Zusammenfassung der Ressource
security analysis
- The evaluation of an
organisation and its prospects
from the perspective of an
investors in the firm's shares
- One step closer to maximising an investor's objectives
- investor objectives must be matched with the
appropriate investment. Savers depend on risk
tolerance, tax rates, stages of life, other assets,
income and age.
- Managed funds have become popular investment vehicles for
savers to achieve their investment objectives. They sell shares in a
professionally managed portfolios
- Sell side analysts are within an investment bank which constraints their
choices of firms to follow. However fun managers have freedom to focus on
any firm
- conducted by an analyst to identify mispriced
shares in the hope of generating more returns to
compensate investors for risk.
- However some analysts just gain an appreciation of how a security
affects the risk of a portfolio & whether it fits the profile of
the portfolio instead.
- Identifying mispricing requires a comparison of the
analysts' expectations with those of the market
- Analysts use financial
statements. Thus the users are:
- Buy side Analysts: Final owners of securities
because they have funds to invest. The money
comes from mutual funds, units trust, insurance
- Sell side analysts: These are brokers that generate
commission and increase trading activity. They have
an incentive to make every stock look goods. e.g.
investment banks
- optimistic with their forecasts because they are
compensated for their trading activity thus encourage
buying.
- they have Superior performance because they recommend
purchasing small, less liquid shares. focus on short term perfomance
- Individuals: can do their own
evalutions
- Valuers/consultants: give info on a
trasnaction
- tax authorities
- credit managers: lending officers.
Determine how much credit to lend
- Efficient market hypotheis posits that security
prices incorporate new information immediately
upon release
- The expected return on any equity security
is enough to compensate investors for the
unavoidable risk the security involved. Such
a risk cannot be diversified away by holding
the portfolio
- Cannot represent equilibrium because this hypothesis
means investors have no need to identify mispricing of
stock but accept that info is already reflected in prices thus
mispricing goes uncorrected and markets are inefficient
- Mispricing should be present to provide incentive for
investment of resources representing equilibrium. It also
means security analysis is subject to the laws of supply and
demand
- Advantages : prices are fair, not too high
or too low. Share prices adjust quickly to
new prices.
- Disadvantages: it assumes information is free thus we all have
equal access to it. Costlessly translated into demand for buys or
sells, no friction such as transactions costs, commissions, taxes
and homogenous expectations.
- Evidence: hard to identy analyst who have had
constant abnormal returns. Athough response
is quick, initial reaction tends to be incomplete
- It says you cant beat the market because all
information is incorporated into the price already. Thus
be a passive investor who buys funds that mimic the
market at a low cost.Weak form(past information -
public), semi strong form(past and present - market
info), strong form (public and private). EMH is believed
to be the strong form cos all info is incorporated
whether past, private or public.
- can be incorrect because all investors view
information differently thus diff stock valuation,
stocks take time to respond new info thus investors
who react first can take advantage, stock prices be
affected by human error. Info is not free either and
easily accessible, so is the benefit> cost?
- Approaches to management of funds
- Active management: keeps the market honest. believes funds
managers can make good choices, cover costs and beat the market.
there is also a fee. Relies heavily on security analysis to identify
mispriced securities. it sues approaches such ...
- fundamental analysis evaluates current prices relative to projections of a
firm's future earnings and cash flow generating potential. it involves bsns,
accounting and financial analysis
- Fundamental preferred bc
of human judgement
- Quantitative approaches uses
techniques such as regression analysis
to predict future share returns
- Technical analysis predicts future share price
based on past information of price movements
- Passive manager serves as a price take, avoiding
all costs of security analysis
- Informal valuations are consensus forecasts
(the avg forecasts on individuals analysts at a
point in time - diversifies away individual
errors)
- After forecasts and further
analysis has been made, final
product is a recommendation
from the analysts to buy, sell or
hold.
- They are often short term recommendations
because of investment risks associated with long term
- Behavioural finance:These people believe markets are not efficient because of systematic biases in
people's interpretive information. Rational people think at the border thus consider past information, and buy assets
When past returns have good and sell when the past returns have been bad.
- Contrarian strategy: An unpopular decision to buy assets when they are performing poorly, and then selling when they are performing
good. When stock prices are going down this investor sees he stock prices at misprices that they can capitalize on. Thus they buy when
they are doing badly then sell when performing well. to gain profits.