Investment, Speculation, Risk, Return, Gambling, Portfolio Return, Security Analysis

2. Amit Joshi

3. Investment
 A process of sacrificing now for the
prospect of gaining something later.
 Three points should be there for
investment:
 Time
 Today’s Sacrifice
 Prospective gain
 It is employment of funds with the
purpose of earning additional income
or growth in value.

4. Definition
 “Sacrifice of certain present value for
some uncertain future”.
Sharpe/Alexander
 Investment aims at multiplication of
money at higher or lower rates
depending upon whether it is a long
term or short term investment, and
whether it is risky or risk free rate of
return

5. Investment Vs. Speculation

6. Investment Vs. Speculation
 Risk
 Normally risk involved in investment is lower profits or loss
of profits.
 Speculation may result in a very high profit or high losses.
 So risk involved in speculation is very high as compared to
investments.
 Capital Gain
 The motive of investment is achievement of capital
appreciation.
 The motive of speculation is to achieve profit through price
changes.
 Time
 If securities are purchased and investor does not expect an
immediate return on it and waits for long term benefit, it is
termed as investments
 If a person expects fast return on his investment and
disposes of the assets in the short time, then it is termed as
speculation.

7. Objectives Of Investment In
Securities
 Income
 Capital Appreciation
 Conservative Growth
 Aggressive Growth
 Speculation
 Returns
 Periodic cash receipts
 Capital gain
 Safety and security of funds
 Risks
 Liquidity
 Tax Considerations

8. Securities

9. Classification of
Investments
 Physical Investments
 Tangible in nature
 Some are useful for further production
(Capital goods)
 Some are not useful for further production
 Financial Investments
 Used for consumption; or
 Used for production of goods and services; or
 For further creation of assets.

10.  Marketable and Non Marketable
Investments
 Investments listed at stock exchanges are
easily marketable
 Non marketable securities which can not
be traded in market (Insurance Policy of a
person)
 Transferable and Non Transferable
Investments
 Generally marketable securities are
transferable whereas non marketable
securities are not transferable.

11. Mode of Investment
 Direct Investment Alternatives:
 Fixed Principal Investment
 Variable principal investments
 Non security investments
 Indirect Investment Alternatives:
 Mutual Funds.
 Insurance
 Investment Companies
 Pension Funds

12. Features of an Ideal
Investment Programme
 Safety and Security
 Liquidity
 Regularity and Stability of Income
 Stability of Purchasing Power
 Capital Appreciation
 Tax Benefits
 Legality
 Convertibility
 Tangibility

13. Measurability of Risk
 Beta

14. Portfolio Management
 Emphasis is put on identifying the collective
importance of investor’s holdings.
 Portfolio should meet the needs of an
investor/
 Need for careful evaluation of risk and return
from securities.

15. Process of Investment Analysis
 Investment Policy
 It provides the raw material for the portfolio in
choosing various securities as per the needs of
investor.
 Investment Analysis
 To determine the future risk and return in
holding various types of individual securities.

16.  Valuation of Securities
 Valuation of securities should be done on the
basis of its present worth.
 Portfolio Construction
 Portfolio should be constructed by keeping risk
and return profile of an investor.
 Portfolio Evaluation and Revision
 Evaluation of portfolio is necessary time to time
depending upon the market conditions.

17. Risks
 Systematic Risk ( Undiversifiable Risk)
Market Risk
Interest Rate Risk
Inflation Rate Risk
 Unsystematic Risk ( Diversifiable Risk)
Business Risk
Financial Risk
Liquidity Risk

18. RISK
DIVERSIFIABLE/ NON –
unique risk DIVERSIFIABLE
or systematic risk
Strikes
Changes in government policies –
Increase in competition
monetary policy, fiscal policy,
Technical breakdown or foreign policy, corporate taxes
obsolescence
War
Inadequate raw material
Earthquake, floods, rains,
Change in management. tsunamis etc.
Loss of a big contract etc.

19. RETURNS
Change in
Dividend the value of
regular cash stock over t
flow -time
Value of stock in
beginning

20. Portfolio Rate of Return
R p = Wx R x + W y R y