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29 Cards in this Set
- Front
- Back
Blue Chip |
Highest quality companies with proven earnings and dividend records. Mainly NYSE listed issues. |
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Growth |
Companies in a period of above-average growth due to Rapid Market expansion or unique products. Usually do not have a proven track record and have very low dividend payout ratios. Tend to sell at higher PE multiples than mature companies because of their exceptional potential. |
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Emerging Growth |
Brand new ventures of high-risk but also high potential reward. Have no track record and can't afford to pay dividends. |
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Income |
Mature companies with high dividend payout ratios. I.e. utilities. |
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Cyclical |
Companies whose fortunes track business cycle closely. An example of a cyclical stock is a durable goods manufacturer. When business cycle turns down people feel poor and can't afford to buy cars and washing machines. |
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Counter-Cyclical |
Companies whose fortunes operate in reverse of business cycle. An example is a basic food producer. When people feel poor, they don't eat out as much, so in home cooking increases. |
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Defensive |
A company which remains unaffected during business cycle downturns. I.e. drug companies, Public Utilities, Etc. |
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Speculative |
Companies that fly high during business cycle up turns. I.e. toy company's and airplane manufacturers go through feast and famine periods that mirror business cycle. |
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Special Situation |
Company going through a takeover, restructuring, bankruptcy, or management change that will greatly change nature of its operations and hence its earnings potential. |
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Two components of investment's return: |
1 dividends and interest 2 capital gains and capital losses. |
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Total Return= |
Income (dividends for equities interest for debt) + growth (or - loss) |
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Mature Companies |
Have high dividend rates and low growth rates. If a mature company, paying a 4% dividend, is expected to grow at the rate of 4%, the total return is 8%. |
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Growth companies |
Have low dividend rates and high growth rates. If a Growth Company, paying 1% dividend, is expected to grow at the rate of 7%, the total return is 8%. |
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Standard Deviation |
See on pages 328-329 in small book |
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Risk premium = |
Total return - risk free rate of return ( see page 329 in small purple book) |
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Expected Return= |
Probability of occurrence X projected return ( see page 330 small book) |
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Active Assets Selection |
Based on the belief that the market is in efficient in pricing Securities, therefore, selecting specific Securities is beneficial. This is an expensive process (research, analyst, Etc). The incremental return achieved here should exceed the extra cost associated with this strategy. |
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Investment Policy Statement |
Once a profolio composition is selected, this is documented in a statement of investment policy. Once selected, the relative percentage is assigned to each asset class can shift due to the differing performance of each asset class. I.E in a bull market, equities outperform the other asset classes, and the equity portion becomes larger than the target allocation. As this happens, some equities must be sold to rebalance the profolio with the proceeds invested in the underperforming assets (Bonds, in this case). |
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Passive profolio rebalancing |
Funds are continually reallocated from over-performing to underperforming asset classes to maintain the strategically chosen asset allocation percentages. |
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Active profolio rebalancing |
Funds are reallocated from underperforming or Market performing asset classes to those the manager believes Will outperform the Market over the coming time frame (in essence, tactical asset management). |
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Growth investing |
Selecting Equity Investments based solely on earnings growth or stock prices growth over time, ignoring fundamental and Technical factors. |
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Value investing |
Selecting Equity Investments based on finding fundamentally undervalued companies, looking at P/E ratios or Price/ Book value ratios, Etc. |
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Personal customer portfolio construction Some information that should be gathered include, among other things, the client's : |
Financial Status Family composition tax situation employment information financial goals investment objective investment knowledge investment time Horizon risk tolerance ( see page 335 - 336 of small book) |
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Systematic risk |
Risk of General market decline affecting profolio. Also called Market risk and cannot be Diversified away. |
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Non-systematic risk |
Risk of a single investment going sour. Also called selection risk. By diversifying profolio, this risk is minimized. |
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Capital risk |
Risk that amount invested may not be fully recovered. |
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Timing risk |
Risk that buying and selling occur at disadvantageous price levels due to poor Market timing. |
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Business risk |
Risk that an issuer's business declines, often due to technological changes, Bad Business decision making, and Law changes. In turn, the value of the issuer's Securities declines. |
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Consolidating Market |
Occurs after a sustained rise or fall and people try to digest new price of stock and determine its real value. Sideways movement. |