APPLIED PROPERTY INVESTMENT

PART 1

INTRODUCTION

(A) WHAT IS INVESTMENT?

1. Definition

“Investment is the giving up of a capital sum now, in exchange for benefits to

be received in the future such as income flow and /or capital gain”

(Nigel Enever “The Valuation of Property Investments”)

“Investment is the sacrifice of something now for the prospect of later benefits”

(Greer and Farrell 1984)

How does an investment generate later benefits?

It can do this in the following three ways:
a. by generating a flow of income
b. by generating a return of capital
c. by producing a psychic income, a positive feeling induced by investment
ownership

(Andrew Baum Property Investment Appraisal)

An investment is the current commitment of dollars for a period of time in

order to derive future payments that will compensate the investor for (1) the
time the funds are committed, (2) the expected rate of inflation, and (3) the
uncertainty of the future payments.

(Reilly and Brown Investment Analysis and Portfolio Management)

1. Idea: Buy low, Sell high in the market of the investment vehicle
(seller, buyer and broker/agent would be involved)

2. Method: Buy first, sell later

Sell first, buy later

3. Nature: Trading in anticipation of movement of price of investment

vehicles.

(B) TYPES OF INVESTMENTS (INVESTMENT SCENE)

1. Bank deposit - bank run, bank crisis (Swiss bank, Citicorp etc. due to
non-performing loans).

2. Bonds (fixed income securities)

- Government Treasury Bills (3 months to 1 year), 10 and 30 years bonds
- Corporate bonds: Debentures, Convertible bonds
- Index-linked bonds (tie to CPI)

3 Equity- ordinary shares.

4. Real Estate (direct investment); REIT (indirect investment), property

development and investment company shares (indirect investment)

5. Financial Dérivatives- forward, future, option, warrant, convertible

bonds, CDO, CDS etc.

6. Commodities: gold, silver, agricultural products.

7. Currency

8. Coins, painting, jewellery, stamp collection, antique etc.

9. Funds - Bonds Fund, Equity Fund, Warrant Fund, Currency Fund, Hedge
Fund etc.
10. Others - taxi licence etc.

(C) ELEMENTS OF INVESTMENT

1. Key elements: (a) Security: preservation of capital

(b) Profitability: rate of return
(c) Liquidity: established market

2. Holding horizon: time and timing

3. Risks: upside potential

downside potential
cut loss level

4. Investor against speculator

(D) INVESTMENT PROFESSIONALS

1. CFA Institute (Chartered Financial Analysts Institute), previously known

as the Association for Investment Management and Research.

2. Security Analysts Association of Japan (SAAJ)

3. German Society of Investment Managers and Analysts- DVFA

4. The Hong Kong Society of Financial Analysts Ltd.

REFERENCES

Financial Newspapers and Magazines

1. Barron, Forbes, Fortunes
2. The Economists
3. Hong Kong Economic Journal etc. etc.

Books
1. Andrew Baum: Property Investment Appraisal
2. T.G. Goff: Theory and Practice of Investment
3. Clive Darlow: Valuation and Investment Appraisal
4. Gerald R. Brown: Property Investment and the Capital Markets
5. F. Reilly & K. Brown Investment Analysis and Portfolio Management
6. Graham and Dodd: Security Analysis
7. Benjamin Graham: Intelligent Investor
8. Gerald R. Brown: Real Estate Investment
9. Su Han Chan: Real estate investment trusts: structure, performance
and investment opportunities