tailieunhanh - Lecture Investments (Special Indian Edition): Chapter 16 - Bodie, Kane, Marcus

This chapter provides an explanation of why a portfolio approach is important to all types of investors in achieving their financial goals. A comparison is made of the financial needs of different types of individual and institutional investors. An outline is provided for the steps in the portfolio management process. The chapter concludes with a discussion of the types of investment management products that are available to investors and how they apply to the portfolio approach. | Chapter 17 Macroeconomic and Industry Analysis Fundamental Analysis Approach to Fundamental Analysis: Domestic and global economic analysis Industry analysis Company analysis Why use the top-down approach? Framework of Analysis Performance in countries and regions is highly variable. Political risk Exchange rate risk Sales Profits Stock returns Global Economic Considerations Gross domestic product Unemployment rates Interest rates & inflation International measures Consumer sentiment Key Economic Variables Fiscal Policy - government spending and taxing actions. Direct policy Slowly implemented Federal Government Policy Monetary Policy - manipulation of the money supply to influence economic activity. Initial & feedback effects Tools of monetary policy Open market operations Discount rate Reserve requirements Federal Government Policy (cont’d) Demand shock - an event that affects demand for goods and services in the economy. Tax rate cut Increases in government spending Demand Shocks Supply shock - an event that influences production capacity or production costs. Commodity price changes Educational level of economic participants Supply Shocks Business Cycle Peak Trough Industry relationship to business cycles Cyclical Defensive Business Cycles Leading Indicators - tend to rise and fall in advance of the economy. Examples: Avg. weekly hours of production workers Stock Prices NBER Cyclical Indicators: Leading Coincident Indicators - indicators that tend to change directly with the economy. Examples: Industrial production Manufacturing and trade sales NBER Cyclical Indicators: Coincident Lagging Indicators - indicators that tend to follow the lag economic performance. Examples: Ratio of trade inventories to sales Ratio of consumer installment credit outstanding to personal income NBER Cyclical Indicators: Lagging Sensitivity to business cycles Factors affecting sensitivity of earnings to business cycles: Sensitivity of sales of the firm’s product to the business cycles Operating leverage Financial leverage Industry life cycles Industry Analysis Stage Sales Growth Start-up Rapid & Increasing Consolidation Stable Maturity Slowing Relative Decline Minimal or Negative Industry Life Cycles Sector Rotation Portfolio is adjusted by selecting companies that should perform well for the stage of the business cycle Peaks – natural resource extraction firms Contraction – defensive industries such as pharmaceuticals and food Trough – capital goods industries Expansion – cyclical industries such as consumer durables