TITLE : SECURITY ANALYSIS AND PORTFOLIO MANAGEMENT. 4TH ED

 
PART 1. THE INVESTMENT ENVIRONMENT
 
1 Introduction to Securities	1
 
Investment versus Speculation 2
The Investment Process 3
Investment Categories 6
Size and Distribution of Investments 13
Summary 20
Questions and Problems 21
 
 
2 Markets for Securities 24
 
Markets and Their Functions 24
Institutional Investors and Changing Markets 55
Summary 61
Questions and Problems 61
Appendix: Types of Orders 63
 
 
3 Costs of Investing in Securities 65
 
Direct Commissions and Transfer Taxes 65
Federal Personal Income Tax 69
Other Costs of Investing 78
Summary 78
Questions and Problems 78
Case: The Warrens 81
 
 
PART II  FRAMEWORI< OF RISK RETURN
 
4 Security Returns and Valuation	84
 
Security Returns 85
Approaches to Valuation 87
Fundamental Approach to Valuation 88
Bond Valuation 94
Preferred-Stock Valuation 97
Common-Stock Valuation 98
Summary 109
Questions and Problems 109
Appendix: Three-Stage Growth 111
 
 
5 Risk in Holding Securities 115
 
What Creates Risk? 115
Systematic Risk 116
Unsystematic Risk 120
Dividing Risk into Systematic and Unsystematic Components 130
Calculating Expected Return and Risk 133
Risk-Return: Stock versus Fixed-lncome Securities 137
Summary 139
Questions and Problems 140
Case: Merrill Lynch, Pierce, Fenner & Smith, Inc. 142
 
 
PART III COMMON-STOCK ANALYSIS
 
6 Economic Analysis 145
Analytical Framework for Common Stocks 145
Economic Forecasting and the Stock-lnvestment Decision 147
Forecasting Techniques 148
An Illustration of an Economic Analysis 175
Summary 177
Questions and Problems 177
 
 
7 Industry Analysis 179
 
Alternative Industry Classification Schemes 180
The Economy and the Industry Analysis 185
Key Characteristics in an Industry Analysis 188
Restaurant Industry Example 191
Industry Life Cycle 194
Techniques for Evaluating Relevant Industry Factors 197
External Sources of Information for Industry Analysis 205
Other Observations on Industry Analysis 209
Summary 212
Questions and Problems 212
 
 
8 Company Analysis: Measuring Earnings	214
 
Introduction 215
Internal Information 215
External Information 241
Summary 253
Questions and Problems 253
Appendix: Financial Review 254
 
 
9 Company Analysis: Forecasting Earnings	266
 
Introduction 266
The Chemistry of Earnings 267
Forecasting via the Earnings Model 281
Market-Share/Profit-Margin Approach 282
Independent Forecasts of Revenue and Expenses 287
Earnings-Model Projection for McDonald's 288
Independent Forecast of Revenue and Expenses for McDonald's 291
Summary 293
Questions and Problems 294
 
 
10 Company Analysis: Applied Valuation 298
 
Regression and Correlation Analysis in Forecasting Revenues and
Expenses 299
Trend Analysis 299
Decision Trees 306
Simulation 313
Problem Areas in Implementation of Newer Techniques 318
Management in Company Analysis 320
Determining a P/E Ratio 321
Projecting Dividends 324
Applied Stock Valuation 325
Summary 337
Questions and Problems 338
Case: Humana Corporation 339
 
PART IV BOND ANALYSIS
 
11 Bond Analysis: Returns and Systematic Risk 344
 
The Strategic Role of Bonds 345
Bond Returns and Prices 350
Systematic Risk in Holding Fixed-lncome Securities 354
Forecasting Interest-Rate Trends 359
The Term Structure of Interest Rates 366
Summary 371
Questions and Problems 372
 
 
12 Bond Analysis: Unsystematic Risk 375
Business and Financial Risk 376
Nonrisk Factors Influencing Yields 395
Default Risk in McDonald's Long-Term Debt 405
Summary 408
Questions and Problems 408
 
 
13 Bond Management Strategies 411
Passive Portfolio Management Strategies 411
Bond Strategies: Immunizing Against Interest-Rate Risk 412
Pressures for Active Bond Management 420
Ingredients in Active Bond Management 421
Newer Innovations in Bonds 436
Summary 439
Questions and Problems 440
Case: Big East University 443
 
 
PART V  OPTIONS AND FUTURES
 
14 Stock Options and Futures 448
 
Warrants 448
Put and Call Options 453
Option Positions and Strategies 461
Option Pricing 477
Stock Index Futures 483
Summary 489
Questions and Problems 489
 
 
15 Bond Options and Futures	493
 
Convertible Securities 493
Interest-Rate Futures 503
Summary 508
Questions and Problems 508
Case: Investment Advisors, Inc. 510
 
 
PART VI  TECHNICAL ANALYSIS AND THE EFFICIENT MARKET THEORY
 
16 Technical Analysis 512
 
Market Indicators 513
Forecasting Individual Stock Performance 523
Other Tests, Conclusions, and Summary 535
Questions and Problems 536
Case: McDonald's Corporation 537
 
 
17 Efficient Market Theory 540
 
Fundamental and Technical Analysis 540
Random Walk 541
The Efficient Market Hypothesis 542
Summary 557
Questions and Problems 557
 
 
PART VII  PORTFOLIO ANALYSIS, SELECTION, AND MANAGEMENT
 
18 Portfolio Analysis 559
 
Traditional Portfolio Analysis 559
Why Portfolios? 560
Effects of Combining Securities 561
Portfolio Analysis: An Expanded Example 579
"Adequate" Diversification 583
Summary 584
Questions and Problems 584
 
 
19 Portfolio Selection 587
 
Risk and Investor Preferences 587
Constructing the "Best" Portfolio 591
Significance of Beta in the Portfolio 597
Traditional Portfolio Selection 603
Summary 613
Questions and Problems 613
Case: MPT, Inc. 617
Case: The Murphys 619
 
 
20 Capital Market Theory and International Diversification 621
 
Capital Market Theory 621
Arbitrage Pricing Theory 628
International Diversification 629
Summary 640
Questions and Problems 640
 
 
21 Portfolio Revision Techniques	643
 
Introduction 644
Constant-Dollar-Value Plan 646
Constant-Ratio Plan 648
Variable-Ratio Plan 651
Modifications of Formula Plans 653
Dollar-Cost Averaging 653
Summary 656
Questions and Problems 657
 
 
22 Managed Portfolios and Performance Measurements	658
 
Classification of Managed Portfolios 658
Alleged Advantages of Managed Portfolios 667
Management-Performance Evaluation 669
Empirical Tests of Mutual-Fund Performance 678
Extended Example of Performance Measurement 680
Mutual Funds as an Investment 682
Sources of Investment-Company Information 683
Summary 690
Questions and Problems 691
Case: The Parallax Fund 692
 
Appendix: Mathematical Tables	695
 
Index	699