Investment Analysis and Portfolio Management
Lunches are never free = you won’t find an investment or opportunity without risks or costs
➔ There is always a RISK-RETURN TRADE-OFF
= If you want high return, you need to take high risks. If you don’t want to take risks, you won’t
have (big) return.
You have to try to determine the fair value of financial assets.
If the fair value > market value ➔ you can do an interesting investment
If the fair value < market value ➔ you need to sell your investment
To construct portfolio’s there is one key word: DIVERSIFICATION
= you have to diversify your risk by investing in different investments. When you invest in a
tracker, the risk you take is much less than when investing in an individual company.
(mutual funds/ETF’s are good examples of diversification. The risk is lower, so the return is also a
bit lower than when you invest in individual stock, but the risk there is way higher)
When your portfolio is constructed, it’s very important to evaluate the performance of your
portfolio. Therefor you look at the return the portfolio is giving you, but also at the risk you’re
taking!!!
Studying investments is useful for individuals. They invest often to let their wealth increase. It’s
also useful for the career of people in the field (like stockbrokers, financial planners/advisors, …)
Return on savings account = risk-free return. ➔ is lower than the inflation!!! ➔ causes you
to lose purchasing power
➔ Therefore it’s important to invest!!!
The earlier you start with investing, the higher your return will be. This is the COMPOUNDING
EFFECT = you also get return on the return you made. This effect will become stronger and
stronger, year after year.
(e.g. ➔ t0: investment of 100:
t1: return = 10% investment is worth 110 (+10)
t2: return 10% investment is worth 121 (+11)
t3: return 10% investment is worth 133,1 (+12,1)
,Both in year 1, year 2 and in year 3 the return is the same, but the worth of your investment grows
more in year 2 (12,1 i.p.v 11 i.p.v. 10)
THE LONGER YOUR PERIOD OF INVESTMENT IS, THE BIGGER THE COMPOUNDING EFFECT
Introduction: General Concepts and Investment Process
Some Recent trends
The stock market worldwide fluctuates a lot. That shows why it’s so risky
The stocks have gone down so hard between February-March due to the import tariffs of Trump.
That shows that the stock market is not stable. It’s a more risky market than the bond
market
A lot of companies will be negative effected by the tariffs of Trump. Negative news about
companies makes the price of stocks go down
The prices go up again, because there were negotiations about the tariffs. The tariffs became
lower or left behind
When you want to compare the returns of stock markets
worldwide, you have to pay attention to the currency in which
the return is presented.
In this graph you could think that the return of North America
is positive, but when you look at the bottom, the return of
North America in € is negative.
So this question is answer 2, because when you look at the return of the stock market in North
America = US in €, you see it’s negative
➔ How is it possible that the return is positive in USD and negative in €?
This is due to the exchange rate. The USD has depreciated by 11%. Because of the
depreciation you get less Euros back than you put in.
So the appreciation of the EURO is negative for an European investor that invests in
different currencies
, real estate: bad → interest rates are quite high = expensive
loans, so lower return
financial sector: good → due to higher interest rates
industry= good → war
Conclusion: if you choose a specific sector to invest in, you
can have better or worse returns than the mean of the market
Yield = return you will get if you buy the bonds and hold it until the expire date
The higher the debts of a country, the higher the interest rate on your debt (because of that
America has to pay high interests)
Germany has become more risky, they decided to make more debts to invest in infrastructure
Real estate is a sector that performed very well in the past few years. But more fluctuations
recently, which makes it more riskier than it used to be. It’s not because it performed well in the
past, that it will perform well in the future.
Bitcoin: huge return, but it also has substantial crashes
Big difficulty: no clear indication what the fair value is of a bitcoin. There are no reasons for
the fluctuations. (in other stock markets there is most of the time a reason for a fluctuation e.g.
crash due to import tariffs of Trump)
Historical Perspective:
This graph shows that if you invested €1 in Apple and €1 in
Ageas in 1985, what the value of that €1 would be now.
➔ Ageas fluctuates a lot, but stays almost the same
➔ Apple on the other hand shows a huge increase in
value!!!
Conclusion: best investment was definitely Apple!!!
If there is a crisis, you often lose a lot of money. BUT it’s important
to then wait long enough, because the stock market always
recover!!!
, • Individual stocks:
- Fluctuate a lot (=high risk)
- Great potential for high gains (= high return)
• Stock indices:
- Fluctuate less than individual stocks (= medium risk)
- Less potential for high gains (= medium return)
- = DIVERSIFICATION
• Bond indices:
- Fluctuate less than stock indices (= low risk)
- Less potential for high gains (= low return)
Basic concepts:
Return and risk:
If you hold cash at home, you have an opportunity cost. Because of inflation you lose
purchasing power
Expected return = the return you anticipate for the future, so the return you expect
Realized return = the return you actually earn in the past
➔ The risk = the realized return ≠ expected return.
No one can predict the return of the stock market, so it’s very hard to make a calculation of
expected return
answer 1
higher-risk = higher return
lower-risk = lower return
All people are tend to be risk averse, they don’t really like to take risk, unless they get a
compensation. Everyone had its own risk limit, so people will adjust until they reach their risk
limit.
Investment horizon = period for which an investor intends to hold an investment before he or
she needs the money again or wants to sell the investment.
