SECURITY
ANALYSIS
TERMS OF SECURITY ANALYSIS
• Intrinsic Value
• Market Value
• Fundamental Analysis
• Technical Analysis
• Risk and Return
• Margin of Safety
• Diversification
Intrinsic value
refers to the true worth of a company based on its
fundamentals, such as assets, earnings power, and
financial stability. By concentrating on intrinsic
value, investors can avoid overpaying for securities
and increase the potential for substantial returns.
Market value
refers to the current worth of a financial
• Fundamental Analysis
• Technical Analysis
• Quantitative Analysis
security, determined by its expected
future cash flows, risk profile, and
prevailing market conditions. It is crucial
for investors to understand the market
value to make informed decisions about
buying, holding, or selling securities.
fundamental ANALYSIS
method used to evaluate the intrinsic value of a
security by examining various economic,
financial, and qualitative factors, helping
investors make informed decisions.
TECHNICAL ANALYSIS
This type of security analysis is a price
forecasting technique that considers only
historical prices, trading volumes, and
industry trends to predict the security's
future performance.
It studies stock charts by applying
various indicators (like MACD, Bollinger
bands, etc.), assuming every
fundamental input has been factored
into the price.
RISK AND RETURN
involves evaluating the potential returns
of an investment in relation to the
associated risks, utilizing concepts like
Modern Portfolio Theory and
diversification to optimize investment
decisions.
Margin of safety
It provides a buffer against potential losses
by purchasing securities at prices
significantly below their intrinsic value.
diversification
ysis a strategy that mixes a wide variety of
investments within a portfolio in an attempt
to reduce portfolio risk.
most often done by investing in different
asset classes such as stocks, bonds, real
estate, or cryptocurrency and then in different
types of securities within a class.
Importance of security analysis
in investing
Security analysis is crucial for
making informed investment
decisions.
It’s importance includes:
Helps Determine True Value Enhances Portfolio
Performance
Reduces Investment Risk Protects Against Market
Volatility
Supports Better Decision Defects Potential Red Flags
Making
Importance of security analysis
in investing
Security analysis is crucial for making informed investment decisions. Its
importance includes:
Prevents overpaying for overpriced assets and
Helps Determine True Value helps identify undervalued opportunities.
By analyzing financial stability, growth
Reduces Investment Risk
prospects, and market conditions.
Investors can choose suitable assets aligned
Supports Better Decision with their risk tolerance and financial goals.
Making
Importance of security analysis
in investing
Security analysis is crucial for making informed investment decisions. Its
importance includes:
Enhances Portfolio
Proper analysis can lead to better returns
Performance through informed asset selection.
Understanding a security’s fundamentals helps
Protects Against Market investors stay confident during market
Volatility
fluctuations.
Like high debt levels, weak earnings, or
Defects Potential Red Flags governance issues.
Types of
financial
ysis instrument
Financial instruments are assets that can
be traded in financial markets. They fall
into three broad categories:
Based on Nature Based on Use Based on Market
Types of
financial
instrument
Financial instruments are assets that can
be traded in financial markets. They fall
into three broad categories:
Based on Nature
Equity Instruments Debt Instruments
Hybrid
Instruments
• Represent ownership • Represent borrowed
(e.g., stocks, funds (e.g., bonds, • Combine features of
shares). debentures,
equity and debt
treasury bills).
(e.g., preferred
• Holders have voting • Issuer pays periodic
shares, convertible
rights and may interest and returns
bonds**).
receive dividends. principal at
maturity.
Types of
financial
instrument
Financial instruments are assets that can
be traded in financial markets. They fall
into three broad categories:
Based on Use
Cash Instruments
Derivative
Instruments
Value is directly
determined by the
Value depends on
market (e.g.,
underlying assets
deposits, loans,
(e.g., futures, options,
certificates of
swaps, forwards).
deposit).
Types of
financial
instrument
Financial instruments are assets that can
be traded in financial markets. They fall
into three broad categories:
Based on Market
Primary Market
Secondary Market
Instruments
Instruments
New securities
Existing securities
issued for the first
traded between
time (e.g., IPO
investors (e.g., stocks
shares, new
on exchanges).
bonds).
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