1. Investment
Management
Prof. Sheevun Di O. Guliman,MSF,CPA

2. Introduction to Investment Management
• Commitment of current resources
in the expectation of deriving
greater resources in the future

3. REAL VS. FINANCIAL ASSETS
• Real assets - assets used to produce
goods and services. Examples are land,
buildings, machines and knowledge
that can be used to produce goods and
services.
• Financial assets – claims on real assets
or the income generated by them. It is
the allocation of income or wealth
among investors.

4. TAXONOMY OF FINANCIAL ASSETS
• Fixed-income securities - Pay a specified
cash flow over a specific period
• Equity-An ownership share in a corporation
• Derivative securities - Securities providing
payoffs that depend on the values of other
assets. Derivative securities are so named
because their values derive from the prices
of other assets

5. FINANCIAL MARKETS AND THE ECONOMY
• Consumption Timing
• you can “shift” your consumption over
the course of your lifetime, thereby
allocating your consumption to periods
that provide the greatest satisfaction
• Thus, financial markets allow
individuals to separate decisions
concerning current consumption from
constraints that otherwise would be
imposed by current earnings.

6. FINANCIAL MARKETS AND THE ECONOMY
• Allocation of Risk
• investors are able to select security
types with the risk-return
characteristics that best suit their
preferences, each security can be
sold for the best possible price.
• allow the risk that is inherent to all
investments to be borne by the
investors most willing to bear that
risk.

7. FINANCIAL MARKETS AND THE ECONOMY
• Separation of Ownership and
Management
• financial assets and the ability to buy and
sell those assets in the financial markets
allow for easy separation of ownership and
management

8. THE INVESTMENT PROCESS
• Asset allocation- • Security selection -
Allocation of an choice of which
investment portfolio particular securities
across broad asset to hold within
classes each asset class.
Top-down approach
Bottom-up approach

9. MARKETS ARE COMPETITIVE
• There are several implications of this no-
free-lunch proposition
• The Risk-Return Trade-Off –
returns depends on the appetite for risk, if you
prefer low risk then expect low returns; same is
true for high risk- high returns
• Efficient Market Hypothesis –
as new information about a security becomes
available, the price of the security quickly adjusts
so that at any time, the security price equals the
market consensus estimate of the value of the
security.

10. MARKETS ARE COMPETITIVE
• Efficient Markets –
• Passive management: calls for holding highly
diversified portfolios without spending effort
or other resources attempting to improve
investment performance through security
analysis.
• Active management: is the attempt to
improve performance either by identifying
mispriced securities or by timing the
performance of broad asset classes—e.g.,
increasing one’s commitment to stocks when
one is bullish on the stock market.

11. THE PLAYERS
From a bird’s eye view, there would be
three major players in the financial
markets
• Firms are net borrowers
• Households typically are net savers
• Governments can be borrowers or
lenders, depending on the relationship
between tax revenue and government
expenditures

12. THE PLAYERS
• Financial Intermediaries - Institutions
that “connect” borrowers and lenders by
accepting funds from lenders and loaning
funds to borrowers
Investment companies – Firms managing
funds for investors. An investment company
may manage several mutual funds
Investment bankers - Firms specializing in
the sale of new securities to the public,
typically by underwriting the issue

13. MARKETS AND MARKET
STRUCTURE
• Direct Search Market(s)
the least organized market. Buyers and
sellers must seek each other out directly
• Brokered Markets
In markets where trading in a good is
active brokers find it profitable to offer
search services to buyers and sellers.
Primary market- a market in which new
issues of securities are offered to the
public.

14. MARKETS AND MARKET
STRUCTURE
• Dealer Markets
Markets in which traders specializing in
particular assets buy and sell for their own
accounts.
Secondary markets - already existing
securities are bought and sold on the
exchanges or in the OTC market.
• Auction Market(s)
A market where all traders meet at one place
to buy or sell an asset. It is the most
integrated market, e.g., NYSE, PSE

15. RECENT TRENDS
Four important trends have changed the
contemporary investment
environment:
(1) globalization
(2) Securitization
(3) financial engineering
(4) information and computer networks.