Applied Equity Analysis and Portfolio ManagementTools to Analyze and Manage Your Stock Portfolio
Wiley Finance 1. Aufl.
A "hands-on" guide to applied equity analysis and portfolio management From asset allocation to modeling the intrinsic value of a stock, Applied Equity Analysis and Portfolio Management + Online Video Course offers readers a solid foundation in the practice of fundamental analysis using the same tools and techniques as professional investors. Filled with real-world illustrations and hands-on applications, Professor Weigand's learning system takes a rigorous, empirical approach to topics such as analyzing the macro-finance environment, sector rotation, financial analysis and valuation, assessing a company's competitive position, and reporting the performance of a stock portfolio. Unlike typical books on this subject—which feature chapters to read and exercises to complete—this resource allows readers to actively participate in the learning experience by completing writing exercises and manipulating interactive spreadsheets that illustrate the principles being taught. The learning system also features instructional videos that demonstrate how to use the spreadsheet models and excerpts from the author's blog, which are used to depict additional examples of the analysis process. Along the way, it skillfully outlines an effective approach to creating and interpreting outputs typically associated with a top-down money management shop — including a macroeconomic forecasting newsletter, detailed stock research reports, and a portfolio performance attribution analysis. Covers topics including active and passive money management, fundamental analysis and portfolio attribution analysis Companion streaming videos show how to use free online data to create yourown analyses of key economic indicators, individual stocks, and stock portfolios A valuable resource for universities who have applied equity analysis and portfolio management courses Practical and up-to-date, the book is an excellent resource for those with a need for practical investment expertise.
Preface ix Acknowledgments xv Chapter 1 Perspectives on Active and Passive Money Management 1 Terminology: Investors, Investment Vehicles, Risk, and Return 1 The Top-Down Fundamental Analysis Process 3 The Record of Professional Money Managers 8 Market Efficiency, Behavioral Finance, and Adaptive Expectations 10 Additional Perspectives on Investing 18 Professional Investment Policy Statements 26 Summary 30 Questions 30 Answers to Selected Questions 32 References 33 Notes 34 Chapter 2 Analyzing the Macro-Finance Environment 35 Economic Analysis: The First Step of a Top-Down Fundamental Process 35 Data Considerations: Nominal and Real-Time Series 41 National Income, Corporate Profits, and Job Creation 41 Leading Economic Indicators 43 Coincident Economic Indicators 54 Lagging Economic Indicators 58 Supplemental Economic Indicators 64 Summary 67 Questions 67 References 69 Notes 69 Chapter 3 Valuation, Expected Returns, and the Dividend Discount Model 71 Finance Principle 1: Valuation 71 Finance Principle 2: Value and Expected Returns 77 Summary 88 Questions and Problems 88 Answers to Selected Questions and Problems 93 Reference 96 Note 96 Chapter 4 Historical Performance Analysis 97 Getting Started 98 Historical Stock Returns 100 Growth in Revenues, Profits, and Dividends 101 Gross, Operating, and Net Profit Margins 108 Relative Valuation 111 Liquidity and Debt 115 Profitability: ROA and ROE 118 NOPAT, Total Invested Capital, Free Cash Flow, and ROIC 122 Value Creation: Cost of Capital, EVA, MVA, and Intrinsic Value 127 Using Diffusion Indexes to Summarize Performance Analysis 134 Summary: Historical Performance Analysis 136 Appendix: United Technologies’ Financial Statement Highlights, 2009–2012 136 Questions 138 Answers to Selected Questions 139 References 142 Notes 142 Chapter 5 Financial Statement Forecasting, Financial Analysis, and Valuation 143 The Income Statement Forecast Worksheet 144 The Percent-of-Sales Forecasting Method 144 Forecasting MCD’s Income Statement 145 Forecasting MCD’s Balance Sheet 153 Pro Forma Analysis: MCD 159 Intrinsic Value Modeling 164 Financial Fitness and Probability of Bankruptcy Scorecards 170 Summary 171 Case Study 5.1: Two Perspectives on Valuation Analysis: The Curious Case of Amazon, Inc. 172 Questions 175 References 208 Notes 208 Chapter 6 Analyzing Company Strategy and Identifying Catalysts 209 Sources of Information 212 Unique Capabilities Lead to Sustainable Competitive Advantage 212 Getting Started: Analyzing Strategy and Competitive Advantage 216 Porter’s Five Forces Model 223 SWOT Analysis 229 Catalysts 232 Summary 232 Questions 233 Answers to Selected Questions 233 References 234 Chapter 7 Portfolio Risk and Performance Attribution 235 Foundations: Risk and Expected Return 236 Statistical Representations of Macroeconomic and Firm-Specific Risk 240 Extending the Mean-Variance Framework: Beta 249 Performance Attribution: Sector Weights, Dividend Yield, Beta, and Style 255 Multifactor Models 262 Summary 266 Questions and Problems 267 Answers to Selected Questions and Problems 271 References 279 Notes 279 Appendix The Time Value of Money and the Basics of Valuation 281 Basic Terminology 282 The Basic Future Value Tool 282 The Basic Present Value Tool 285 Perpetuities 292 Calculating Average Annual Compound Rates of Return 293 Integrated Problems Featuring Multiple TVM Tools 293 Solving for the Number of Periods 294 More on the EAR-to-APR Conversion 295 Arithmetic versus Geometric Averages 296 Questions and Problems 298 Answers to Selected Questions and Problems 302 About the Online Video Course 309 About the Author 311 Index 313
ROBERT A. WEIGAND, PhD, is Professor of Finance and Brenneman Professor of Business Strategy at Washburn University in Topeka, Kansas. Previously, he was a faculty member at Texas A&M University, the University of Colorado, and the University of South Florida. Dr. Weigand is the author of over 40 scholarly articles and book chapters. His research has supported various innovations in the field of asset management, including Russell Investment’s CrossVol™ Volatility Indexes. He earned a PhD in financial economics from the University of Arizona in 1993.
Praise for Applied Equity Analysis and Portfolio Management Professor Weigand’s book is the clearest description of how to evaluate and pick stocks that I’ve read. The professional tools he provides are useful, and accompanied by intuitive, commonsense explanations. Whether you want to talk more intelligently with your financial advisor, become one yourself, or just dabble in the stock market, this book will help you achieve your goals. —Ken Kroner, Head and Chief Investment Officer of Scientific Active Equity, Blackrock, Inc. I have been professionally practicing in the investment management business for 34 years. Many clients have asked my advice for a guide, a book to study that encompasses the essence of solid investment processes. Dr. Weigand’s book is that resource: it captures both the art and science of the discipline, while taking today’s demanding investment environment into consideration. —William Greiner, CIO of Mariner Wealth Advisors and BusinessWeek’s 2005 “Stock Market Strategist of the Year” Simply put, Rob Weigand’s Applied Equity Analysis and Portfolio Management is a masterful work. His “learning system” is a potential game changer for anyone who is serious about investing, including students, investment advisors, financial planners, and experienced investors. He writes with great clarity and provides a complete package to ensure a successful learning experience. Based on my analysis, this book is an unqualified “buy.” —H. Kent Baker, CFA, University Professor of Finance, Kogod School of Business American University I found Dr. Weigand’s learning system to be insightful, clear, and directive. His “learn by doing” style of teaching has not only captivated and inspired talented students, but has been very instructional for seasoned professional investors as well. —Mayo Schmidt, Retired President and CEO, Viterra Corporation
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