A comprehensive guide to investment analysis and portfolio management by an expert team from the CFA Institute In a world of specialization, no other profession likely requires such broad, yet in-depth knowledge than that of financial analyst. Financial analysts must not only possess a broad understanding of the financial markets-including structure, organization, efficiency, portfolio management, risk and return, and planning and construction-but they must also have a strong sense of how to evaluate industries and companies prior to engaging in an analysis of a specific stock. Investments: Principles of Portfolio and Equity Analysis provides the broad-based knowledge professionals and students of the markets need to manage money and maximize return. The book • Details market structure and functions, market anomalies, secondary market basics, and regulation • Describes investment assets and asset classes, types of positions and orders, as well as forecasting methodologies • Discusses return and risk characteristics, portfolio diversification and management, the basics of both technical analysis and major technical indicators, and much more • A companion Workbook, which includes learning outcomes, summary overviews, and problems and solutions sections is available and sold separately Investments provides readers unparalleled access to the best in professional quality information on investment analysis and portfolio management.
Foreword xiii Acknowledgments xv Introduction xvii CHAPTER 1 Market Organization and Structure 1 Learning Outcomes 1 1. Introduction 1 2. The Functions of the Financial System 2 3. Assets and Contracts 10 4. Financial Intermediaries 24 5. Positions 35 6. Orders 41 7. Primary Security Markets 47 8. Secondary Security Market and Contract Market Structures 51 9. Well-Functioning Financial Systems 56 10. Market Regulation 58 11. Summary 61 CHAPTER 2 Security Market Indices 73 Learning Outcomes 73 1. Introduction 73 2. Index Definition and Calculations of Value and Returns 75 3. Index Construction and Management 78 4. Uses of Market Indices 90 5. Equity Indices 91 6. Fixed-Income Indices 94 7. Indices for Alternative Investments 96 8. Summary 101 CHAPTER 3 Market Efficiency 109 Learning Outcomes 109 1. Introduction 109 2. The Concept of Market Efficiency 111 3. Forms of Market Efficiency 118 4. Market Pricing Anomalies 124 5. Behavioral Finance 131 6. Summary 134 CHAPTER 4 Portfolio Management: An Overview 139 Learning Outcomes 139 1. Introduction 139 2. A Portfolio Perspective on Investing 140 3. Investment Clients 149 4. Steps in the Portfolio Management Process 156 5. Pooled Investments 160 6. Summary 172 CHAPTER 5 Portfolio Risk and Return: Part I 175 Learning Outcomes 175 1. Introduction 175 2. Investment Characteristics of Assets 176 3. Risk Aversion and Portfolio Selection 200 4. Portfolio Risk 209 5. Efficient Frontier and Investor s Optimal Portfolio 222 6. Summary 234 CHAPTER 6 Portfolio Risk and Return: Part II 243 Learning Outcomes 243 1. Introduction 243 2. Capital Market Theory 244 3. Pricing of Risk and Computation of Expected Return 256 4. The Capital Asset Pricing Model 267 5. Beyond the Capital Asset Pricing Model 284 6. Summary 287 CHAPTER 7 Basics of Portfolio Planning and Construction 295 Learning Outcomes 295 1. Introduction 295 2. Portfolio Planning 296 3. Portfolio Construction 312 4. Summary 326 CHAPTER 8 Overview of Equity Securities 331 Learning Outcomes 331 1. Introduction 331 2. Equity Securities in Global Financial Markets 332 3. Types and Characteristics of Equity Securities 338 4. Private versus Public Equity Securities 345 5. Investing in Nondomestic Equity Securities 347 6. Risk and Return Characteristics of Equity Securities 353 7. Equity Securities and Company Value 356 8. Summary 362 CHAPTER 9 Introduction to Industry and Company Analysis 369 Learning Outcomes 369 1. Introduction 370 2. Uses of Industry Analysis 370 3. Approaches to Identifying Similar Companies 371 4. Industry Classification Systems 374 5. Describing and Analyzing an Industry 385 6. Company Analysis 412 7. Summary 417 CHAPTER 10 Equity Valuation: Concepts and Basic Tools 425 Learning Outcomes 425 1. Introduction 426 2. Estimated Value and Market Price 426 3. Major Categories of Equity Valuation Models 428 4. Present Value Models: The Dividend Discount Model 430 5. Multiplier Models 445 6. Asset-Based Valuation 457 7. Summary 461 CHAPTER 11 Equity Market Valuation 469 Learning Outcomes 469 1. Introduction 469 2. Estimating a Justified P/E Ratio 470 3. Top-Down and Bottom-Up Forecasting 484 4. Relative Value Models 491 5. Summary 506 CHAPTER 12 Technical Analysis 515 Learning Outcomes 515 1. Introduction 515 2. Technical Analysis: Definition and Scope 516 3. Technical Analysis Tools 520 4. Elliott Wave Theory 563 5. Intermarket Analysis 566 6. Summary 568 Problems 570 Glossary 575 References 589 About the Authors 595 About the CFA Program 601 Index 603
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