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Investments: An Introduction - Dr AP Faure

Year 2013

1. Four phases of the life-cycle1.1 Learning outcomes1.2 Introduction1.3. Phase 1: newborn to adulthood (0-20) 1.3.1. Introduction1.3.2. Read up on the cognitive development stages of offspringSensorimotor stage (0-2 years)Preoperational stage (2-7 years)Concrete operational stage (7-11 years)Formal operational stage (11-15+ years)1.3.3. Promote a rock-solid emotional backbone1.3.4. Provide sound education inside and outside institutions of learning1.3.5. Programme the child's mind to be an inquiring one1.3.6. Promote an ethos of sound money management1.3.7. Drive home the philosophy that wealth has two legs: monetary and non-monetary1.4. Phase 2: adulthood to maturity (20-40) 1.4.1. Introduction1.4.2. Choose your career with care1.4.3. Undertake one career and become accomplished at it1.4.4. Undertake lifelong continuing education1.4.5. Choose your life partner with care1.4.6. Nurture your health and family life1.4.7. Underspend1.4.8. Insure your life only1.4.9. Take on debt, but with much thought1.4.10. Do not bow to peer pressure1.5. Phase 3: maturity to seniority (40-60)1.5.1. Introduction1.5.2. Nurture and exploit your personal brand1.5.3. Aggressively repay debt1.5.4. Cash out and separate business risk from personal assets1.5.5. Invest assets wisely1.5.6. Finance lifestyle assets with excess funds1.6. Phase 4: seniority to exodus (60-80+) 1.6.1. Introduction1.6.2. Choose this day carefully and prepare yourself emotionally1.6.3. Continue to invest assets wisely1.6.4. Resist the Indiana Jones temptation to make a comeback1.6.5. Do not lend money to anyone1.6.6. Undertake SKI holidays1.7. Other rules which apply throughout or during part of your life-cycle1.7.1. Introduction1.7.2. Do not become dependent on the largesse of your spouse1.7.3. Nurture relationships in business with like-minded people and avoid negatively-focused people1.7.4. Be quietly competitive1.7.5. Be kind to people with humble stations (positions) in life1.7.6. Read up on the undisputed "Out of Africa" theory1.7.7. Pursue happiness1.7.8. Have no regrets upon exodus1.7.9. Undertake a lifelong love affair with macroeconomics and the political environment1.8. Life-cycle of happiness1.9. The life-cycle and investing2. The financial system2.1. Learning outcomes2.2. Introduction2.3. Six elements of the financial system2.4. Element 1: lenders and borrowers2.5. Element 2: financial intermediaries2.6. Element 3: financial instruments2.6.1. Introduction2.6.2. The instruments (ultimate investments) of the ultimate borrowers2.6.3. The instruments of the financial intermediaries2.6.4. Summary2.7. Element 4: financial markets2.7.1. Primary and secondary markets2.7.2. OTC and exchange-driven markets2.7.3. Debt market2.7.4. Share market2.7.5. Foreign exchange market2.7.6. Spot and derivative markets2.8. Element 5: money creation2.9. Element 6: price discovery2.10. Allied participants in the financial system3. Investment instruments3.1. Learning outcomes3.2. Introduction3.3. Time value of money3.4. Money market instruments3.5. Bond market instruments3.6. Share market instruments3.7. Derivative market instruments: futures and options3.8. Real investments3.8.1. Introduction3.8.2. Property Of the real investments, property is the most significant investment for the retail investor (individual)3.8.3. Commodities3.8.4. Other real investments3.9. Investment vehicles3.9.1. Introduction3.9.2. Long-term insurers3.9.3. Retirement funds3.9.4. Securities unit trusts3.9.5. Property unit trusts3.9.6. Exchange traded funds3.9.7. Private equity funds3.9.8. Hedge funds3.10. Foreign investments3.11. Asset classes4. Investment principles4.1. Learning outcomes4.2. Introduction4.3. Definition and objective of investment4.4. Risk-free rate4.5. Investment environment4.6. Risk and return4.6.1. What are risk and return?4.6.2. Measuring risk and return4.6.3. Relationship between risk and return4.6.4. Risk and return: the record4.7. Investment theories and maxims 4.7.1. Introduction4.7.2. Efficient market hypothesis4.7.3. Modern portfolio theory4.7.4. Capital asset pricing model4.7.5. Behavioural finance theory4.7.6. Fundamental analysis (aka firm foundation theory) (security valuation) Introduction4.7.6.2. Valuation of shares4.7.6.3. Valuation of fixed-interest securities4.7.6.4. Valuation of futures and options4.7.6.5. Valuation of income-producing property4.7.6.6. Valuation of commodities4.7.6.7. Valuation of other real assets4.7.6.8. Valuation of participation interests4.8. Lessons from the theories and maxims 4.8.1. Introduction4.8.2. There is no simple formula to make you wealthy4.8.3. Top-down investing is wise4.8.4. Diversification is critical4.8.5. Base investment decisions on their FVP4.8.6. Never fall in love with an investment4.8.7. Do not be led by technical analysis4.8.8. Be cognizant of behavioural finance (the psychology of the market)4.8.9. Appreciate market liquidity4.8.10. Appreciate the life-cycle consumption theory4.8.11. Appreciate the significance of the risk-free rate4.8.12. Be aware of the principal-agent dilemma4.8.13. Leave investing to the professionals4.8.14. Understand macroeconomics and mean reversion4.9. Portfolio management4.10. Asset allocation over the life-cycle4.10.1. Introduction4.10.2. Phase 1: 0-204.10.3. Phase 2: 20-404.10.4. Phase 3: 40-604.10.5. Phase 4: 60-80+
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