CFA Pre-Session Courses

Equity Investments
Instructor: Lei
 First Insight into Equity Investments

沃伦·巴菲特(Warren·Buffett)
[投资家，慈善家，“股神”，偶像]
100美元起家
五十年如一日理性投资
2014年底拥有个人资产七百多亿美元
Case:
1973年， 《华盛顿邮报》股票
1062万美元
20多年
翻了127倍
12亿8800万美元
 First Insight into Equity Investments
你听过费雪方程，费雪假设，国际费雪效应吗？

没错，这些理论的提出者
——美国计量经济学大师埃尔文·费雪(Fisher)
耶鲁大学授予的经济学博士第一人

但是，经济学大师赢了经济学，却输了股票投资。
• 买入自认为是便宜的股票
• 结果几天之中损失了几百万美元，一贫如洗。
Origin of Stocks

400年前，荷兰阿姆斯特丹,“东印度公司”：
• 国营企业
• 政府资产
Origin of Stocks

表面看做的航海贸易生意 实际上做的是海盗生意
工作性质：掠夺各国香料及物资。
Origin of Stocks

做海盗也不容易
绝对的高风险行业，Why?
因为每次出征前都需耗费大量资金补充弹药与粮食，等到香料
掠夺回来，再扣去弹药与粮食的支出，事实上也就只剩一点薄利。
 Origin of Stocks
所以这些海盗们绞尽脑汁整日思考
如何解决这笔高额开销
功夫不负有心人，
终于想到一方案：
就是让本国老百姓也参与进来。
方案：
让老百姓投钱，圈到大批资金
补充弹药和粮食，等到满载而归，
海盗们就把钱还给老百姓，还分给老百姓一
些掠夺来的物资和黄金——
“分红”(Dividend)。
Origin of Stocks
假如没法付给老百姓们钱怎么办？
Ø“交易市场”(Stock Market)出现了。
Ø 老百姓们(Shareholders)投钱给海盗
们，海盗们给他们一个纸条，上面写
着投入的金额数。这个纸条就是凭证
——股票(Stock)。
• 想中途把钱取回，可以拿着凭证去交
易市场，把凭证卖给别的老百姓；
• 可以长期持有，因为只要海盗们每次
都能满载而归，凭证就会升值。
Ø 东印度公司——发行机构(Issuer)。
生活小分享
 First Insight into Equity Investments
Equity Investments in CFA Program
Ø Topics in CFA Program Curriculum:
Ethical & Professional Standards
Quantitative Methods
Economics
Investment Tools
Financial Reporting & Analysis
Corporate Finance
Equity Investments(EI)
Fixed Income
Asset Classes
Derivatives
Alternative Investments
Portfolio Management & Wealth Planning
CONTENTS

01 Market Structure and Organization

02 Market Indices
03 Market Efficiency
04 Overview of Equity Securities
05 Industry and Company Analysis

06 Equity Valuation
 Financial System and Assets
Tasks:
Ø Explain the main functions of the financial system
Ø Describe classifications of assets
 The Functions of The Financial System

Name: Yi He(何以)
Birth: 30/11/1973
Investment Adviser
YXH Investment Co. Ltd.

听
Name: Mo Mo(默默) 别 说这
本 牛， 位投
Birth: 06/12/1983 一 小姐 颜值 顾特
见 一 又
。 定 高
Freelance 。 要 ，
。 见
金融小白
何以：
感谢默小姐的信任。
为了让您更好地了解投资， 默默：您好何先生！我最近想
首先还是有必要给您讲讲 做投资，但对这方面一窍不通，
金融体系这个大环境。 想向你请教。。。。。。
 The Functions of The Financial System
Three Functions
Ø Helping people achieve their purposes in using the
financial system
基于资产价值进行投资、融资、风险管理、资产交易等活动

Ø Determining Rates of Return

借贷供需平衡确定利率

Ø Capital Allocation Efficiency

资本配置有效性
 The Functions of The Financial System
The Purposes for Using Financial System

Saving Borrowing(借贷) Raising Equity Capital

(筹集股权资本)

Exchanging Assets Managing Risk Trade on Information

(置换资产)
 The Functions of The Financial System
Determining Equilibrium Rates of Return(利率市场化)
Ø The expected rate of return depends on the aggregate supply
of funds(总资金供应) and the aggregate demand for funds(总
资金需求).
Ø Why equilibrium rates of return?
If the rate is too low(even below 0), save less and borrow
more, the expected rate will be higher to encourage savers
and discourage borrowers; vice verse.
 The Functions of The Financial System
Capital Allocation Efficiency

Ø To ensure that only the best projects obtain scarce capital

funds, and the funds should be allocated to the most
productive uses(最有效率的用途).
Ø Accurate market information leads to efficient capital
allocation.
 好的，洗耳
恭听～

何以：
默小姐。说到这里，你应该知道，
借助金融体系这个平台，投资变得
不再困难。
接下来我们来了解一些基本的投资
资产类别。
Types of Assets
Securities (Public vs. Private)
Ø Public Securities(公开交易证券): are traded on
exchanges(交易所) or through securities dealers(做市商)
and are subject to regulatory oversight.
Ø Private Securities(私有证券): are not traded in public
markets which are often illiquid and not subject to
regulation.

