Investment Analysis and Portfolio Management Notes

Here is Investment Analysis and Portfolio Management Notes for the the Investments point of view. First we must know about Investment. Investment is always related to future and future is always uncertain. Other things keep constant the higher the risk, the higher the profit is and vice versa.

Fundamental Analysis

It is based on assumption that every share has an intrinsic value. We see past historical data of the company through annual reports.

Technical Analysis

It is based on assumption that share price is a function of demand and supply.

We just see the market and purchase the shares of the company.

Note: Here we study Industry Analysis in detail.

Fundamental Analysis

Ø Economic Analysis

Ø Industry Analysis

Ø Company Analysis

Industry Analysis

A classification that refers to a group of companies that are related in terms of their primary business activities. In modern economies, there are dozens of different industry classifications, which are typically grouped into larger categories called sectors.  

Industry Classification

The industry life cycle is made up of the following stages: 

1. Pioneering Phase
2. Growth Phase
3. Mature Growth Phase
4. Stabilization/Maturity Phase
5. Deceleration/Decline Phase

1) Pioneering Phase

This phase is characterized by low demand for the industry's product and large upstart costs. Industries in this phase are typically start-up firms, with large upfront costs and few sales. 

2) Growth Phase

After the pioneering phase, an industry can transfer into the growth phase. The growth phase is characterized by little competition and accelerated sales. Industries in this phase have typically survived the pioneering phase and are beginning to recognize sales growth.

3) Mature Growth Phase

After the growth phase, an industry will reach the mature growth phase. The mature growth phase is characterized above average growth, but no longer accelerating growth. Industries in this phase now face increasing competition and, as a result, profit margins begin to erode.

4) Stabilization/Maturity Phase

After the growth phases, an industry will enter in the stabilization/maturity phase. The stabilization/maturity phase is characterized by growth that is now average. Industries in this phase have significant competition and the return on equity is now more normalized. This is typically the longest phase an industry will go through.

5)Deceleration/Decline Phase

The deceleration follows the growth and maturity phases. The deceleration/decline phase is characterized by declining growth as demand shifts to other substitute (new) products. 

Industry Life Cycle – Features

—  Pioneering

Ø More Volatile

Ø Growth potential is  high

Ø Returns/profits  are non-existent

Ø Risk is High

Ø Weaker companies yet have to be filtered out

Ø Yields capital gains to investors

Ø Entry of new companies is easy

Industry Cycle – Growth Stage

ü Weaker companies are filtered out

ü Companies sales and profits grow.

ü Companies start paying dividends

ü Investors can earn capital gains also.

ü Competition start emerging

ü Risk is moderate 

Industry cycle- Maturity stage

 —  Companies are stable

 —  Operating at their full capacity

 —  Sales and profits are high

 —  Growth potential is minimized

 —  Economies of scale are achieved.

 —  These companies pay regular dividends

 —  Possibility of new entrants is eliminated

 —  They have systems and procedures evolved.

Types of Industries

Ø Cyclical Industries

A type of an industry that is sensitive to the business cycle, such that revenues are generally higher in periods of economic prosperity and expansion, and lower in periods of economic downturn and contraction.

Cyclical industry is that industry that moves along with the economics cycle.

Examples

 Consumer durable industry, luxury goods industries, fashion goods industry, etc.

Ø Non Cyclical Industries

Such industries do not move along with the economy.

Examples

Necessities goods industries, utilities companies, health related products industries, etc.

Ø Counter-Cyclical Industries

                 Such industries move against economic cycle.

Examples

Gold industries, arms industries, etc.

Increase in Economy    Decrease in Demand for Gold

Ø Capital Goods Intensive Industry

            An industry that requires large amounts of money and other financial resources to produce a good or service.

These are the industries which make plant and machinery that are used for the production of other goods.

Example

Railways, Airlines, etc.

We hope that now you have learned the Investment Analysis and Portfolio Management Notes after covering above mentioned topics.