FINA 2802 Investments and Portfolio Analysis Course Overview

FINA 2802: Investments and Portfolio Analysis Course Overview Dragon Yongjun Tang January 12, 2010

Why do I care? 2

Balance Sheet – U. S. Households 3

The Courage to Be Rich n This will be the best course you ever take! (financially speaking. ) 4

Plan for today Introduction n Learning objectives n Grading policies n Class schedule n Lecture 1: Investment Background n 5

My teaching style No-nonsense n Practical, informative, first-hand experience n Not for exam-takers n A lot extra credit opportunities n Easy to get A for serious investors n 6

Who is he? 7

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Learn from the gurus Success breeds success n Strive for the best n Be creative n 12

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“It's not what we don't know that prevents us from succeeding; it's what we know that just ain't so that is our greatest obstacle. ” --- Josh Billings 15

Lecture 1: Background and Issues n Reading: Chapter 1 n Practice Problem Sets: 1, 2, 4, 5, 7, 9, 11, 14, 16 16

Objectives n Define “Investment” n Distinguish between real assets and financial assets. n Describe the major steps in the construction of a portfolio. n Identify major participants in financial markets. n Recent trends 17

Investment Current commitment n Future benefit n 18

Investment What major investments have you ever made? 19

Investment Vehicles Real assets n Financial assets are means to distribute the consumption of real assets. 20

Type of Financial Assets Financial Market Fixed-income (Bonds) Equity (Stocks) FIN 0804 FINA 2802 (This course) Derivatives FINA 0301 21

Role of Financial Assets n n Information Content Transfer of Consumption through time Allocation of Risk Separation ownership/control - Agency Problems 22

The Investment Process Asset allocation n Security selection n Risk-return trade-off n Market efficiency n Active (bottom-up) vs. passive (top-down) management n 23

Example of Asset Allocation Age 30 s 40 s 50 s 60 s Common Stocks 70% 60 50 40 Bonds 30% 40 50 60 24

Example of Security Selection Your Stock Portfolio Auto Retail Wal-Mart Nordstroms Espirit Financial Bank of China Berkshire Hathaway HSBC 25

There is no free lunch! 26

Market Efficiency n Security prices accurately reflect all relevant information. How many efficient market theorists does it take to change a light bulb? 27

Market Efficiency How many efficient market theorists does it take to change a light bulb? None! If the light bulb needs to be changed, someone else must have already done it. 28

Players in the Financial Markets Business Firms – net borrowers n Households – net savers n Governments – can be both borrowers and savers n Investment Bankers n 29

Recent Trends n n Globalization Securitization Financial Engineering Computer Networks 30

Hong Kong up 60% in 2009 31

Decision Making 1. 2. 3. 4. Perceive the situation Possible actions Evaluate the outcomes Choose the action with the best outcome Which is the most important? 32

Summary Financial assets n Risk return tradeoff n Next class: Financial Securities n 33