25
 Types of Assets
Fixed Income Securities(固定收益证券)
Ø Treasury Bills(T-bills, 美国短期国债)
Ø Treasury Notes(T-notes, 中期国债)
Ø Treasury Bonds(T-bonds, 长期国债)
Ø Commercial Paper(C.P., 商业票据)
Ø Negotiable Certificate of Deposit(CDs, 银行可转让定期定
额存单)
Ø Repurchase Agreements(RPs, 回购协议)
Ø Corporate Bonds(公司债)
Types of Assets
Equity Securities(权益证券)
Ø Common Stock(普通股)
Ø Preferred Stock(优先股)
Ø Warrant(认股权证)
Types of Assets
Pooled Investment Vehicles(集合投资工具)
Ø Mutual Fund(共同基金)
Ø Exchange-Traded Fund(交易所交易基金)

28
每个投资者投资的额度小，
但也能共同受益，享受较低
风险和相应回报。
“众人拾柴火焰高”
29
 Types of Assets
Ø Why Invest in Pooled Investment Vehicles?
• Professional Management(专业化管理)

投资者工作忙没时间打理投资 交给专业基金经理管理，
省时省心
30
Types of Assets
Ø Why Invest in Pooled Investment Vehicles?
• Diversification (风险分散)
 Types of Assets
Ø Mutual Fund
It is nothing more than a collection of stocks and/or bonds.
Characteristics:
• Company brings together a group of people and
invests their money in stocks, bonds, and other
securities.
• Each investor owns shares(基金份额), which represent
a portion of the holdings of the fund(资金投入额).

32
 Types of Assets
Ø Mutual Fund
• 股票基金(Equity Funds)

• 债券基金(Bond Funds)

• 货币市场基金(Money Market Funds)

33
 Types of Assets
Ø Exchange Traded Fund(交易所交易基金)
• An investment fund traded on stock exchanges
• An ETF holds assets such as stocks, commodities, or
bonds, and trades close to its net asset value(净资产
值) over the course of the trading day(交易日).
• Most ETFs track an index, such as a stock index(股票
指数) or bond index(债券指数).
• Attractive Investment vehicle:
low costs, tax efficiency, and stock-like features(大盘
指数涨，跟踪指数的ETF的收益也跟着涨)
34
Types of Assets
Derivative Securities(衍生产品)
Ø 合约，该合约价值直接取决于一个或多个标的证券、
债务工具、商品、其他衍生工具的价值。
• Forward Contract(远期合约) 这类产品严格意义
上不是金融资产，
• Futures Contract(期货合约) 而是一种投资衍生
工具。
• Options Contract(期权合约)
 Summary
Ø Content:

• The functions of financial system

ü Helping people achieve their purposes in using
the financial system
ü Determining Rates of Return
ü Capital Allocation Efficiency

• Classification of assets
ü Fixed income securities
ü Equity securities
ü Pooled investment vehicles
 Positions and Buy on Margin
Tasks:
Ø Compare positions an investor can take in an asset
Ø Interpret Buy on Margin
Positions & Margin

何先生，你说衍生合约
看默小姐这么有
有高杠杆，那股市里所
求知欲，那我就
谓的“两融”到底是什
来给你讲一讲这
么意思呢？
其中的原理。。。
Positions & Margin
Ø Positions(头寸)
The amount of a security either owned(which
constitutes a long position多头头寸) or borrowed
(which constitutes a short position空头头寸) by an
individual or by a dealer.
• Long position: own assets or contracts, gains when
asset values increase.
• Short position: sold assets that people do not own,
gain when asset values decrease.
39
Positions & Margin
Ø Short Selling(做空，融券)
• Borrowing securities from security lenders who are
long holders and selling the borrowed securities to
other traders, repurchasing the securities later and
returning them to the security lenders.
• The short sellers profit if the securities drop in value,
because they repurchase the securities at lower
prices than the prices at which they sold the
securities.
40
Positions & Margin
Ø Buy on Margin(保证金交易，杠杆交易)
Borrowed money that is used to purchase securities.
• It can be extremely risky because both gains and
losses are amplified.
• Investors may have some unique risks such as interest
payments for use of the borrowed money.

41
Positions & Margin
Ø Buy on Margin(cont.)
• Margin Loan(保证金贷款)
ü A loan provided to a brokerage firm(经纪公司)
and used to finance margin accounts.
ü Call money rate(保证金贷款利率): The interest
rate paid on the loan, it is calculated daily.

42
Positions & Margin
Ø Buy on Margin(cont.)
• Margin Requirements:
ü Initial Margin(初始保证金): the percentage of
the purchase price of securities that the
investor must pay for with his or her own cash
or marginable securities.
ü The initial margin requirement must be met
when the transaction is initiated.

