are created, and a Quotations (NASDAQ) NASDAQ is an electronic marketplace EXCHANGE LOCATION FOUNDED LISTING
company list their shares through an IPO or so called Initial Public based in the United States and is focused on high technology
MOSCOW MOSCOW, 2011 219
Offering. An IPO is when a company first list their shares publicly. listings. It is ranked second on the list of stocks exchanges by
EXCHANGE RUSSIA
• The SECONDARY MARKET, - which is essentially the stock market capitalizations of shares traded behind NYSE.
exchange, is where the supply and demand of these shares (along
with the thousands of other stocks on the market) are bought, I. CENTRAL ASIA
IV. SOUTHEAST ASIA
sold, and traded every day.
EXCHANGE LOCATION FOUNDED LISTING
WHY INVEST IN THE STOCK MARKET?
Investment Gains – primary benefits of investing in the stock KAZAKHSTAN ALMATY, 1993 127
market is the chance to grow your money STOCK KAZAKHSTAN
Diversification – for investors who put money into different types EXCHANGE LOCATION FOUNDED LISTING
EXCHANGE
of investment products
KRYGYZ BISHKEK, 1994 NOT INDONESIA JAKARTA, 1912 833
Dividend Income – some stocks provide income in the form of a
STOCK KYRGYZTAN INDICATED STOCK INDONESIA
dividenf, those that do deliver annual payments to investors
EXCHANGE EXCHANGE
Ownership – buying share of stock means taking on an ownership
strake in the company you purchase stock in CENTRAL DUSHANBE, 2015 NOT
ASIAN STOCK TAJIKISTAN INDICATED
LAOS VIENTIANE, 2011 11
The Stock Market serves two important purposes. EXCHANGE
SECURITIES LAOS
- First, it helps companies raise money often referred to as capital TASHKENT TASHKENT, 1994 104 EXCHANGE
from the public by offering shares for sale, which can be used to STOCK UZBEKISTAN
fund and expand their business. EXCHANGE
-Second, it gives an investor, who purchases those shares, an BURSA KUALA 1964 801
opportunity to have a share in the company’s profits II. EASTERN ASIA MALAYSIA LUMPUR,
-Investors can profit from owning stocks in one of two ways. MALAYSIA
Some stocks pay regular dividends (a given amount of money per
share) at regular intervals which provides a return on the amount EXCHANGE LOCATION FOUNDED LISTING
of money invested in the shares. Alternatively, a return can also SHANGHAI SHANGHAI, 1990 2061 MYANMAR YANGON, 1996 NO
be earned through capital appreciation which is when the stock STOCK CHINA SECURITIES MYANMAR T INDICATED
price increases. EXCHANGE EXCHANGE
CENTRE
HONG KONG HONG KONG 1891 2,538
STOCK
EXCHANGE
PHILIPPINE MANILA, 1927 329
TOKYO STOCK TOKYO, JAPAN 1878 1,838 STOCK PHILIPPINES
EXCHANGE EXCHANGE
MACAO MACAU 2018 NOT
FINANCIAL INDICATED
ASSET SINGAPORE SINGAPORE 1999 776
EXCHANGE EXCHANGE
2 COMMODITIES MARKETS
EXCHANGE LOCATION FOUNDED LISTING
Raw materials like steel, coal and oil are traded on commodities
TEL AVIV STOCK TEL AVIV, 1953 473 markets. There are around 50 major commodity markets
EXCHANGE ISRAEL worldwide that facilitate trade in a wide range of commodities.
3. DERIVATIVES
AMMAN STOCK AMMAN, 1999 NOT
EXCHANGE JORDAN INDICATED Derivative are financial contracts like options whose value is tied
to an underlying asset. These are essentially contractual bets
BOURSA SAFAT, KUWAIT 1977 NOT about whether individual securities value will rise of fall.
KUWAIT INDICATED
4. FOREIGN EXCHANGE MARKETS
BEIRUT STOCK BEIRUT, 1920 NOT
FOREX Trading is borderless, international market for exchanging
EXCHANGE LEBANON INDICATED
currencies. FOREX Traders take advantage of the constantly
fluctuating value of different currencies to make profits, and help
TADAWUL RIYADH, 2007 202 provide liquidity for international trade.
KINGDOM OF
SAUDI ARABIA 5. CRYPTOCURRENCIES