01-06-2024

Outline
• Investment Alternatives
• Investment Attributes
• Investment versus Speculation
• Financial Markets
Chapter 1 • Portfolio Management Process
• Approaches to Investment Decision Making
OVERVIEW • Common Errors in Investment Management

A Broad Map of the Territory • Qualities for Successful Investing

• Three Approaches to Succeed as an Investor

 2017 by Prasanna Chandra  2017 by Prasanna Chandra

Investment Alternatives Investment Attributes

Investment Avenues

Government Saving
• Return
Deposits
Schemes

Money Market
• Risk
Bonds or
Instruments Debentures

Equity Mutual Fund

• Liquidity
Shares
Schemes

Insurance Retirement • Tax shelter

Products Products

Real Precious
• Convenience
Estate Objects
Derivatives

 2017 by Prasanna Chandra  2017 by Prasanna Chandra

Evaluation Of Various Investment Avenues

Return
Investment Vs. Speculation
Marketability/
Current yield Capital Risk Liquidity Tax Shelter Convenience
appreciation
Equity
Low High High Fairly high High High
Investor Speculator
Shares
Non-
convertible High Negligible Low Average Section 80 High
Debentures C benefits
Equity
Schemes
Low High High High High Very high • Planning Horizon Long Short
Debt No tax on
Moderate Low Low High Very high
Schemes dividends
Bank
Deposits
Moderate Section 80 C
benefits
Negligible High Section
80 C
Very high
• Risk Disposition Moderate High
benefits
Public
Moderate Section Section 80 C
Provident Section 80 C Average Very high
Fund benefits
80 C
benefits
benefit • Return Expectation Modest High
Life
Section Section 80 C
Insurance Section 80 C Moderate Average Very High
80 C benefit
Policies benefits
Residential
benefits • Basis for Decision Fundamental Technical
Moderate Moderate Negligible Low High Fair
House
Gold and
Section 80 C Moderate Average Average Section 80 Average
Silver
benefits C benefits • Leverage No High
 2017 by Prasanna Chandra  2017 by Prasanna Chandra

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CLASSIFICATI ON OF FINANCIAL MARKETS Interrelationship among Various Phases of

DEBT MARKET
Portfolio Management
NATURE OF CLAIM
Specification of investment objectives and constraints
EQUITY MARKET

MONEY MARKET Quantification of capital market expectations

Investment policy
MATURITY OF CLAIM and strategy
CAPITAL MARKET Asset Allocation

PRIMARY MARKET Formulation of portfolio strategy

SEASONING OF CLAIM
SECONDARY MARKET
Selection of securities

CASH OR SPOT MARKET

TIMING OF DELIVERY Portfolio execution
Investment
FORWARD OR FUTURES MARKET implementation
and review
Portfolio revision
EXCHANGE-TRADED MARKET
ORGANISATIONAL Portfolio evaluation
STRUCTURE OVER-THE-COUNTER MARKET
 2017 by Prasanna Chandra  2017 by Prasanna Chandra

Approaches To Investment Common Errors In Investment Management

Investors appear to be prone to the following errors in managing their
Decision Making investments.
• Inadequate comprehension of return and risk
• Fundamental approach • Vaguely formulated investment policy
• Naïve extrapolation of the past
• Psychological approach
• Cursory decision making
• Academic approach • Simultaneous switching

MP ≃ IV • Misplaced love for cheap stocks

Random walk • Over-diversification and under-diversification

• Buying shares of familiar companies
Positive link..Risk & return
• Wrong attitude toward losses and profits
• Eclectic approach • Tendency to speculate

 2017 by Prasanna Chandra  2017 by Prasanna Chandra

Qualities for Successful Investing

Major Trends in the Investment Environment
• Contrary thinking

• Patience  Globalisation

 Information and Computer Networks

• Composure
 Financial Engineering
• Flexibility and openness
 Securitisation
• Decisiveness

 2017 by Prasanna Chandra  2017 by Prasanna Chandra

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Three Approaches to Succeed

• Psychologically difficult approach
As An Investor • Develop an investment policy and adhere to it consistently
• Physically difficult approach • Do not forecast stock prices
• Intellectually difficult approach • Rely more on hard numbers and less on
judgment
Ben Graham : Quantitative
Navigator • Maintain a certain distance from the
J.M. Keynes : Insights..Markets marketplace
psychology
• Face uncertainty with equanimity
John Templeton : Bargain Stocks
Warren Buffett : Value Investing
George Soros : Reflexivity
Principle
Peter Lynch : Flexibility
SP. Talent …Diligently Honed & nurtured
 2017 by Prasanna Chandra  2017 by Prasanna Chandra

Summing Up
• Portfolio management is a complex activity which can be
• A bewildering range of investment avenues is available. broken down into a series of steps.
• For evaluating an investment, the following attributes are • The stock market is thronged by investors pursuing diverse
relevant: rate of return, risk, marketability, tax shelter, and investment strategies.
convenience.
• Investors are prone to various errors
• A financial market is a market for creation and exchange of
financial assets. • The qualities of contrary thinking, patience, composure,
flexibility, and decisiveness are required to succeed in the
• Financial markets can be classified by the nature of claim, investment game.
maturity of claim, seasoning of claim, timing of delivery, and
organisational structure.

 2017 by Prasanna Chandra  2017 by Prasanna Chandra