43
 Positions & Margin
Ø Buy on Margin(cont.)
• Margin Requirements:
ü Maintenance Margin (维持保证金): the minimum
amount of equity that must be maintained in a
margin account.
ü In the context of the NYSEand FINRA(the financial
industry regulatory authority美国金融业监管局), the
minimum required level of margin is 25% of the total
market value of the securities in the margin account.
While this level is a minimum, many brokerages have
higher maintenance requirements of 30-40%.
44
Positions & Margin
Ø Buy on Margin(cont.)
• Margin call(maintenance call or “house call”, 补充保证
金通知)
ü A broker's demand on an investor using margin to
deposit additional money or securities so that the
margin account is brought up to the minimum
maintenance margin.
ü It occur when your account value depresses to a
value calculated by the broker's particular formula.
45
Summary
Ø Content:
• Positions
ü Long position
ü Short position
• Buy on margin
ü Initial margin
ü Maintenance margin
ü Margin call
 Classification of Financial Markets
Tasks:
Ø Describe classifications of markets
Ø Define primary and secondary markets
Ø Describe how securities and contracts are traded in
quote-driven, order-driven, and brokered markets
 Classification of Markets
谢谢何先森的耐心讲解。那这些金
融资产都在什么市场里交易呢？

好问题，接下来给你讲一讲你需要
了解的金融市场类型。
Classification of Markets
Capital Market(资本市场)
Ø Markets for buying and selling equity and debt
instruments(权益和债务工具).
Ø Channel savings and investment between suppliers
of capital such as retail investors (个人投资者) and
institutional investors (机构投资者), and users of
capital like businesses, government and individuals.

49
Classification of Markets
Money Market(货币市场)
Ø The market in which financial instruments with high
liquidity (流动性) and very short maturities(from
several days to just under a year) are traded.
Ø Money market securities consist of negotiable
certificates of deposit (CDs), banks acceptances(银行
承兑汇票) , U.S.Treasury bills, commercial paper,
municipal notes, federal funds ( 联 邦 基 金 ) , and
repurchase agreements.
50
Classification of Markets
Traditional Investment Market(传统投资市场)
Ø Markets for traditional investments, which include all
publicly traded debts、equities and shares (股份) in
pooled investment vehicles that hold publicly traded
debts and/or equities.

51
Classification of Markets
Alternative Investment Market(其他类投资市场)
Ø Markets for investments other than traditional
securities investments.
Ø The term usually encompasses direct and
Indirect investment in real estate (including timberland
and farmland) and commodities (including precious
metals); Hedge funds(对冲基金), private equity(私有股
权) , and other investments requiring specialized due
diligence(尽职调查).
52
Classification of Markets
Ø Primary Market(一级市场、发行市场)
• A m a r ke t t h a t i s s u e s n e w s e c u r i t i e s o n a n
exchange(交易所).
• It is facilitated by underwriting groups (承销集团),
which consist of investment banks (投行) that will
help issuers set a beginning price range for a given
security and then oversee its sale directly to investors.
Ø Secondary Market(二级市场、交易市场)
• Investors purchase securities from other investors,
rather than from issuers themselves.
Primary Market Transactions
Primary Market
Ø Initial Public Offering(IPO)(首次公开发行)
• The first sale of stock by a private company to the public.
• Issued by smaller, younger companies seeking the capital
to expand, or by large privately owned companies
looking to become publicly traded.
• In an IPO, Investment banks help determine:
Type of security to issue (common or preferred)
The best offering/issuing price(发行价格)
The time to bring it to market.
54
 Primary Market Transactions
Primary Market
Initial Public Offering(IPO)(首次公开发行)
• Underwritten Offering (承接包销发行)
ü Investment bank guarantees the sale of the issue at an
offering price that it negotiates with the issuer.
• Best Effort Offering (代销发行)
ü Investment bank promises to make a full-fledged attempt
to sell as much of an IPO as possible to the public, while
not guarantee that it will sell the entire IPO issue.
55
Primary Market Transactions
Primary Market
Seasoned Offering(增发新股)
• An issue of additional securities from an established
company whose securities already trade in the
secondary market.
• Much the same way as IPO, except that that the price of
the new shares is based on the market price of the
outstanding shares.

56
Other Primary Market Transactions
Shelf Registration(暂搁注册)
Ø When current market conditions are not favorable for
a specific firm to issue a public offering , the
corporation can file all the required registration-
related annual and quarterly reports with the U.S.
Securities and Exchange Commission(SEC)beforehand
and go to market quickly when conditions become
more favorable.

57
Classification of Markets
Secondary Market
Ø Continuous Market(连续交易市场)
• Trades can be arranged and executed any time the
market is open.

58
Classification of Markets
Secondary Market
Ø Call Market(集合竞价市场)
• Each transaction takes place at predetermined intervals
and where all of the bid and ask orders are aggregated
and transacted at once.
• The exchange determines the market clearing price
based on the number of bid and ask orders. The market
will clear, or almost clear, every time orders are filled.

59
Classification of Markets
Secondary Market
Ø Quote-Driven/Price-Driven Market(报价驱动型市场)
• An electronic stock exchange system in which prices are
determined from bid and ask quotations(报价) made by
market makers, dealers or specialists.
• Dealers fill orders from their own inventory or by
matching them with other orders.

60
Basic Concepts
Ø Bid Price(买入价格)
• The price a buyer is willing to pay for a security. Bid
price and the bid size(买入量) details the amount of
shares the investor is willing to purchase.