➔ Determines which risk profile is suited + which products fit and how you can
construct your portfolio
(e.g. if you need your money in e.g. 1 year. Than you don’t want to take big risks. You need that
money! BUT if you invest at 45 and you want to invest until your retirement, you can take more
Lunches are never free = you won’t find an investment or opportunity without risks or costs
➔ There is always a RISK-RETURN TRADE-OFF
= If you want high return, you need to take high risks. If you don’t want to take risks, you won’t
have (big) return.
You have to try to determine the fair value of financial assets.
If the fair value > market value ➔ you can do an interesting investment
If the fair value < market value ➔ you need to sell your investment
To construct portfolio’s there is one key word: DIVERSIFICATION
= you have to diversify your risk by investing in different investments. When you invest in a
tracker, the risk you take is much less than when investing in an individual company.
(mutual funds/ETF’s are good examples of diversification. The risk is lower, so the return is also a
bit lower than when you invest in individual stock, but the risk there is way higher)
When your portfolio is constructed, it’s very important to evaluate the performance of your
portfolio. Therefor you look at the return the portfolio is giving you, but also at the risk you’re
taking!!!
Studying investments is useful for individuals. They invest often to let their wealth increase. It’s
also useful for the career of people in the field (like stockbrokers, financial planners/advisors, …)
Return on savings account = risk-free return. ➔ is lower than the inflation!!! ➔ causes you
to lose purchasing power
➔ Therefore it’s important to invest!!!
The earlier you start with investing, the higher your return will be. This is the COMPOUNDING
EFFECT = you also get return on the return you made. This effect will become stronger and
stronger, year after year.
(e.g. ➔ t0: investment of 100:
t1: return = 10% investment is worth 110 (+10)
t2: return 10% investment is worth 121 (+11)
t3: return 10% investment is worth 133,1 (+12,1)
,Both in year 1, year 2 and in year 3 the return is the same, but the worth of your investment grows
more in year 2 (12,1 i.p.v 11 i.p.v. 10)
THE LONGER YOUR PERIOD OF INVESTMENT IS, THE BIGGER THE COMPOUNDING EFFECT
Introduction: General Concepts and Investment Process
Some Recent trends
The stock market worldwide fluctuates a lot. That shows why it’s so risky
The stocks have gone down so hard between February-March due to the import tariffs of Trump.
That shows that the stock market is not stable. It’s a more risky market than the bond
market
A lot of companies will be negative effected by the tariffs of Trump. Negative news about
companies makes the price of stocks go down
The prices go up again, because there were negotiations about the tariffs. The tariffs became
lower or left behind
When you want to compare the returns of stock markets
worldwide, you have to pay attention to the currency in which
the return is presented.
In this graph you could think that the return of North America
is positive, but when you look at the bottom, the return of
North America in € is negative.
So this question is answer 2, because when you look at the return of the stock market in North
America = US in €, you see it’s negative
➔ How is it possible that the return is positive in USD and negative in €?
This is due to the exchange rate. The USD has depreciated by 11%. Because of the
depreciation you get less Euros back than you put in.
So the appreciation of the EURO is negative for an European investor that invests in
different currencies
, real estate: bad → interest rates are quite high = expensive
loans, so lower return
financial sector: good → due to higher interest rates
industry= good → war
Conclusion: if you choose a specific sector to invest in, you
can have better or worse returns than the mean of the market
Yield = return you will get if you buy the bonds and hold it until the expire date
The higher the debts of a country, the higher the interest rate on your debt (because of that
America has to pay high interests)
Germany has become more risky, they decided to make more debts to invest in infrastructure
Real estate is a sector that performed very well in the past few years. But more fluctuations
recently, which makes it more riskier than it used to be. It’s not because it performed well in the
past, that it will perform well in the future.
Bitcoin: huge return, but it also has substantial crashes
Big difficulty: no clear indication what the fair value is of a bitcoin. There are no reasons for
the fluctuations. (in other stock markets there is most of the time a reason for a fluctuation e.g.
crash due to import tariffs of Trump)
Historical Perspective:
This graph shows that if you invested €1 in Apple and €1 in
Ageas in 1985, what the value of that €1 would be now.
➔ Ageas fluctuates a lot, but stays almost the same
➔ Apple on the other hand shows a huge increase in
value!!!
Conclusion: best investment was definitely Apple!!!
If there is a crisis, you often lose a lot of money. BUT it’s important
to then wait long enough, because the stock market always
recover!!!
, • Individual stocks:
- Fluctuate a lot (=high risk)
- Great potential for high gains (= high return)
• Stock indices:
- Fluctuate less than individual stocks (= medium risk)
- Less potential for high gains (= medium return)
- = DIVERSIFICATION
• Bond indices:
- Fluctuate less than stock indices (= low risk)
- Less potential for high gains (= low return)
Basic concepts:
Return and risk:
If you hold cash at home, you have an opportunity cost. Because of inflation you lose
purchasing power
Expected return = the return you anticipate for the future, so the return you expect
Realized return = the return you actually earn in the past
➔ The risk = the realized return ≠ expected return.
No one can predict the return of the stock market, so it’s very hard to make a calculation of
expected return
answer 1
higher-risk = higher return
lower-risk = lower return
All people are tend to be risk averse, they don’t really like to take risk, unless they get a
compensation. Everyone had its own risk limit, so people will adjust until they reach their risk
limit.
Investment horizon = period for which an investor intends to hold an investment before he or
she needs the money again or wants to sell the investment.
➔ Determines which risk profile is suited + which products fit and how you can
construct your portfolio
(e.g. if you need your money in e.g. 1 year. Than you don’t want to take big risks. You need that
money! BUT if you invest at 45 and you want to invest until your retirement, you can take more
