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Investments Introduction

Investments Introduction

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04/27/2014

Security Analysis and Portfolio Management

Investments Introduction Investment defines as “Sacrificing something now for the prospect of gaining something later.” Three dimension • Time • Today’s Sacrifice • Prospective gain "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return. Operations not meeting these requirements are speculative." Investment Attributes • Rate of Return • Risk • Marketability • Tax Shelter • Convenience or Liquidity
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Security Analysis and Portfolio Management

Investment Constraints • Liquidity • Age • Need for Regular Income • Time Horizon • Risk Tolerance • Tax Liability Investment Versus Speculation • Planning • Risk Disposition • Return Expectation • Basis for Decision • Leverage • Timings You are probably an investor if:
• •

Buying a portfolio of quality issues at a reasonable price. Focus on the best value issues of the type for superior returns.
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Security Analysis and Portfolio Management

The portfolio is made up of issues with a strong track record, Justify your purchase with reasonable projections of profits You buy something because the price has fallen temporarily You sell because of deteriorating fundamentals in the investment, or you need the cash for something meeting your buy criteria even more closely. You keep a close eye on those who manage your investments Tax efficiency is important, and you take after-tax returns into account

You are probably a good speculator if: • You understand the risk and are taking positive measures to limit that risk. • You are taking steps to bring about a higher return than average • You anticipate a price increase but have a plan in place in case it doesn't. • You track a large amount of information • You are well tuned with the pulse of the market • You buy at the early signs of upturn after the price has fallen
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Security Analysis and Portfolio Management
• •

• •

You are mindful of the overall trend in prices. You buy the best value investment of its type during a boom. You buy something with the strongest upward price momentum. You sell because you notice a trend change. You don't trust anyone else with your money,

You are probably a mug speculator if: • You verbally acknowledge risk but ignore it, • You are buying something because someone you know told you it is good. • You have absolutely no idea what else is out there because you haven't really checked, but this one looks good. • You think it is a sure thing to go up. • You buy something that has fallen a lot because you don't think the price can go any lower. • Mitali Mukharjee says on CNBC TV18 that She "likes ONGC a lot" so you buy it. • You don't understand how people make money in the investment. • You will pay anything for an investment because prices are booming. • You buy because it has gone up a lot.
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Security Analysis and Portfolio Management

“I read the first edition of this book early in 1950, when I was nineteen. I thought then that it was by far the best book about investing ever written. I still think it is.”Warren Buffett

Benjamin Graham

Warren Buffet

An Economist and Investor May 8, 1894 – September 21, 1976 The Father of Security Analysis

An Investor August 30, 1930 13 years old, Buffett filed his first income tax return, deducting his bicycle as a work
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Security Analysis and Portfolio Management

expense for $35. Wrote first edition of The Intelligent Investor in 1949 15 years old, In his senior year of high school, Buffett and his friend spent $25 to purchase a used pinball machine, which they placed in a barber shop. Within month, they owned three machines in different locations. 20 years old Buffett applied for admission to Harvard Business School but was turned down, Buffett enrolled at Columbia Business School after learning that Benjamin Graham and David Dodd, two well-known securities analysts, taught there. Buffett graduated from Columbia and wanted to work on Wall Street. Both his father and Ben Graham urged him not to. Buffett offered to work for Graham for free but Graham refused. He purchased a Sinclair Texaco gas station as a side
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In 1950, a student named Warren Buffett enrolled in graduate school at Columbia to study under Graham, later hired Buffett in 1954 Major influence in the development of the Chartered Financial Analyst (CFA) Certification

Security Analysis and Portfolio Management

1. An earnings-to-price yield at least twice the AAA bond yield. 2. A P/E ratio less than 40% of the highest P/E ratio the stock had over the past five years. 3. A dividend yield of at least two-thirds the AAA bond yield. 4. Stock price below two-thirds of tangible book value per share. 5. Stock price below two-thirds "net current asset value."

investment, but that venture did not work out as well as he had hoped. Meanwhile, he worked as a stockbroker. During that time, Buffett also took a Dale Carnegie public speaking course. Using what he learned, he felt confident enough to teach a night class at the University of Nebraska, "Investment Principles." The average age of the students he taught was more than twice his own. 24 years old Benjamin Graham offered Buffett a job at his partnership with a starting salary of $12,000 a year. Here, he worked closely. 32 years old Buffett becomes a millionaire because Buffett's partnerships, in January 1962, had in excess of $7,178,500 of which over $1,025,000 belonged to Buffett.
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Security Analysis and Portfolio Management

INVESTMENT VS. SPECULATION "An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return."

75 years old Buffett announced in June that he would gradually give away 85% of his Berkshire holdings to five foundations in annual gifts of stock, starting in July 2006. The largest contribution will go to the Bill and Melinda Gates Foundation

Did you know $500 contributed yearly compounded at 25% for 27 yrs = over $1 million ! Great Stock Investors. * 29% for 37 yrs. - George Soros * 21% for 40 yrs. - Warren Buffett * 29% for 18 yrs. - Eddie Lampert * 29% for 18 yrs. - Peter Lynch * 24% for 13 yrs. - Jim Cramer * 15% for 20 yrs. - Benjamin Graham
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Security Analysis and Portfolio Management

Top billionaires for the year 2008

No.

Name

1▲ Warren Buffett 2▲ Carlos Slim Helú 3▼ Bill Gates

Net worth Age (USD) $62.0 billion ▲ 77 $60.0 billion ▲ $58.0 billion ▲

Citizenship

Residence United States Mexico United States United Kingdom India India

United States 68 Mexico 52 United States 57 India 50 48 India India

Sources of wealth Berkshire Hathaway Telmex, América Móvil Microsoft Arcelor Mittal Reliance Industries Anil Dhirubhai Ambani Group

4▲ Lakshmi $45.0 billion ▲ Mittal 5▲ Mukesh $43.0 billion ▲ Ambani 6▲ Anil Ambani $42.0 billion ▲

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Security Analysis and Portfolio Management

No. 7▲

Name

Net worth (USD) $31.1 billion ▲ $31.0 billion ▼ $30.0 billion ▲ $28.0 billion ▲

Age 41 81 76 40

Citizenship Ukraine Sweden India Russia

Residence

Rinat Akhmetov 8▼ Ingvar Kamprad and family 9▲ Kushal Pal Singh 10▲ Oleg Deripaska

Sources of wealth Ukraine SCM Holdings Switzerland IKEA India Russia DLF Group Rusal

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