Applied Equity Analysis and Portfolio Management + Online Video Course: Tools to Analyze and Manage Your Stock Portfolio

CHAPTER 1

Perspectives on Active and Passive Money Management

This chapter introduces key perspectives designed to help you get the most out of the readings, exercises, and activities featured in the chapters that follow. The learning objectives for this chapter are:

1. Display an understanding of the chapter terminology and describe the top-down fundamental analysis process.

2. Explain why stocks with superior fundamentals often have higher returns and lower risk over long horizons.

3. Summarize the results of studies that investigate the performance of professional investors and what motivates investors to trade more actively.

4. Identify the three major theories of the way information gets incorporated into stock prices, and summarize the major premises of each theory.

5. Summarize the perspectives of esteemed investors and authors provided in the chapter.

6. Interpret the insights into financial markets from Chapter 12 of John Maynard Keynes's General Theory of Employment, Interest and Money.

7. Discuss the importance of an investment policy statement.

TERMINOLOGY: INVESTORS, INVESTMENT VEHICLES, RISK AND RETURN

Equity investing can be divided into two main categories: passive and active. Passive investors buy and hold stocks for the long term. They construct portfolios or choose investment vehicles that minimize costs, including research costs, trading costs, administrative costs, performance fees, and taxes on realized gains. The most popular types of passive investment ...