Ø Ask Price/Offer Price(卖出价格)

• The price a seller is willing to accept for a security.
Along with the price, the ask size(卖出量) will stipulate
the amount of shares willing to be sold at that price.
61
Classification of Markets
Secondary Market
Ø Order-Driven Market(指令驱动型市场)
• A market where all buyers and sellers display the
prices at which they wi sh to buy or sel l a
particular security, as well as the amounts of the
security desired to be bought or sold.

62
Classification of Markets 欸？怎么感觉报价驱
动和指令驱动市场有
Secondary Market 些类似呢？这两类市
场有什么区别吗？
Ø Quote-Driven vs. Order-Driven
• Quote-driven market: only displays
bids and asks of designated market
makers and specialists for a specific
security.
• Order-driven market: displays
individual investors' bid and ask
prices and the number of shares
they want to trade.
63
Classification of Markets
Secondary Market
Ø Brokered Market(经纪市场)
• Buyers and sellers are brought together by agents or
intermediaries(中间商) to facilitate price discovery(价
格发现) and transaction execution(交易执行).
• Includes all exchanges where listed instruments are
traded, and markets for non-listed assets(e.g. real
estate).

64
Example Question(1)_
Ø Markets for financial assets with maturities of one year
or less are best characterized as:

A. Primary markets.

B. Money markets.

C. Capital markets.

65
Example Question(1)_
Answer: B

Money markets generally refer to markets for debt

securities maturing in one year or less. Capital markets refer

to markets for equities and for debt securities with

maturities greater than one year. Primary markets are the

markets for newly issued securities.

66
Summary
Ø Content:
• Capital Market VS. Money Market
• Traditional Market VS. Alternative Market
• Primary markets (etc. IPO, Seasoned Offering, Shelf
registration)
• Secondary markets
ü Call market VS. Continuous market
ü Price-driven market
ü Order-driven market
ü Brokered market
 Financial Intermediaries
Tasks:
Ø Describe types of financial intermediaries and
services that they provide
Financial Intermediaries
何先森，你说的那
金融媒介。接下来
么多金融资产和服
我们来看看都有哪
务都是由哪些机构
些金融媒介。
提供的呢？
Financial Intermediaries
Dealer(做市商)
Ø A person or firm in the business of buying and selling
securities for their own account.
Ø Buying and selling securities is part of its regular
business;while a trader is not.
Financial Intermediaries
Broker(经纪人)
Ø A n i n d i v i d u a l o r f i r m t h a t c h a rg e s a fe e o r
commission ( 佣 金 ) for executing buy and sell
orders(订单) submitted by an investor.
有本质
Ø Duties: 市场中撮合匹配买方卖方完成证券交易。
区别的。

欸？怎么感觉做
市商和经纪人大
同小异。这两者
有什么区别吗？
Broker vs. Dealer:
Ø A broker : an agent in
executing orders on
behalf of its clients.
Ø A dealer : executing orders
by using their own account.
Financial Intermediaries
Securitizer(证券化商)
Ø The process through which an issuer creates a financial
instrument by combining other financial assets and then
marketing different tiers(等级) of the repackaged
instruments to investors.
Financial Intermediaries
Arbitrageur(套利商)
Ø A type of investor who attempts to profit from price
inefficiencies(价格无效) in the market by making
simultaneous trades that offset each other and
capturing risk-free profits(无风险盈利).
Ø Example:
Seek out price discrepancies between stocks listed on
more than one exchange, buy the undervalued shares
on one exchange while short selling the same number
of overvalued shares on another exchange.
Financial Intermediaries
Investment Banks(投行)
Ø Provide advice to their mostly corporate clients and
help them arrange transactions such as initial and
seasoned securities offerings.
• Help corporations finance their business by
issuing securities;
• Help companies identify and acquire other
companies (i.e., in mergers and acquisitions).
Financial Intermediaries
Exchange(交易所)
Ø A marketplace(a physical location or an electronic
platform) in which securities, commodities and other
financial instruments are traded.
Ø The core function:
• Ensure fair and orderly trading.
• Efficient dissemination of price information for any
securities trading on that exchange.
Ø A physical location or an electronic platform.
Example Question(1)_
Ø Which of the following statements about financial
intermediaries is most accurate?
A. Brokers seek out traders that are willing to take the
opposite sides of their clients’ orders.
B. Arbitrageurs buy securities with the anticipation that
they will be able to sell the securities in the future at
higher prices.
C. Dealers buy a security in one market and simultaneously
sell the same security in a different market.
77
Example Question(1)_
Answer: A
Brokers seek out traders that are willing to take the
opposite side of their clients’ orders. Arbitrageurs buy an
Instrument in one market and simultaneously sell the
same instrument in a different market at a higher price.
Dealers buy securities from clients, with the expectation
that they will be able to sell the securities to other clients
in the future at higher prices.

