Lec1 - AF3316 Investments Shaojun(Shaun Zhang Ph.D ASA School of Accounting and Finance The Hong Kong Polytechnic University LECTURE 1 LECTURE 1

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Unformatted text preview: AF3316 Investments Shaojun (Shaun) Zhang, Ph.D. ASA School of Accounting and Finance The Hong Kong Polytechnic University LECTURE 1 LECTURE 1 Basics of Basics of Investment, Investment, Investors, and Investors, and The Investment The Investment Process Process 1-2 AF3316 Lecture 1 Warren Buffett has said "Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ....What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework." 1-3 AF3316 Lecture 1 John C. Bogle Founder and retired CEO of The Vanguard Group • Named one of the "world’s 100 most powerful and influential people" by Time magazine in 2004 • Institutional Investor's Lifetime Achievement Award (2004) • Named one of the investment industry’s four "Giants of the 20th Century" by Fortune magazine in 1999 • Awarded the Woodrow Wilson Award from Princeton University for "distinguished achievement in the Nation’s service" (1999) 1-4 AF3316 Lecture 1 Six Lessons for Investors from the Financial Tsunami 1) Beware of market forecasts, even by experts. 2) Never underrate the importance of asset allocation. 3) Mutual funds with superior performance records often falter. 4) Owning the market remains the strategy of choice. 5) Look before you leap into alternative asset classes. 6) Beware of financial innovation. -- John C. Bogle, Wall Street Journal, January 9-11, 2009 1-5 AF3316 Lecture 1 Defining Investment • Essential Nature of Investment – Defer present consumption for future consumption – Intertemporal Consumption Opportunities • Endowment Lending Borrowing Consumption next year Consumption this year Slope = -(1+r) Present value of the endowment Future 1-6 AF3316 Lecture 1 Defining Investment • The existence of a financial market makes lending and borrowing possible. • Resources entering into the financial system become assets (capital goods). – An asset is something that can generate future cash flow(s). – The cost of acquiring an asset and the cash flows it generates constitute the return of the asset. 1-7 AF3316 Lecture 1 • Real Assets – Assets used to produce goods and services • Financial Assets – Claims on real assets • Major Classes of Financial Assets or Securities – Debt • Money market instruments, e.g., bank certificates of depositMoney market instruments, e....
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This note was uploaded on 06/06/2009 for the course AF AF3316 taught by Professor Shaojunzhang during the Spring '09 term at Hong Kong Polytechnic University.

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Lec1 - AF3316 Investments Shaojun(Shaun Zhang Ph.D ASA School of Accounting and Finance The Hong Kong Polytechnic University LECTURE 1 LECTURE 1

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