Some of the major sub categories of the two major style of active equity management (top down and bottom up) are listed below; Growth managers: Growth managers can be classified as either top-down or bottom-up. The growth managers are either divided into large capitalization or small capitalization. The growth managers buy securities that are typically selling at relatively high P/E ratios, due to high earnings growth rate, with the expectation of continued high earnings growth. The portfolios are characterized by high P/E ratios, high returns, and relatively low dividend yields. Market timers: The market timer is typically a set category of top-down investment style and comes in many varieties. The basic assumption is that he can forecast the market i.e. Continue reading
Stock Investments
Equity Investment Analysis
Equity Valuation The security analyst when faced with the problem of a buy or sell decision must first evaluate the past performance of the security, and then coupled with his personal experience predict the future performance of the security and the relative market position. The amount of data available to him far exceeds his potential and therefore he has to base his predictions on several basic attributes and modify the results in the light of intuitive beliefs. While the process may be successful, its intuitive segments make the evaluation of errors and improvements of this technique very difficult, if not impossible. Equity valuation is difficult in comparison to valuation of bonds and preference shares. This is because benefits are generally Continue reading
Understanding the Financial Swaps Market
Exchange rate instability and the collapse of the Bretton Woods System and particularly the control over the movement of the capital internationally, paved the way for the origin of the financial swaps market. To day swaps are at the center of the global financial revolution. The growth is such that sometimes it looks like unbelievable but it is true. Though its growth will continue or not is doubtful. Already the shaking has started. In the “plain vanilla” dollar sector, the profits for brokers and market makers, after costs and allocation of risk capital, are measured in fewer than five basis points. This is before the regulators catch up and force disclosure and capital haircuts. At these spreads, the more highly Continue reading
Stock Market Index
The general movement of the stock market is usually measured by averages or indices consisting of groups of securities that are supposed to represent the entire stock market or its particular segments. Thus, Security Market Indices (or) Security Market Indicators provide a summary measure of the behavior of security prices and the stock market. The principal stock market indices used in India are the Bombay Stock Exchange Sensitive Index (BSE Sensex) and the S&P CNX Nifty known as the NSE Nifty (National Stock Exchange Fifty). Purpose of an Index The security market indices are indicators of different things and are useful for different purposes. The following are the important uses of a stock market index: Security market indices are the Continue reading
Growth Theory of Common Stock Valuation
The Growth Theory studies the analysis of corporate and industry data to select reputed concerns that show continuing growth from one business cycle to another and a growth rate that exceeds the overall economy. Embedded in growth theory is that, the investor seeks returns in the form of capital growth rather than dividend income. If an investor can classify and obtain the stock of such companies in their early developmental and growth stages, and the companies go on to become leaders in a growing field, the investor most likely will have impressive results. Another approach of the growth theory is to purchase mutual funds that focus on certain industries which the investor considers to be growth industries. An alternative is Continue reading
Market Timing for Investors
persoMarket Timing is a top down view of the stock market and its prospects. Â Market Timing is an approach that attempts to determine when to be in the market, when to be out of the market and when to short (bet on a price decline by borrowing stock and selling with the hope to buy it back at a cheaper price and repay at cheaper prices). Market timing includes the following four components. Trends of interest rates: The future behavior of interest rates, i.e., the tightening or easing bias of the Central Bank. Interest rates are critical to market values for three reasons. Stocks are basically the present value of future earnings. An investor invests his money in an expectation Continue reading