The Management of Equity Investments


  • Dimitris Chorafas, Independent Finance Consultant, France

The Management of Investments is based on an extensive research project done by the author in 2003 and 2004, in the United States, England, Germany, France, Italy and Switzerland.The author outlines the rules behind the able management of investments by private individuals, banks, and institutional investors. These rules are examined within the perspective of each entity's goals and challenges. Based on research results and on his own experience, the author demonstrates that shareholder value is usually being paid lip service. As far as investment results are concerned, there are serious risks associated to leveraging, near-sighted management, obsolescence of skills and dubious deals.But there are also investment rules which, when observed, help in avoiding the slippery path which ends with investors losing their capital. To help in explaining these rules, the book outlines the way capital markets work, equity research is done, and risks associated to biases. It also pays attention to forces propelling economic growth – or downturn. Growth is usually dictated by the customer, but the customer is influenced by market psychology, liquidity, volatility, and prospects of the product or financial instrument he contemplates to buy. Case studies on instruments in the book examine equities, interest rates and exchange rates. The text also analyzes the role played by hedge funds and their strategies, as well as risks associated to alternative investments.
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Fund Managers; Investment Advisors; Investment Fund Trustees; Investment Bankers and Commercial Bankers. Graduate studies in Business Administration and Management, in colleges and universities.


Book information

  • Published: December 2004
  • ISBN: 978-0-7506-6456-1

Table of Contents

The Art Of Investing: Golden Rules Of Investing Introduction; Asset Classes of Investing; Investors, Speculators, Risk and Return; Savings Down the Drain- The Eurotunnel Fiasco; Understand the Difference Between Investing, Trading and Speculating; Caveat Emptor and Human Nature; A Golden Rule for Private Investors, but Not Necessarily for All Professionals; Income, Growth and Control of Exposure; The Landscape Where Professional Asset Managers and Private Investors Meet Introduction; Investments Through Private Banking; Betting on the Challenger and Learning to Diversify; Increasing the Visibility of One's Investments; The 5 Percent Rule About Assets at Risk; Challenges Faced with Pension Funds; Are Mutual Funds a Good Alternative?; Capital Markets and Their Players: Capital Markets and the Securities Industry Introduction; Securities and Their Legal Protection; Investment Banking and Underwriting; Investment Bankers and Primary Dealers; Correspondent Banks; The Globalized Securities Market; Risk of Global Contagion; The Trading of Equities Introduction; Equities, Stock Exchanges and Over-the-Counter Operations; Basic Facts About Equities: Common and Preferred Stock; Convertible Bonds Defined; The Funding Competition Between Capital Markets and Commercial Banks; Stock Markets and Equity Prices; Stock Market Indices: Dow Jones, S&P and Nasdaq; European Market Indices; Regulation and Operation of the Exchanges Introduction; Role of a Regulatory Authority; Self Regulation by the Exchanges and Conflicts of Interest; Role of Specialists in a Stock Exchange; Bid, Ask, Large Blocks and the Third Market; Cash and Margin Accounts; Short Sales and Reverse/Forward Splits; Performance Criteria and Quoted Equities: Technical and Fundamental Analysis Introduction; Fundamental Analysis Defined; Technical Analysis Defined; Theory Behind the Art of Charting; The Nuts and Bolts of Charting; Financial Analysis and Future Price of a Commodity; Learning How to Detect and Analyze Market Trends; The Role of Rocket Scientists; Quantitative Criteria for Equity PerformanceIntroduction; An Equity's Valuation and need for Stress Tests; Equity as an Option and Dividend Discount Model; Earnings per Share and Creative Accounting Solutions; Earnings Before Interest, Taxes, Depreciation and Amortization; Price/Earnings Ratio and Its Challenges; Using Return on Equity as a Guide; Appendix: The Tobin Q-Ratio; Transparency in Financial Statements and Reputational Risk Introduction; Goals of Transparent Financial Reporting; Transparency and Role of an Audit Committee; Transparency and Corporate Governance; Forward-Looking Statements; Virtual Balance Sheets and Risk Management; Compliance to the Sarbanes-Oxley Act; Appendix: The European Union's Version of Sarbanes-Oxley Act;A Private Investor's Self-Protection Introduction; Investing in large Caps vs. Small Caps; A Prudent Policy for Investors: Equities vs. Bonds; Data Analysis at the Core of the Investor's Homework; Investors Should Always Consider the Contrarians' Advice; Value Stocks, Growth Stocks, and Intrinsic Value; Importance of the Investment Horizon; Factors Affecting Return on Investment; Execution Risk and Damage ControlInvestors' Responsibility in Risk Management Introduction; Risk Management Requires a Lot of Homework; The Importance of Rigorous Risk Management Standards; Investors Should Never Hesitate to Cut Losses; Damage Control Through Limits and Profit Targets; Flexibility is One of the Investor's Best Friends; Using Mathematical Tools and Appreciating they Are Not Fail-Safe; Independent Equity Research and Risk Management Introduction; The Bottleneck Is at the Top of the Bottle; Legal Risk in Equity Research and Analysis; Quality of Corporate Governance Affects Investors and the Companies Themselves; Can Independent Research Be an Effective Solution?; Very Often, Analysts Pickings are Mediocre; Buy-Side Asymmetries in the Experts Advice; Volatility, Liquidity, Leverage, and Their Impact on Investments Introduction; Volatility, Volume of Transactions, and Volatility Index; The Concept of Implied Volatility and Its use; Solvency and Liquidity Feed Upon One-Another; Liquidity Management and Risk Control; Risks Associated with Multiply-Connect Leverage; Methods for Judging Quoted Equities Introduction; Rethinking the Metrics Which We Use; New Measures for Judging Equity Performance; Business Risk and Brand Name; A New Method for Measuring Business Risk; Fair Value Accounting and its Impact on Equities; Globalization Increases the Complexity of Evaluating Equity Performance; Case Studies in Investments Case Studies on Equity Values Introduction; Risk management, Damage Control and Hedging; Two Technology Companies: Cisco Systems and IBM; Aftermath of the Investors Appetite for Internet Stocks; Old Established Companies, Too, Can be Highly Volatile; Equity Values of Service Firms also Plunge; Parmalat: A Case Study on Leveraging Corporate Assets Introduction; Parmalat as a Speculative Hedge Fund; A Birdseye View of Parmalat's Scam; Taxpayers, Investors, and the Control of Malfeasance; Mr. Fixit and the Challenges of a Turnaround; It is Not Easy to Get Out of Bankruptcy Unscathed; The Banks of Parmalat; Conflicts of Interest and Reputational Risk; Management's Accountability.