The key difference between a wrap account and a mutual fund is that in a wrap account, the assets are owned directly by the individual.
A wrap account (or wrap service) is a means of consolidating and managing an investor’s investment portfolio and financial plans.
Three sources of commodities futures returns are:
- Toll yield: The yield due to a difference between the spot price and futures prices or a difference between two futures prices with different expiration dates.
- Collateral yield: The interest earned on collateral required to enter into a futures contract.
- Change in spot prices: The total price return is a combination of the change in spot prices and the convergence of futures prices to spot prices over the term of the futures contract.
A trade credit is an agreement where a customer can purchase goods on account (without paying cash), paying the supplier at a later date. Usually when the goods are delivered, a trade credit is given for a specific number of days – 30, 60 or 90. Jewelry businesses sometimes extend credit to 180 days or longer. Trade credit is essentially a credit a company gives to another for the purchase of goods and services.
Smaller companies use collateralized loans, factoring, or loans from non-bank companies as their sources of short-term financing. Larger companies can take advantage of commercial paper, banker’s acceptances, uncommitted lines, and revolving credit agreements.
Float factor: An estimate of the average number of days it takes deposited checks to clear; average daily float divided by average daily deposit.
Float: Money in the banking system that is briefly counted twice due to delays in processing checks. Float is created when a bank credits a customer’s account as soon as a check is deposited. However, it takes some time for the check to be received from the payer’s bank. Until the check clears from the payer’s bank, the amount of the check appears in the accounts of both the recipient’s and payer’s banks.
A defined contribution pension plan is a retirement plan in which the firm contributes a sum each period to the employee’s retirement account. The investment decisions are left to the employee, who assumes all of the investment risk.
-In a defined benefit pension plan, the firm promises to make periodic payments to employees after retirement. The employer assumes risk.Financial risk are those that arise from exposure to financial markets:
Credit risk
- Liquidity risk
Market risk
Risk and return of major asset classes:
Small-cap stocks
- Large-cap stocks
- Long-term corporate bonds
- Long-term Treasury bonds
- Treasury bills
The risk tolerance of an organization should reflect both an “inside” view and an “outside” view. The inside view asks what level of loss will leave the organization unable to meet critical objectives. The outside view asks what sources of uncertainty or risk the organization faces.
Portfolio management process:
- planning step
- The execution step includes asset allocation, security analysis, and portfolio construction.
- feedback step: performance measurement
Classifications of assets and markets
- financial assets
- securities
- debt securities are promises to repay borrowed funds
- short-term (less than one or two years)
- long-term (longer than five to ten years),bond
- intermediate term (notes)
- equity securities represent ownership positions
- debt securities are promises to repay borrowed funds
- derivative contracts have values that depend on (are derived from) the valules of other assets
- financial derivative contracts
- physical derivative contracts
- currencies
- securities
- real assets: include real estate, equipment, commodities, and other physical assets
Money markets reger to markets for debt securities with maturities of one year or less.
Capital markets refer to markets for longer-term debt securities and equity securities that have no specific maturity date.
Value stock: lower price/earnings(P/E), lower market/book(M/B), and higher dividend yields
Growth stock: higher price/earnings, higher market/book. and lower dividend yields
Equity
Common shares
- Callable common shares
- Putable common shares
Preference shares: a type of equity interest which ranks above common shares with respect to the payment of dividends and the distributin of the company’s net asset upon liquidation
- cumulative preference shares
- non-cumulative preference shares
- convertible preference shares: are often used to finance risky venture capital and private equity firms
- participating preference shares: receive extra dividends if firm profits excedd a predetermined level and may receive a value greater than the par value of the preferred stock if the firm is liquidated
- non-participating preference shares: have a claim equal to par value in the event of liquidation and do not share in firm profits
Clawback:
A requirement that the GP return any funds distributed as incentive fees until the LPs recieved back their initial investment and percentage of the total profit.
Venture Capital:
1.Formative-stage financing occurs when the company is still in the process of being formed and encompasses several financing steps, which are described as follows:
Angel investing is capital provided at the idea stage. Funds may
be used to transform the idea into a business plan and to assess
market potential. The amount of financing at this stage is typically
small and provided by individuals (often friends and family) rather
than by VC funds.Seed-stage financing or seed capital generally supports product development and/or marketing efforts, including market research. This point is generally the first stage at which VC funds invest.
- Early stage financing (early stage venture capital) is provided to companies moving toward operation but before commercial production and sales have occurred. Early stage financing may be provided to initiate commercial production and sales.
