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Investments: An Introduction

Four phases of the life-cycleLearning outcomesIntroductionPhase 1: newborn to adulthood (0-20) IntroductionRead up on the cognitive development stages of offspringSensorimotor stage (0-2 years)Preoperational stage (2-7 years)Concrete operational stage (7-11 years)Formal operational stage (11-15+ years)Promote a rock-solid emotional backboneProvide sound education inside and outside institutions of learningProgramme the child's mind to be an inquiring onePromote an ethos of sound money managementDrive home the philosophy that wealth has two legs: monetary and non-monetaryPhase 2: adulthood to maturity (20-40) IntroductionChoose your career with careUndertake one career and become accomplished at itUndertake lifelong continuing educationChoose your life partner with careNurture your health and family lifeUnderspendInsure your life onlyTake on debt, but with much thoughtDo not bow to peer pressurePhase 3: maturity to seniority (40-60)IntroductionNurture and exploit your personal brandAggressively repay debtCash out and separate business risk from personal assetsInvest assets wiselyFinance lifestyle assets with excess fundsPhase 4: seniority to exodus (60-80+) IntroductionChoose this day carefully and prepare yourself emotionallyContinue to invest assets wiselyResist the Indiana Jones temptation to make a comebackDo not lend money to anyoneUndertake SKI holidaysOther rules which apply throughout or during part of your life-cycleIntroductionDo not become dependent on the largesse of your spouseNurture relationships in business with like-minded people and avoid negatively-focused peopleBe quietly competitiveBe kind to people with humble stations (positions) in lifeRead up on the undisputed "Out of Africa" theoryPursue happinessHave no regrets upon exodusUndertake a lifelong love affair with macroeconomics and the political environmentLife-cycle of happinessThe life-cycle and investingThe financial systemLearning outcomesIntroductionSix elements of the financial systemElement 1: lenders and borrowersElement 2: financial intermediariesElement 3: financial instrumentsIntroductionThe instruments (ultimate investments) of the ultimate borrowersThe instruments of the financial intermediariesSummaryElement 4: financial marketsPrimary and secondary marketsOTC and exchange-driven marketsDebt marketShare marketForeign exchange marketSpot and derivative marketsElement 5: money creationElement 6: price discoveryAllied participants in the financial systemInvestment instrumentsLearning outcomesIntroductionTime value of moneyMoney market instrumentsBond market instrumentsShare market instrumentsDerivative market instruments: futures and optionsReal investmentsIntroductionProperty Of the real investments, property is the most significant investment for the retail investor (individual)CommoditiesOther real investmentsInvestment vehiclesIntroductionLong-term insurersRetirement fundsSecurities unit trustsProperty unit trustsExchange traded fundsPrivate equity fundsHedge fundsForeign investmentsAsset classesInvestment principlesLearning outcomesIntroductionDefinition and objective of investmentRisk-free rateInvestment environmentRisk and returnWhat are risk and return?Measuring risk and returnRelationship between risk and returnRisk and return: the recordInvestment theories and maxims IntroductionEfficient market hypothesisModern portfolio theoryCapital asset pricing modelBehavioural finance theoryFundamental analysis (aka firm foundation theory) (security valuation)IntroductionValuation of sharesValuation of fixed-interest securitiesValuation of futures and optionsValuation of income-producing propertyValuation of commoditiesValuation of other real assetsValuation of participation interestsLessons from the theories and maxims IntroductionThere is no simple formula to make you wealthyTop-down investing is wiseDiversification is criticalBase investment decisions on their FVPNever fall in love with an investmentDo not be led by technical analysisBe cognizant of behavioural finance (the psychology of the market)Appreciate market liquidityAppreciate the life-cycle consumption theoryAppreciate the significance of the risk-free rateBe aware of the principal-agent dilemmaLeave investing to the professionalsUnderstand macroeconomics and mean reversionPortfolio managementAsset allocation over the life-cycleIntroductionPhase 1: 0-20Phase 2: 20-40Phase 3: 40-60Phase 4: 60-80+
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