78
Summary
Ø Content:
• Dealer
• Broker
• Securitizer
• Arbitrageur
• Investment bank
• Exchange
CONTENTS

01 Market Structure and Organization

02 Market Indices
03 Market Efficiency
04 Overview of Equity Securities
05 Industry and Company Analysis

06 Equity Valuation
 Security Market Indices
Tasks:
Ø Describe a security market index
Ø Describe rebalancing and reconstitution of an index
Ø Compare the different weighting methods used in
index construction
Security Market Indices

何先森，通过您的介绍，我对金
融市场已有了大致了解。我身边
很多朋友在炒股。经常听他们说
炒股需要看大盘，大盘是啥呀？

股票投资需要看整个市场的
表现，股民们看的大盘其实
是市场指数，它反映了市场
每天的价格表现。
Index Definition
Ø Security Market Index (证券市场指数)
• An aggregate value produced by combining
several stocks or other investment vehicles
together and expressing their total values against
a base value(基准值) from a specific date.
• Market indexes are intended to represent an
entire stock market and thus track the market's
changes over time.

83
市场变化可以通过指数价值变
化来反应，接下来，我们来看
看如何计算指数价值和回报。
Index Construction and Management
Ø Price Weighting Index(价格加权指数)
• A stock index in which each stock influences the
index in proportion to its price per share.
• The value of the index 计算: sum of the prices of
each of the stocks in the index divided by the total
number of stocks.
• Stocks with a higher price (高价股) will be given
more weight and, therefore, will have a greater
influence over the performance of the index
 Value of Price-Weighted Index Calculation

Nov. 30 Dec. 31
Stock Share # of Market Share # of Market
Price Shares Value Price Shares Value
A $20 300 $6,000 $22 300 $6,600
B $30 200 $6,000 $27 200 $5,400
C $40 100 $4,000 $44 100 $4,400
Total $90 $16,000 $93 $16,400

Price-Weighted Index:
$90 / 3 = 30.0 $93 / 3 = 31.0
$93 / 90 - 1 = + 3.33%
Index Construction and Management
Ø Equal Weighting Index(等权重加权指数)
• A type of weighting that gives the same weight, or
importance, to each stock in an index.
• The smallest companies are given equal weight to
t h e l a rge st co m p a n i e s i n a n e q u a l - we i g ht
index.This allows all of the companies to be
considered on an even playing field.
• Index return is the average holding-period
return(持有期回报率) on index stocks.
 Value of Equal-Weighted Index Calculation

Stock Initial Cost Current Price HPR

X $30.00 $27.00 -10%

Y $10.00 $15.00 +50%
Z $20.00 $22.00 +10%

Arithmetic Mean = -10%+50%+10% =16.67%

3
Initial Index Value = 100
Current Index Value = 116.67
 Index Construction and Management
Ø Market Capitalization Weighting Index
(市值加权指数)
• The weight on each constituent security is
determined by dividing its market capitalization by
total market capitalization(市值) of all securities in
the index.
• Firms with larger market capitalizations (权重股)
influence the index more than firms with smaller
market capitalizations.
• Examples: S&P 500, NYSE Index(纽交所综合指数),
and Wilshire 5000(威尔逊5000指数)
 Value of Market-Cap Weighting Index Calculation
Nov. 30 Dec. 31
Stock Share # of Market Share # of Market
Price Shares Value Price Shares Value
A $20 300 $6,000 $22 300 $6,600
B $30 200 $6,000 $27 200 $5,400
C $40 100 $4,000 $44 100 $4,400
Total $90 $16,000 $93 $16,400

Beginning Index Value Nov. 30 = 100

New Value Dec. 31 = (16,400 / 16,000) * 100 = 102.5
The total market value of all index stocks is up 2.5%
 Index Construction and Management
Ø Floated-Adjusted Market Cap Weighting Index
(流通股调整市值加权指数)
• Instead of using all of the shares outstanding like
the full-market capitalization method, the float-
adjusted method excludes locked-in shares(非流
通股) such as those held by governments.
ü Free- Float Adjusted : further reduce the
number of shares by excluding shares that are
not available to foreign investors(排除外国投
资者不能购买的流通股市值)
Basic Concepts
Ø Rebalancing(再平衡)
• Adjust weights of constituent securities in the index.
Ø Reconstitution(指数重构)
• Process of changing constituent securities in an
index(Re-examine)

• Example: 标普500，如果今年某家公司业绩不好，有
可能该公司股票 移出指数，加入业绩好的公司股票作
为成分股。

92
Example Question(1)_
Ø In a market-capitalization weighted index firms with:

A. Value greater market caps have greater impacts on

the index.

B. Higher stock prices have greater impacts on the index.

C. Larger market caps have lesser impacts on the index.

93
Example Question(1)_
Answer: A

In a value weighted index, firms with greater market

caps have a greater impact on the index than firms

with lower market caps. A higher stock price does not

necessarily mean a higher market cap.

94
Summary
Ø Content:
• Definition of Security Index
• Weighting methods
ü Price-weighted
ü Equal-weighted
ü Market cap-weighted
• Rebalancing and reconstitution
CONTENTS

01 Market Structure and Organization

02 Market Indices

03 Market Efficiency
04 Overview of Equity Securities
05 Industry and Company Analysis

06 Equity Valuation
 Market Efficiency
Tasks:
Ø Describe market efficiency and related concepts
Ø Distinguish between market value and intrinsic value
Ø Describe weak-form, semi-strong form, and strong
form market efficiency
 何先森，我了解到投资股票除了
看大盘，其实更重要的是靠信息，
是这样的吗？

的确。信息是影响股价的关键！通
常我们用“有效市场”来评估市场
对信息的反应程度。
 The Concept of Market Efficiency
The Definition of Efficient Markets
Ø An efficient market (informationally efficient market),
is a market in which asset prices reflect new
information quickly and rationally. An efficient
market is thus a market in which asset prices reflect
all past and present information.
默默你要注意，在有效市场中，

Market Value = Intrinsic

Value，让我为你解释一下这
两个名词吧。
The Concept of Market Efficiency
Market Value(市场价值)
Ø The price at which an asset can currently be bought or
sold.

