Advanced corporate finance part Final assignment Investment management

Résumé du document

Investment management is the professional management of various securities like shares and bonds and other assets such as real estate to meet specified goals of investment for the benefit of the investors. In an attempt to understand the world of investment management, it is useful to be aware of the following principles. There are different asset classes: stocks, bonds, real-estate, derivatives, and commodities. One of the crucial issues of investment management is to allocate funds among these assets and among individual securities within each asset class. Asset classes reveal different market dynamics and different interaction effects. Indeed, the allocation of monies among the asset classes will have significant effects on the performance of the invested funds and it is crucial to balance the different securities and assets in order to meet the goals of the investors.

Extraits

[...] The efficient frontier is simply the line along the upper edge of this region. Combinations along this line correspond to portfolios for which there is lowest risk for a given level of return. In the same optic, for a given level of risk, the portfolio lying on the efficient frontier represents the combination presenting the best possible return. Mathematically the efficient frontier is represented by the intersection of the set of portfolios with maximum return and the set of portfolios with minimum variance. [...]

[...] On the other hand, we did not use all the MPT's concepts during the game since we used an active management approach that was mainly based on the bottom-up approach and try to speculate on mergers and acquisitions. Indeed, rational investment is more accurate for a long-term investment whereas speculation is more risky but focuses on the short-term. And on the contrary to what we did during the class, we used mainly the fundamental analysis for the game. BIBLIOGRAPHY: www.wikipedia.org www.euronext.com www.laviefinanciere.com www.boursorama.com Appendix of the Final Assignment of Advanced Corporate Finance Part1, team: Safetrade. [...]

[...] It allows answering the following questions: What is the company's security? Should we buy shares of this company? Investors can use fundamental analysis within different management styles: Buy and hold investors believe that latching onto good businesses allows the investor's asset to grow with the business. Fundamental analysis lets them find 'good' companies, so they lower their risk and probability of wipe-out. Managers may use fundamental analysis to correctly value 'good' and 'bad' companies. Even 'bad' company's stock goes up and down, creating opportunities for profits. [...]

[...] As a result, the return of a portfolio is simply the weighted combination of the assets' returns and constitutes also a random variable that has thus an expected value and a variance. In this conception, risk represents the standard deviation of the portfolio's return. Risk and return: One of the main points on which the MPT is based is that investors are willing to avoid uncertainty and thus to minimize risks. Indeed, between two assets that present the same expected return, investors will choose the less risky one. Therefore, an investor will accept to increase the risk only if it is compensated by higher expected returns. [...]

[...] So, with the bottom-up strategy, the manager will be able to modify its choice by checking the state of the industry and the macroeconomic environment whereas with the stock-picking approach he is sure to integrate the security in his portfolio. Evaluation of a security: Fundamental or financial analysis: Use of the financial analysis: The fundamental analysis of a business involves analyzing its financial statements and health, its management and competitive advantages, and its competition and markets. The analysis is based on historical and present data, but with the purpose to make financial projections. [...]