This is not a simple course. In this document, I have summarized the entire course material as well as provided small additional information to help you further your understanding and score higher on tests and exams. I highly recommend printing and binding these notes, then taking them to lectures ...
→ Asset allocation decision: Choosing between broad asset classes
→ Security selection decision: Choosing which securities to hold within the classes
,LECTURE NOTES - WEEK 1
TOP-DOWN APPROACH
→ The top-down approach to investing focuses on the big picture, or how the overall economy
and macroeconomic factors drive the markets and stock prices
→ Also looks at the performance of sectors or industries
→ The top-down approach is easier for investors who are less experienced and for those who
don't have the time to analyse a company's financials
BOTTOM-UP APPROACH
→ Focuses on how an individual company in a sector performs compared to specific companies
within the sector.
→ Utilizes financial ratios and examines cash flows
→ Bottom-up investing can help investors pick quality stocks that outperform the market even
during periods of decline
MARKETS
→ Risk-return trade-off: As the level of risk increases, so should the rate of return on an
investment
→ Efficient markets: Security prices adjust in response to new information in order to reflect the
market consensus estimate of the security's value
→ Passive management: Attempts to replicate the performance of a specific benchmark or index
→ Active management: Requires frequent buying and selling in order to outperform a specific
benchmark or index (higher risk and larger fees)
THE PLAYERS
→ Firms: Net demanders of capital (raise capital to pay for investments)
→ Households: Net suppliers of capital (purchase securities)
→ Governments: Borrowers or lenders depending on the relationship between tax revenue and
government expenditure
→ Financial intermediaries: Bring suppliers and demanders of capital together
→ Investment companies: Invest the pooled capital of investors in financial securities
→ Hedge funds: Only open to institutional investors
→ Investment bankers: Advise corporations on the prices it can charge for securities issued &
appropriate interest rates, deals in primary market (IPOs)
→ Venture capital: investments in start-up companies
, LECTURE NOTES - WEEK 1
→ Private equity: Investments in firms that do not trade publicly
→ Cryptocurrency: A digital currency designed to work as a medium of exchange through a
computer network that is not reliant on any central authority to uphold it
→ Blockchain: A system in which a record of transactions made in cryptocurrency are maintained
across several computer that are linked in a peer-to-peer network
2008/2009 FINANCIAL CRISIS
→ Begun with the housing market bubble, which was caused by an overabundance of mortgage-
backed securities that bundled high-risk loans
→ Reckless lending resulted in an unprecedented number of loans defaulting, resulting in losses
that caused financial institutions to fail
→ Demonstrated the importance of systemic risk
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