Intrinsic Value/Fundamental Value(内在价值)

Ø The actual value of a company or an asset based on
an underlying perception of its true value including all
aspects of the business, in terms of both tangible and
intangible factors.
The Concept of Market Efficiency
Active Investment(主动投资)
Ø An investment strategy involving ongoing buying and
selling actions by the investor. Active investors
purchase investments and continuously monitor their
activity in order to exploit profitable conditions.
Passive Investment(被动投资)
Ø Passive investors will purchase investments with the
intention of long-term appreciation and limited
maintenance.
The Concept of Market Efficiency
Technical Analysis(技术面分析)
Ø Evaluating securities by analyzing statistics generated
by market activity, such as past prices and volume.
Fundamental Analysis(基本面分析)
Ø Evaluating a security that entails attempting to
measure its intrinsic value by examining related
economic, financial and other qualitative and
quantitative factors.
 In a Shopping Mall
A technical analyst would A fundamental analyst would
watch people go into the go to each store, study the
stores. His decision would be product that was being sold,
based on the patterns or and then decide whether to
activity of people going into buy it or not.
each store.
如果市场是有效的，被动投资
是更合适的投资策略。
但不同市场的有效性有所不同。

尤金.法玛(Eugene F. Fama)
提出了著名的“有效市场假

说”(Efficient Market

Hypothesis)
 Forms of Market Efficiency
Strong-Form
Efficient Market

Private and Public Information

Security
Public Information
Market Data

Semi-Strong-Form
Efficient Market Weak-Form
Efficient Market
Forms of Market Efficiency
Weak-Form Efficient Market(弱有效市场)
Ø One of the different degrees of efficient market
hypothesis (EMH) that claims all past prices of a
stock are reflected in today's stock price.
Ø Technical analysis cannot be used to predict and
beat a market.
Forms of Market Efficiency
Semi-Strong-Form Efficient Market(半强势有效市场)
Ø A class of EMH (Efficient Market Hypothesis) that
implies all public information is calculated into a
stock's current share price.
Ø Neither fundamental nor technical analysis can be
used to achieve superior gains.
Forms of Market Efficiency
Strong-Form Efficient Market(强势有效市场)
Ø The strongest version of market efficiency. It states
all information in a market, whether public or private,
is accounted for in a stock price.
Ø Not even insider information(内幕信息) could give an
investor the advantage.
 Summary
Ø Content:
• Definition of Market Efficiency
• Market value and intrinsic value
• Active and passive investment
• Technical and fundamental analysis
• Efficient market hypothesis
ü Weak-form
ü Semi-strong form
ü Strong form
CONTENTS

01 Market Structure and Organization

02 Market Indices

03 Market Efficiency
04 Overview of Equity Securities
05 Industry and Company Analysis

06 Equity Valuation
 Overview of Equity Securities
Tasks:
Ø Describe characteristics of types of equity securities
Ø Compare the risk and return characteristics of
different types of equity securities
 好的，接下来我们来讲讲权益
证券的具体分类。

了解了这么多关于股票市场的知识，
都有哪些股票可以投资呢？
Common Stock
Common Stock(普通股)
Ø A security that represents ownership in a
corporation. Holders of common stock exercise
control by electing a board of directors(董事会) and
voting on corporate policy. Common stockholders(普
通股股东) are on the bottom of the priority ladder
for ownership structure(所有权结构).
Preferred Stock
Preferred Stock(优先股)
Ø Company stock with dividends (股利, 红利) that are
paid to shareholders before common stock dividends
are paid out.
Ø And unlike common shareholders, preference share
shareholders usually do not have voting rights(表决权).
Types of Common and Preferred Stock
Common Stock
Ø Callable common stocks(可被赎回普通股)
Ø Putable common stocks(可退回普通股)
Preferred Stock
Ø Cumulative preferred stock(红利可累计优先股)
Ø Convertible Preferred Stock(可转优先股)
Types of Common and Preferred Stock
Ø Common Shares
• Callable Common Shares: give the issuing
company the option (or right), but not the
obligation, to buy back shares from investors at
a predetermined call price.
• Putable Common Shares : give investors the
option (or right) to sell their shares back to the
issuing company at a predetermined put price.
Types of Common and Preferred Stock
Ø Preferred Shares
• Cumulative Preference Shares(红利可累计优先股):
the unpaid dividends in the prior periods accrue
over time and must be paid in full before dividends
on common shares can be paid.
• Convertible Preference Shares(可转优先股):
entitle shareholders to convert their shares into a
specified number of common shares.
何以：总的来说呢，做权益
投资是收益与风险并存的，
我给你做个简单的总结吧！
Risk and Return Characteristics of Equity Securities
Components of Equity Return(股票回报率)
Ø Price Change (Capital gain or loss, 资本利得或损失).
Ø Dividend Payment.
Ø Possible Foreign Exchange Gain or Loss.
Ø Compounding of Reinvested Dividends.
Risk and Return Characteristics of Equity Securities
Risk of Equity Securities
Ø Preference shares are less risky than common shares.
Ø Putable shares are less risky than callable or non-
callable shares.
Ø Cumulative/participating preference shares are less
risky than non-cumulative/non-participating
preference shares.
Summary
Ø Content:
• Common stock
ü Callable VS. Putable
• Preferred stock
ü Cumulative VS. Convertible
• Components of equity return
• Risk of equity securities
CONTENTS

