Class Notes (839,119)
Canada (511,196)
York University (35,583)
ADMS 4501 (65)
all (24)


5 Pages

Administrative Studies
Course Code
ADMS 4501

This preview shows pages 1 and half of page 2. Sign up to view the full 5 pages of the document.
Advanced Portfolio Management ADMS 4501 – Winter 2012 – Lois King Lecture 7 – Chapter 8 – Economic and Industry Analysis – Feb 16 An Overview of the Valuation Process - Two general approaches o Top-down, three-step approach. o Bottom-up, stock valuation, stock picking approach. - The difference between the two approaches is the perceived importance of economic and industry influence on individual firms and stocks. - Both of these approaches can be implemented by either fundamentalists or technicians. - Three-step top-down process o First examine the influence of the general economy on all firms and the security markets. o Then analyze the prospects for various global industries with the best outlooks in this economic environment. - Cone-shaped diagram: o Top layer  Analysis of alternative economies and security markets • Objective: decide how to allocate investment funds among countries and within countries to bonds, stocks and cash. o Middle layer  Analysis of alternative industries • Objective: based upon the economic and market analysis, determine which industries will prosper and which industries will suffer on a global basis and within countries. o Bottom layer  Analysis of individual companies and stocks • Objective: following the analysis of the industries, determine which companies within these industries will prosper and which stocks are undervalued. Why a Three-Step Approach? - General economic influences o Fiscal policy initiatives, such as tax credits or tax cuts, can encourage spending. o Monetary policy though controlling money supply growth or interest rate therefore affects all segments of an economy and that economy’s relationship with other economies. o Inflation causes changes the spending and saving behaviour of consumers and corporations. o Other events such as war, political upheavals in foreign countries, or international monetary devaluations exert strong effects on the economies. - Industry influences o Identify global industries that will prosper or suffer in the long run or during the expected near-term economic environment. o Different industries react to economic changes at different points in the business cycle. o Alternative industries have different responses to the business cycle. o Demographic factor and international exposure will also have different impacts on different types of industries. - Company analysis o The purpose of company analysis to identify the best companies in a promising industry (or worst companies). o This involves examining a firm’s past performance, but more important, its future prospects. o Compare the estimated intrinsic value to the prevailing market price of the firm’s stock and decide whether its stock is a good investment. o Compare estimates relative value to other firms in the same industry. o The final goal is to select the best stock within a desirable industry and include it in your portfolio based on its relationship (correlation) with all other assets in your portfolio. Does the Three Step Process Work? - Studies indicate that most changes in an individual firm’s earnings can be attributed to changes in aggregate corporate earnings and changes in the firm’s industry. - Studies have also found a relationship between aggregate stock prices and various economic series such as employment, income, or production. Economic Analysis: Understanding Business Cycles - Leading indicators o Economic series that usually reach peaks or troughs before corresponding peaks or troughs in aggregate economy activity. - Leading indicators for Canada o Average work week, manufacturing. o Housing index. o United States composite leading index. o Money supply. o New orders, durable goods. o Retail trade, furniture and appliances. o Durable goods sales excluding furniture and appliances. o Shipment to inventory ratio, finished products. o Stock price index, S&P/TSX. o Business and personal services employment. - Coincident indicators o Economic series that have peaks and troughs that roughly coincide with the peaks and tro
More Less
Unlock Document

Only pages 1 and half of page 2 are available for preview. Some parts have been intentionally blurred.

Unlock Document
You're Reading a Preview

Unlock to view full version

Unlock Document

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.