equity market

• Investor choices: which asset classes?


  • Cash
  • Real estate
  • Bonds
  • Cryptocurrencies
  • Stocks/Equities
  • Art
  • Currency (FX)
  • Wine
  • Commodities
  • Stamps
  • Derivatives
• Equity share


  An investable type of security issued by a company to the public, giving partial ownership of a public company (PLC) to a buyer (a shareholder), who can benefit from Capital Gains and/or Dividends
• Dividend Policies


  • Progressive
  • Zero
  • Constant pay-out ratio
  • Constant
  • Residual (remaining)
• Equity Markets


  • Shares of companies are issued and traded, either through exchanges or over-the-counter markets
• Investor choices: which Markets & Sectors?


  • Mature Markets: North America, Europe, Japan
  • Emerging Markets: BRICS+ countries, South America, Asia, Africa
• FTSE 100 – Top 10 Constituents
• Who is investing?


  • Private investors
  • Institutional investors
  • Financial companies/Portfolio managers
  • Speculators
• Efficient Market Hypothesis (EMH)


  Markets fully, rapidly and rationally adjust to new information
• Behavioural Finance (BF)


  Psychology affects market outcomes, e.g. risk preferences, limits to arbitrage, bubbles, cognitive and emotional biases, loss aversion, overconfidence, over-precision, mental accounting
• Tips for investments


  • Invest only what you can afford losing
  • Be able to accept losses (set stop loss)
  • Be able to limit your profits (set limit)
  • Diversify your portfolio (e.g. MPT, Kelly Criterion)
  • Stay informed (News, Economic Calanders, Education, Market Trends etc.)
  • Speculation is a form of gambling
  • Start early (compounding)
  • Costs (e.g. fees vary for investments)
  • Risk Tolerance (investments vary in risk)
  • Seek advice (e.g. financial advisor)
  • No emotions (e.g. fundamental vs emotional)
• Buy and Hold strategy


  The investor hangs on to its original investments
• Indexing


  A form of portfolio management that attempts to mirror the performance of a market index, e.g. the S&P 500 or the FTSE 100. Index funds eliminate concerns about outperforming the market.
• Rebalancing a portfolio


  The process of periodically adjusting it to maintain the original conditions, e.g. weights, asset classes, risk, correlation
• 99% of fund managers fail to beat the stock market
• Actively managed funds returned an average of 1.4% less than the market each year between 1998 and 2008 once fees were taken into consideration
• A typical investor would be 1.4% a year better off by switching to a low-cost passive UK equity tracker
• Types of institutional investment companies


  • Hedge Funds
  • Exchange-Traded Funds
• Hedge Fund


  An investment fund that can undertake a wider range of investment and trading activities than other funds, but is generally only open to certain types of investor specified by regulators
• Exchange-Traded Funds (ETFs)


  Represent a fractional ownership in the underlying securities in a particular index, most are passively managed and follow an index (therefore lower investment fees), although some do employ active management. ETFs can be traded like stock on the major stock exchanges.