01 Market Structure and Organization

02 Market Indices

03 Market Efficiency
04 Overview of Equity Securities
05 Industry and Company Analysis

06 Equity Valuation
 Introduction to Industry Analysis
Tasks:
Ø Explain uses of industry analysis
Ø Compare methods by which companies can be grouped,
industry classification systems, classify a company
Ø Describe the elements that need to be covered in a
thorough industry analysis
Introduction to Industry Analysis

说的很对！行业分
那何先生，投资股 析在价值投资中有
票时，是不是也要 着广泛运用。
研究一下行业？
Uses of Industry Analysis
Ø Understanding a company’s business environment
了解一个公司的商业环境

Ø Identifying active equity investment opportunities

识别一些主动的股权投资机会

Ø Portfolio performance attribution

投资组合的绩效归因
Industry Classification
1. Products and/or Services Supplied
• An industry is defined as a group of companies
offering similar products and/or services.
Industry Classification
2. Business-Cycle Sensitivities
• A cyclical company is one whose profits are
strongly correlated with the strength of the overall
economy (e.g., technology, housing, autos)
• A non-cyclical company is one whose performance
is largely independent of the business cycle (e.g.,
food and beverage, health care, utilities)
Industry Classification
3. Statistical Similarities
• Typically based on the correlations of past
securities' returns.
• This method of aggregation often results in non-
i n t u i t i v e g ro u p s o f c o m p a n i e s , a n d t h e
composition of the groups may vary significantly
by time period and region of the world.
 A Framework for Industry Analysis
Go
ver
p hic Macroeconomic Inf nme
lue
o gra ces Influences nce ntal
m n s
De nflue
I
New Entrant Threats

Supplier Internal Customer

Bargaining Competitive Bargaining
Forces Forces Forces

Substitution Threats
Te
c
l In h n o l
fl u o g i
en ca c i a l es
ce So en c
s lu
Inf
Internal Competitive Forces
Ø Number of Competitors(竞争者数量). The more there
are, the greater the potential for rivalry.
Ø Products Differences(产品差异性)reduce the strength of
competition.
Ø The existence of exit barriers(退出壁垒) will increase
the potential for competition.
Ø Industry growth implies demand for the product(产品
需求量) is strong, the need to engage in competition is
reduced.
Ø Product Shelf Life(产品保质期). The shorter the shelf life,
the greater price competition.
New Entrant Threats
Ø Economies of Scale(规模经济)that will make it difficult
for new entrants to achieve critical mass.
Ø Switching Costs(转移成本)if the product user decide to
use the new entrant.
Ø Capital Requirements(资本要求)to construct the
facilities and other infrastructure required.
Ø Existing Distributors(现有分销商)may not be willing to
take on the new entrant's products.
Ø Government Policy(政府政策)may require licensing or
other approvals.
Supplier Bargaining Forces
Ø Differentiation of Inputs(原料差异化). The greater the
potential options, the lower the power of suppliers.
Ø Presence of Substitute Inputs(原料替代品). The more
actual or prospective substitutes that exist, the lower
the supplier power.
Ø Supplier Concentration(供应商集中度)increases their
relative power.
Ø Switching Costs(转移成本). The greater the switching
costs, the greater the supplier power.
Customer Bargaining Forces
Ø Bargaining Leverage(议价能力). Low switching costs and
readily available substitutes give the buyers leverage and
strength this force.

Ø Price Sensitivity(价格敏感性). This depends upon

qualitative factors, such as brand identity, product
differences, quality, and performance, as well as
quantitative measures such as price relative to total
purchases and profitability.
Substitution Threats
Ø The Relative Price Performance of Substitutes(同价替
代品的表现). Can the substitute really do the job that

the current products fulfill?

