Page 21 - DCOM507_STOCK_MARKET_OPERATIONS

Stock Market Operations

Notes 1.6 Keywords

Distrustful Wanderer: This is a difficult investor to deal with. He or she has half-knowledge and
gets this knowledge from tips and gossip.

Financial Planning: This is the process of meeting your life goals through the proper management
of your finances.
Fundamental Analysis: The analyst here works out a true or intrinsic value of a security and
compares it with the current market price.
Liberals: They are willing to invest in equities with a long-term view and are not bothered by
short-term fluctuation.
Long-termers: These investors spend time and energy understanding their investments and are
willing to pay for sound financial advice. They are investing for the long-term after understanding
the risk-reward equation.
Portfolio Construction: This consists of identifying the specific securities in which to invest and
determining the proportion of the investor’s wealth to be invested in each.
Security Analysis: It consists of examining the risk-return characteristics of individual securities
or groups of securities identified under step one.

Technical Analysis: The analyst here studies part movements in prices of securities he is interested
in, to determine the trends and patterns that repeat themselves.

1.7 Review Questions

1. Define the term ‘investment’ as it relates to securities investment.

2. Write the nature of investment.
3. Write and illustrate the step-by-step process of investment.
4. Write attributes/factors of investment.

5. Outline the reasons for the emerging popularity of investment in today’s world.
6. “Investment is well-grounded and carefully planned speculation”. In the light of the
above statement, explain and differentiate between ‘investment’ and ‘speculation’. How
do they differ from ‘gambling’?
7. As an investment advisor, what features would you suggest to be included in the investment
bunch of a client? Explain these features briefly.

8. “No investment is risk-free”. In view of the above statement, write an essay on the meaning
and types of investment- risk. Can this risk be eliminated or minimized?
9. Write a brief note on different types of investors.

10. What are the different avenues of investment? Explain each one of them in detail.

Answers: Self Assessment

1. Financial planning 2. Investment
3. Risk 4. Security Analysis
5. Technical 6. Fundamental

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