I am happy to see you

all in this COURSE.

First, something
interesting to share…
It is a FAMOUS Picasso painting!
What is interesting about it?
It is a Painting on a NAPKIN!

 The story goes like this…

Picasso was at a Paris market when an admirer approached and

asked if he could do a quick sketch on a paper napkin for her.
Picasso politely agreed, promptly created a drawing, and handed
back the napkin — but not before asking for a million Francs.
The lady was shocked: “How can you ask for so much? It took
you five minutes to draw this!”
Can you imagine the
reply of Picasso?
Picasso’s reply…

Do not forget this!

Learning
We need to learn FINANCE, but
to be a successful INVESTOR, we
need EXPERIENCE.
Let’s start the session, with the famous
quote of Dr. Martin Luther King Jr.
Do not forget…

“The really smart thinkers are clear thinkers. They understand the
basics at a very, very fundamental level. I would rather understand the
basics really well than memorize all kinds of complicated concepts I
can’t stitch together and can’t rederive from the basics. If you can’t
rederive concepts from the basics as you need them, you’re lost. You’re
just memorizing.”
• Ravikant, Naval and Shane Parrish. “Naval Ravikant: The Angel Philosopher.” Farnam
Street, 2019. https://fs.blog/naval-ravikant/.
It’s a time to think.
Why is this trader so excited?
What comes to your mind when you see the
following picture?
Harshad Mehta - Hero Harshad Mehta - Zero

Please understand the irony of a

stock market.
Do you appreciate ups and downs in a stock
market?
S & P B S E Sensex
How to safeguard
oneself against
Business Cycles?
This man is possessing RBI Bonds. Is he exposed to any
kind of risk? If the bond is promising 8% coupon, then
what is his effective rate of return on it?
Should you hold individual
securities or hold them as a
portfolio?
Can anyone really
beat the market?
If not, is selecting
share is as good as
throwing a dart?
Should we pay millions to the
so called financial
professionals for making us
bankrupt?
Can you safeguard yourself against mis-
selling of financial products?
Market-Mantra…
Who sells at the bottom?
These issues are
bothering me and
I believe that they
must be bothering
you too!!!!
As a man of finance, we have to address
and understand all such issues. And,
the course in Investment Analysis and
Portfolio Management will definitely help
us in this regard.
WELCOME TO THE COURSE on

Prof. C. P. Gupta
Professor of Practice
But, first of all …...
A WARNING...

Be aware
of it!!!
If the knowledge from this course may
injure my wealth, then why should we study?
This house is
a GREAT
place to live
in.
Assume that, Then, the
biggest
unfortunately,
issue is –
one day the WHO can
house was on come out
of the
fire.
house?
Anyway, let’s move ahead.

Take you along on this journey of

INVESTMENT ANALYSIS AND PORTFOLIO MANAGEMENT!

 OBJECTIVE OF THE COURSE

To equip the participants with the necessary

knowledge & skill to make intelligent investment
decisions by using the Modern Portfolio Theory and
the latest thinking that is emerging in the area of
Investment Analysis and Portfolio Management.
Let me share
with you ‘my
vision’ about
designing and
delivery of the
course before
we start.
Objective of Today’s session - Putting the
things in RIGHT PLACES and in the RIGHT PE
RSPECTIVE…
Never ignore BASICS!
Master THEM.
First, we have to get
our basics right!!!!!!!
 What is
investment?

Issue # 1
 Why should we
investment?

Issue # 2
OBJECTIVES OF INVESTMENT
 To generate maximum RETURN/INCOME/ PROFIT/ BENEFITS.

 To minimise the risk involved.

 To maximise UTILITY that is based on Risk-Return trade-off.

 To ensure sufficient liquidity(?).

 To get tax-benefits.

 To safeguard against rising prices.

 To satisfy Security/Safety Needs; i.e. to ensure sufficient

safeguard against unforeseen contingent events.
 Where should
we investment?

Issue # 3
 Real Assets
Vs.
Financial Assets
We should investment in a financial asset…

 We shall restrict ourselves to TWO KINDS

of financial assets –

 FIXED INCOME SECURITY – BOND

 VARIABLE INCOME SECURITY - EQUITY

 What is a
framework for
evaluating an
Issue # 4
investment?
We use two-parameter framework
to evaluate an investment …

 One parameter is - RETURN; and

 Another parameter is - RISK.

RETURN...
 What is return …….?

 How do we estimate it for a security?

 Should we take it before tax or after tax?

 What is the difference between interest and

return?

RETURN vs YIELD

SIMPLE RATE OF RETURN AND CONTINUOUS

COMPOUNDING RATE OF RETURN
 RISK

 What is risk?

 Why risk?

 How is it different from uncertainty?

Types of Risk:
 Systematic Risk
 Unsystematic Risk
 Market Risk
 Interest Rate Risk
 Purchasing Power Risk or Inflation Risk
 Foreign Exchange Risk
 Business Risk - Operating Leverage
 Financial Risk - Financial Leverage
 Management Risk
 Industry Risk
 Economy/Country Risk
 Credit Risk/Default Risk
 System Risk
 Risk is usually measured as ...
 PROBABILITY OF LOSS

 EXPECTED LOSS

 VARIATIONS & FLUCTUATIONS:

 Range
 Mean Absolute Deviation
 Standard Deviation/Variance/Coefficient of Variation
 Semi-Variance
 Variance from a benchmark - TRACKING ERROR

 COVARIANCE as a measure of risk

 the SENSITIVITY OF RETURN TO POSSIBLE CHANGES - percentage

changes.
Is there any relation between
Return and Risk?
Relation between Return and Risk
 Can we say that a person who has taken high risk will
get higher return?

 Should a person go for higher risk if he/she has to

earn higher return?

 Should a person be compensated by higher return for

taking higher risk?

 Is it HIGH RISK HIGH RETURN? Or, Is it HIGH

RETURN HIGH RISK?

 PESO PROBLEM: A situation in which what appear to be

abnormally high returns on an investment are in fact
compensation for bearing the risk of an event that has not yet
taken place.
What NEXT?
Next Session

Thank you
very much.