Kashmir University Notes Study Material for BCOM 5th Semester - Investment Ananlysis and Portfolio Management

Kashmir University Notes Study Material for BCOM 5th Semester - Investment Ananlysis and Portfolio Management

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Kashmir University 5th sem Notes

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Introduction

The term ‘investing’ could be associated with different activities, but the common target in 

these activities is to ‘employ’ the money (funds) during the time period seeking to enhance the 

investor’s wealth. Funds to be invested come from assets already owned, borrowed money and 

savings. By foregoing consumption today and investing their savings, investors expect to 

enhance their future consumption possibilities by increasing their wealth. However, it is always 

useful to make a distinction between real and financial investments. Real investments usually 

involve some kind of tangible assets, such as land, machinery, factories, etc. Financial 

investments involve contracts in paper or electronic form, such as stocks, bonds, etc. 

1.1.1 Definition of Investment

“Investment analysis is the study of financial securities for the purpose of successful investing.” 

This definition contains the following important points: 

There are institutional facts about the financial securities, how to trade and what assets are to 

be traded.• 

There are analytical issues involved in studying these securities, the calculation of risks and 

returns, and the • relationship between the two. 

There is the question of what success means for an investor, and the investment strategies that 

ensure that the • choices made are successful. 

There are financial theories that are necessary to try to understand how the markets work and 

how the prices • of assets are determined. 

It is clear that the more an investor understands, the less likely they are to make an expensive 

mistake. Note carefully that this is not saying that the more you know, the more you will earn. 

An explanation for this observation will be found in some of the theories that follow. These 

comments partly address the question “Can you beat the market?” Whether you can, depends 

on the view you may hold about the functioning of financial markets. One of the interpretations 

of investment analysis is that this is just not possible on a repeated basis. An alternative 

interpretation is that knowing the theory reveals where we should look for ways of beating the 

market.