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Portfolio Chapter 0a & 0b
Terms in this set (39)
Which are passive trading strategies?
Indexing, buy, and hold
What is a market timer?
A strategy that tries to anticipate short-term market direction and makes buy and sell decisions accordingly.
What Beta should a portfolio be held between?
0.95 and 1.05
Evidence shows that managers do a _____ job timing the market
Under disciplined stock selection, what should you strive for?
Improve return but limit the risk of doing so
What is the difference between active and passive investment strategies?
Passive - limit buying and selling (think Warren Buffett)
Active - goal is to beat market by taking advantage of short term fluctuations (think day trading)
What's the GDP formula?
Consumption + Investment + Government Spending + (Exports - Imports)
The January effect refers to the phenomenon that portfolios of small-firm stocks (compared to portfolios of large-firm stocks) have:
On average a higher increase in price because they are less liquid
What is the basic rule to select stock using Dividend Discount Model Rate of Return(DDM)
Select stocks with highest discount rate ( Highest k value/highest rate of return)
A fundamental law of measuring active management is to maximize what of the fund portfolio?
In terms of stock selection, an investor that limits buying and selling is described as ______ and an investor with a goal to beat the market is described as ________.
The book-to-market effect refers to the finding that firms with high ratios of book value to market value tend to have annual returns ______________ returns for firms with lower ratios.
This is worded weird but low book-to-market means higher returns
What is a strategy that tries to anticipate short-term market direction and make buy and sell decisions accordingly?
Market timing/day trading
15. The Goal of a fund manager is to have a __________ alpha
________ is a style of investing that uses a long-term scope with little amounts of buying and selling, while _______ is a style of investing that attempts to beat the stock market's returns and take advantage of short term price fluctuations.
What is the difference between a mutual fund and ETF?
Mutual funds are more actively managed and trade on end of day price data while etfs usually track with a particular index
A investment strategy that includes goals of beating the market and taking advantage of short term fluctuations, is flexible, and allows hedging is said to be a/an __________ strategy.
Which of the following is an advantage of passive over active management?
Passive has low fees and tax efficiency and active is flexible and hedgeable.
What are benefits of value investing vs. growth investing?
Value investing has statistically outperformed overtime, also you are not investing in a stock based on analyst growth expectations (which usually overshoot actual growth causing large corrections in growth stock prices), but rather you are investing in undervalued companies.
When looking to invest in a passive or active fund, which fund will most likely have lower fees?
What is an economic indicator?
Statistical measures which reflect the overall health of the economy
What deems an Economic Recession?
2 consecutive quarters of negative GDP Growth
How is GDP calculated?
Consumption + Investment + Government Spending + Net Exports (ie exports - imports)
True or False: Economic indicators are statistical measures which reflect the overall health of the economy.
What are the four stages of an economic downturn?
The peak, modest slowing, intensifying worry and recession.
What are the three ways the Federal Reserve controls the money supply?
Reserve Requirements, Discount Rates, and Open-market Operations
What economic indicator is considered the cornerstone of the economy?
Using the recession as the primary measure of an economic slowdown is a good measure?
What are the three components of gross domestic production?
Consumer consumption, government spending, capital spending
The FED is run by a Board of Governors. How many people does this board consist of and how long are their terms?
7 people, 14 year terms
What are the four stages of economic downturns?
Stage 1: The Peak
Stage 2: Modest Slowing
Stage 3: Intensifying Worry
Stage 4: The Advent of Recession
What part of the Macroeconomy makes up about 70% of the US GDP?
What are the five major economic indicators?
Inflation, interest rates, consumer spending, capital spending, industrial production
What is the primary driver of consumer spending?
The Federal Reserve performs which of the following services?
-lender of last resort
- monetary policy
- issue currency
-set the reserve requirements
When consumer spending is approaching its worst, should investors buy or sell?
When interest rates are ___, consumers are ___ likely to borrow money which gives them ___ money to spend currently.
Rising, Less, Less
According to Taylor's rule, if GDP is too high what will the Fed do to interest rates?
What economic cycle does an inverted yield curve indicates? During this time, which security will investors prefer, long-term or short term?
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