Question 1:
from ch. 16. Compare and contrast the difference between Fundamental analysis and Technical Analysis.
Student 1:
As stated, Fundamental analysis involves looking at economic, industry, and company data to help determine the fair value for a companys stock (Altfest, 2017, p516). Important things to look at is the outlook of the economy and the impact it has on the company that is being evaluated. With fundamental analysis, you are looking to see if the company that is being analyzed is growing faster or slower than their industry, and the return on investment over their competitors. With fundamental analysis, you are looking at all data given to make strategic decisions. Some important documents you may look at include, the companys annual reports, calculating financial ratios, using valuation models, etc.
Technical analysis: Its main focus is on price and volume. An investor would look at the stocks past price action and the number of shares traded. One way to interpret the stock price action is looking closely at the stocks momentum. Technical analysis contrasts with fundamental analysis, which says that the higher a stock rises without new positive developments, the less attractive it is (Altfest, 2017, p517). Its all about looking at historical records of the stock price of the company you are looking into and its returns for patterns. If patterns repeat, then an investor who knows about them can try to spot them early and get into the stock early giving them the opportunity to earn a better-tan -average return. This type of analysis is still controversial among many investors. It is important to note that market efficiency and behavioral finance play an important role when it comes to the stock market and stock price. Technical analysts argue that internal markets factors, such as trading volume and price movements, often reveal the markets future direction long before it is evident in financial statistics (Smart & Zutter,2020, p.362).
Reference:
Altfest, L. J. (2017). Personal Financial Planning. McGraw-Hill Education.
Smart, S. B., & Zutter, C. J. (2020). Fundamentals of Investing (14th ed.). New York, NY: Pearson.
Question 2:
from ch. 16. What are some advantages and disadvantages of Separately Managed Accounts?
Student 2:
Normally, the investment management company manages investment portfolios for a group of investors. If the company only manages your own account, it is then called a separately managed account.
There are some advantages to this kind of management. First, you have control over it. You have a decision power of what stocks to buy and sell. Secondly, it is more transparent. You know why certain stocks are bought or sold. Thirdly, there could be tax benefits. You can choose to sell at a loss of some stocks to offset the gain you have on other stocks. Fourthly, you will not be affected in decision making by other investors. You choose what stocks to buy and what stocks to sell, without being affected when you make the decision.
There are some drawbacks to the separately managed accounts. Firstly, the stock purchasing amount should be big. Normally the minimum is half a million or a million. General investors will not be able to meet the requirements. Of course, you need to pay higher management fees for the management of your account. The manager of the accounts also needs to spend more time and energy, choosing the right investment stocks for you. Once the decision is not correct, you may have more loss.
References:
The Pros and Cons of Separately Managed Bank Accounts. Retrieved from https://www.53.com/content/fifth-third/en/wealth-management/resource-center/personal-finance/understanding-separately-managed-accounts.html
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