Ø Buyer Propensity to Substitute(购买者对替代品的偏好).
When the potential benefit to the product buyer is
large, the propensity increases.
Ø Switching Costs(替换成本). If production retrofitting(改
造) costs are low, the switch is more likely to be made.
Example Question(1)_
Ø The threat of substitute products is most likely to be
low for a firm that:
A. Produces a differentiated product with high switching
costs.
B. Produces a commodity product in an industry with
significant unused capacity.
C. Operates in a fragmented market with little unused
capacity.
Example Question(1)_
Answer : A
The threat of competition from substitute products is
likely to be low for a firm that produces a differentiated
product with high switching costs. Unused capacity and
low industry concentration (a fragmented market) tend
to intensify rivalry among industry competitors but are
not directly related to the threat of substitute products.
刚说的这五个内部因素

组合起来就是Porter's

Five Force，下面继
续说几个外部因素是如
何影响行业内部的。
Macroeconomic Influences
Ø Some factors in the macroeconomic environment may
affect an industry, such as: Cyclical Trend or Structural
Trend, GDP, Interest Rates, Inflation and Availability of
Credit.
Governmental Influences
Ø Government may use methods like taxes and
regulation to influence some industries.
• Taxes on luxury, alcohol and tobacco items
• Regulations on pharmacy, military
Ø Governmental Purchases usually are bulk orders and
could significantly change some industries.
Technological Influences
Ø New technologies create new or improved products
that can radically change an industry and can also
change how other industries that use the products
conduct their operations.
Social Influences
Ø Social Influences relate to how people work, play, spend
their money, and conduct their lives.
Demographic Influences
Ø Demographic factors include age distribution and
population size, as well as other changes in the
composition of the population.
Summary
Ø Content:
• Uses of industry analysis
• Industry classification
• A framework for industry analysis
ü Porter’s five forces
ü External factors (etc. macroeconomic, governmental,
social, technological, demographic )
CONTENTS

01 Market Structure and Organization

02 Market Indices

03 Market Efficiency
04 Overview of Equity Securities
05 Industry and Company Analysis

06 Equity Valuation
 Equity Valuation: Concepts and Basic
Tools
Tasks:
Ø Describe major categories of equity valuation models
Ø Explain the rationale for using price multiples to value
equity
Ø Interpret P/E, P/CF, P/S, P/B
Equity Valuation
的确。再好的公司如果股价
何先生，一家公司再好， 过高，也不会成为好的投资。
也得看它的股价是否合 接下来，我们来了解下如何
理再决定是否投资吧？ 对股票估值。
Price vs. Value
Ø Market Price < Estimated Value:
• Asset is undervalued/underpriced/underestimated
(价值低估).
• Choose Buy & Hold or Sell?
Ø Market Price > Estimated Value:
• Asset is overvalued/overpriced/overestimated
(价值高估).
• Choose Buy & Hold or Sell?
Ø Market Price = Estimated Value:
• Asset is fairly valued.
• Choose Buy & Hold or Sell?
148
149
 Types of Equity Valuation Models
Ø Discounted Cash Flow Model(现金流贴现模型)
• Estimate the value of a stock(its intrinsic value) by
using a present value(现值) analysis:
ü The future stream of dividends to be received
from a common stock is discounted back to the
present at an appropriate discount rate(the
investor’s required rate of return);
ü Future cash available to shareholders after
meeting capital expenditure and working capital
needs (Free cash flow to equity models,FCFE, 权益
自由现金流模型).
150
 Valuing Common Stock: DDM
Ø Discounted Cash Flow Model
• The Dividend Discount Model(DDM), a special case of
valuing the equity to the firm.
ü States that the estimated value(per share) of a
stock today is the discounted value of all future
dividends.
ü Two assumptions:
1) the issuing company is assumed to be a going
concern;
2) a constant required rate of return is assumed.
151
 Valuing Common Stock: DDM
The Dividend Discount Model(DDM)
D1 D2 D3 D
Estimated value of a stock today V0      
(1  k ) (1  k ) 2 (1  k ) 3 （1  k）

Dt

t 1 (1  k )t
where:
D1 D 2 , ,…= the dividends expected to be
received in each future period
k = the required rate of return for this stock, which
is the discount rate applicable for an investment
with this degree of riskiness.
 Valuing Common Stock: Multiple-Year Holding Period
The Dividend Discount Model(DDM)
• At the shareholder level, cash received from a common
stock investment includes any dividends received and
the proceeds when shares are sold.

• For an n-year holding period:

D1 D2 Dn Pn
V0   . . .   
(1  k ) 1 (1  k ) 2 (1  k ) n (1  k ) n

ü Pis
n the assumed sale price immediately after Dn is

paid.
Example: Valuing Common Stock
A stock paid a $1.50 dividend last year that will grow at 8%
every year. You require a 12% return and you expect the
stock price to be $51.00 at the end of Year 3.

What is the stock's value today?

Types of Equity Valuation Models
Ø Multiplier Models(价格乘数模型)
Price Multiplier: Ratio of stock price to earnings, sales,
book value, or cash flow.
• P/E市盈率 = Stock Price / Earnings Per Share.
• P/B市净率 = Stock Price / Book Value Per Share.
• P/S市销率 =Stock Price / Sales Per Share.
• P/CF市现率 = Stock Price / Cash Flow Per Share.
• (Cash Flow = Operating Cash Flow or Free Cash Flow)
155
Price Multipliers
Based on the law of one price(一价定律):

Two comparable assets should set for the same multiple.

P/E、P/S、P/B or P/CF ratio lower than industry average

or comparable stock suggests stock is undervalued.

Summary
Ø Content:
• Price VS. Value
• Valuation models
ü Discounted cash flow
ü Price multiples
ü Asset-based models
 You’re a Champion!
Thanks for staying with us. You have finished this chapter.