2.Later-stage financing (expansion venture capital) is provided after commercial production and sales have begun but before any IPO. Funds may be used for initial expansion of a company already producing and selling a product or for major expansion, such as physical plant expansion, product improvement, or a major marketing campaign.
3.Mezzanine-stage financing (mezzanine venture capita4l) is provided to prepare to go public and represents the bridge between the expanding company and the IPO.
Book value
The primary goal of firm management is to increase the book value of the firm’s equity and thereby increase the market value of its equity. The book value of equity is the value of the firm’s assets on the balance sheet minus its liabilities. Book values reflect the firm’s past operating and financing choices.
Market value reflects investors’ expectations about the timing, amount, and risk of the firm’s future cash flows.
Non-cyclical firm produces goods and services for which demand is relatively stable over the business cycle. Examples of non-cyclical industries include health care, utilities, telecommunications and consumer staples.
- Defensive industries are those that are least affected by the stage of the business cycle and include utilities, consumer staples(such as food producers), and basic services(such as drug stores).
- Growth industries have demand so strong they are largely unaffected by the stage of the business cycle.
Peer group will consist of companies with similar business activities, demand drivers, cost structure drivers, and availability of capital.
Strategic analysis
- High barriers to entry reduce competition
- Greater concentration (a small number of firms control a large part of the market) reduces competition, whereas market fragmentation (a large number of firms, each with a small market sjare) increases competition.
- Unused capacity results in intense price competition.
- Stability in market share reduces competition..
- More price sensitivity in customer buying decisions results in greater competition.
High switching costs contribute to market share stability and pricing power.
**Competitive strategy**is how a firm responds to the opportunities and threats of the external environment. The strategy may be defensive or offensive.
- a cost leadership (low-cost) strategy
- a product or service differentiation strategy
Industry experience curve shows the cost per unit relative to output.
Strategic analysis examines how an industry’s competitive environment influences a firm’s strategy. (Analysis of the competitive environment with an emphasis on the implications of the environment for coporate strategy).
Equity valuation
Investors may be more confident about estimates of value that differ from market prices when few analysts follow a particular security.
Most forward contracts do not require an upfront cash outlay(预付的). Other hedging vehicles, such as futures (which require margin accounts) and options (which must be purchased for a fee), do require upfront payments.
Dark pools are trading venues that function like exchanges but do not exercise regulatory authority over their subscribers except with respect to the conduct of their trading in those venues.
A total return index reflects not only the constituent securities’ prices but also the reinvestment of all income since inception.
A price index reflects only the prices of the constituent securities within the index and excludes the reinvestment of income.
Book building is the process by which an underwriter attempts to determine at what price to offer an initial public offering (IPO) based on demand from institutional investors. An underwriter builds a book by accepting orders from fund managers, indicating the number of shares they desire and the price they are willing to pay.
Behavioral bias
Disposition effect: 处置效应(Disposition Effect)所谓处置效应,是指投资人在处置股票时,倾向卖出赚钱的股票、继续持有赔钱的股票,也就是所谓的‘出赢保亏’效应。
Narrowing framing :investors focus on issues in isolation.
保守偏差（conservation bias）：
投资者不能及时根据变化了的情况修正自己的预测模型，错误地对价格变化外推，导致股价过度反应（over-reaction）。
确认偏差（confirmation bias）：投资者会过分地关注那些能支持自己结论的信息而忽视那些不支持自己结论的信息。
代表性偏差（Representativeness bias）：人们会根据过去的传统和相似的情况，对事件分类，在判断概率时会根据经验判断事件的概率而忽略其他的因素。其缺陷在于过分强调将事物划分的典型类别，而不关注潜在的其它可能证据。例如，由于“代表性偏差”的存在使投资者对过去的输者组合表现出过度悲观，而对赢者组合过度乐观。
Alpha , the difference between the return of the actively managed portfolio and the return of the passive portfolio, is a measure of risk-adjusted return.
Enterprise value measures total company value. EV can be viewed as what it would cost to acquire the firm:
EV= market value of common stock and preferred stock+market value of debt -cash and short-term investments
Anomalies:
The value effect—that is, stocks with below-average price-to-earnings and market-to-book ratios and above-average dividend yields have consistently outperformed growth stocks over long periods—is a cross-sectional anomaly.
Herding:
Herding occurs when investors trade on the same side of the market in the same securities, or when investors ignore their own private information and/or analysis and act as other investors do. Herding behavior has been advanced as a possible explanation of under-reaction and over-reaction in financial markets.