Security Analysis and

Portfolio Management
Lecture 1
Course Overview
• Understanding investment decisions, types of investments
• Risk and return trade-off
• How to analyze stocks and bonds for investment decisions
• Understand how to make a portfolio of stocks, bonds, and other
financial instruments.
• Understanding of weight/money allocation to different assets using
portfolio optimization
• Basics of value investing and fundamental analysis
• Understanding of trend/technical analysis
Investment
• Investment means the application of money for earning more money.
• It involves sacrificing current income/funds with the aim of earning income or
capital appreciation.
• According to economics, investment involves utilization of resources to increase
income or producing more output in future

Key attributes of investment

• Time and Risk
• Here present consumption is sacrificed in expectation of future return.
• The attribute of uncertain future return indicates the risk factor.
• Effective investment decisions are taken with the trade-off of risk and return.
Key aspects of investment

Sacrifice
current
consumption Future expected
return

A person’s commitment to buy a flat for personal use may be an

investment from his point of view. This cannot be considered as
an actual investment as it involves sacrifice but does not yield
any financial return.
Investment decision-making process
• Investment, in its essence, is a strategic approach to
secure financial stability and build wealth.
• It involves a systematic and consistent process, if
followed diligently can yield fruitful outcomes.
• Understanding the investment process is crucial for
making informed decisions, mitigating the risks, and
effective attainment of investment goals
Seven step investment decision-making
process

Step 7:
Step 3: Step 6:
Step 1: Step 4: Step 5: Regularly
Step 2: Creating a Making
Setting Diversifying Conducting reviewing
Assessing risk budget and informed
financial Investment research and and
tolerance : emergency Investment
goals: portfolio analysis rebalancing
fund decisions
the portfolio

•Secured and •High, low or •How much you can •Deciding the •Examine risk and •Revise the
consistent returns, moderate invest? investment mix to return associated, portfolio, make
•high returns, funds •How much is attain your desired •alternative buy and sell
for purchasing required for requirement investment and decisions
property, contingency their attributes, depending upon
•Starting new •and other factors changing
venture, expected to environment
•World trip influence the risk
•and many others and returns
Investment Environment
• Investment environment encompasses the economic, political, and
social, and other factors likely to influence the investment markets,
and performance of financial instruments and thus, the investment
decision.
• Understanding the investment environment is critical for making
informed investment decisions and managing risks
 • Investment opportunities/ alternatives
• varied financial and real assets
Investment • Financial markets,
Environment • Investment process,
• Market structure that enables
purchasing and selling of investments,
• Regulatory set-up that fosters an
enabling environment to invest, and
• Market intermediaries.
Types of investments
• Investment involves cutting the present consumption to save for the future. This pool of savings or
wealth can be held in various forms- savings in bank accounts, real estate or shares in a business. All
these forms are known assets.
• An asset is a resource that has economic value. Assets are classified into real and financial assets.
Real assets
• Tangible assets such as land, infrastructure, natural resources, precious metals, commodities, and art
objects that are used to produce other goods or services.
Financial assets
• Contracts in a paper or electronic form with claims on issuers' instruments.
• They have claims on income generated by real assets.
• It includes equity, debt securities, mutual funds, bank deposits, insurance policies and derivatives.
• Financial assets are also called financial instruments.
Types of Financial Instruments

• Investment Classification
• equity,
• fixed-income and
• cash or cash equivalents.
• Equity: Equity covers any kind of investment that gives the investor an ownership stake
in an enterprise. Eg. common stocks, preferred shares, funds that hold stocks, such as
exchange-traded funds and mutual funds, private equity and American depositary
receipts.
• Fixed income covers any kind of investment that entails the investors essentially loaning
money to an enterprise. Eg. Bonds (corporate and government-local, state or federal).
Some fixed-income securities have equity-like characteristics, such as convertible bonds.
• Cash and cash equivalents comprise of savings accounts, certificates of deposit and
money market instruments ensuring cash convertibility, low risk and assured returns.