Chapter fourteen financial analysis of common stocks financial analysis


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14-FinancialAnalysis

CHAPTER FOURTEEN

  • FINANCIAL ANALYSIS OF COMMON STOCKS

FINANCIAL ANALYSIS

  • WHAT IS FINANCIAL ANALYSIS?
    • DEFINITION: the activity of providing inputs to the portfolio management process

FINANCIAL ANALYSIS

  • PROFESSIONAL FINANCIAL ANALYSIS ORGANIZATIONS
    • THE ASSOCIATION OF INVESTMENT MANAGEMENT AND RESEARCH (AIMR)
      • acts as an advocate for the financial analyst profession
      • it hosts conferencing and workshops
      • it also publishes the Financial Analysts Journal

FINANCIAL ANALYSIS

  • REASONS FOR FINANCIAL ANALYSIS
    • TWO PRIMARY REASONS
      • to determine certain securities’ characteristics
      • to attempt to identify mispriced securities

FINANCIAL ANALYSIS

FINANCIAL ANALYSIS

  • REASON #2: ATTEMPTING TO IDENTIFY MISPRICED SECURITIES
    • use fundamental analysis
    • approaches
      • valuation determines the intrinsic value compared to the current market value
      • estimate key financial variables such as

TECHNICAL ANAYSIS

  • DEFINITION: a form of security analysis that attempts to forecast price changes based on historical price and volume trends

TECHNICAL ANAYSIS

TECHNICAL ANAYSIS

  • 1. Momentum and Contrarian Strategies
    • METHDOLOGY:
      • examine the returns over a time period just ended to identify
        • momentum investors who seek out stocks recently rising in price for purchase; falling for sale
        • contrarians who follow the opposite strategy of most investors
          • contrarians base their strategy on the overreation theory

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