Security Analysis & Portfolio Management Notes
Subject Overview
Security Analysis & Portfolio Management is the Accounting & Finance elective on how to actually evaluate and manage investments. You'll cover investment fundamentals and philosophy (value vs. growth investing), risk and return analysis, fundamental and technical analysis for evaluating securities, and close with portfolio management models — CAPM, Arbitrage Pricing Theory, the Markowitz Model, and portfolio performance evaluation using the Sharpe, Jensen, and Treynor models. This is a 6-credit elective paper across 4 units, for students interested in investment and wealth management careers.
Subject at a glance
4
Units
27
Topics
6
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Meaning
- nature
- objectives and process of investment
- investment vs. speculation vs. gambling
- investment avenues
- value investing and growth investing
- individual and institutional investors
Investment
Long term
Analysis of fundamentals
Speculation
Short term
Price movements, higher risk
Gambling
Very short
Chance
Study guide
This unit introduces investing: the meaning, nature, objectives and process of investment, investment versus speculation versus gambling, investment avenues, value and growth investing and individual and institutional investors. Be able to distinguish investment from speculation with examples.
- Meaning and management of risk
- analysis of risk and return
- relationship between risk and return
- types and measurement of risk
- the risk-return trade-off
Systematic (market) risk
Interest rate, inflation, market; cannot be diversified away
Unsystematic (specific) risk
Business and financial risk of one company; reduced by diversification
Study guide
You study how to analyse risk and return, the relationship between them, the types and measures of risk and the risk-return trade-off. Practise computing expected return and standard deviation of a security.
- Economic
- industry and company analysis
- charting techniques and indicators
- fundamental vs. technical analysis
- Efficient Market Theory
- Random Walk Theory
- Economy analysis
GDP, inflation, interest rates
- Industry analysis
Growth, competition, life cycle
- Company analysis
Management, financials, valuation
Study guide
You study economic, industry and company analysis, charting techniques and indicators, the difference between fundamental and technical analysis and the Efficient Market and Random Walk theories. Learn the three forms of market efficiency.
- Capital Asset Pricing Model
- Arbitrage Pricing Theory
- Markowitz Model
- Capital Market Line
- Security Market Line
- portfolio performance evaluation (Sharpe, Jensen, Treynor models)
- techniques of portfolio revision
- formula plans
- global investing
CAPM
E(R) = Rf + β (Rm − Rf)
Sharpe ratio
(Rp − Rf) / σp
Treynor ratio
(Rp − Rf) / βp
Jensen's alpha
Rp − [Rf + βp (Rm − Rf)]
Study guide
This unit covers portfolio theory: CAPM, Arbitrage Pricing Theory, the Markowitz model, the Capital Market Line and Security Market Line, performance evaluation with Sharpe, Jensen and Treynor measures, portfolio revision, formula plans and global investing. Practise a CAPM expected-return calculation and a Sharpe ratio problem.
Why Security Analysis & Portfolio Management Matters
These topics are the foundation of careers in equity research, portfolio management and wealth management and prepare you for exams such as NISM and CFA.
How to Prepare for Security Analysis & Portfolio Management
- Practise CAPM, beta and portfolio return and risk numericals.
- Follow one listed company and apply fundamental analysis to it.
- Learn the difference between SML and CML.
Security Analysis & Portfolio Management: Frequently Asked Questions
What is the difference between fundamental and technical analysis?
Fundamental analysis estimates a security's intrinsic value from economic, industry and company data, while technical analysis studies price and volume patterns to predict future prices.
What does CAPM do?
The Capital Asset Pricing Model estimates the expected return on an asset from the risk-free rate, the asset's beta and the market risk premium.