Series 7 Chpt 15
An optimal portfolio is one that....
provides the greatest return for a given amount of risk.
what is the Odd-Lot Theory?
A technical analysis theory/indicator based on the assumption that the small individual investor is always wrong. Therefore, if odd lot sales are up - that is small investors are selling stock - it is probably a good time to buy.
What does beta measure?
systematic risk; The amount of non-diversifiable risk associated with a particular portfolio or asset
where on a trend chart do you see the area of resistance level?
there's an increase to a particular price level at which heavy selling pressure is encountered; this particular point is usually the highest points
what is growth analysis?
used by investors who are concerned with a company's future earnings potential. The investors are seeking companies with rapidly growing earnings in the hope that this growth will continue. Growth investors usually purchase stocks that have high price-to-earnings (P/E) ratios, a high level of retained earnings, and low dividend payout ratios.
what is market momentum?
used to describe a situation in which prices are moving in a certain direction along with a high level of trading volume. There's also an expectation that this pattern will continue in the near future.
T/f: growth companies tend to retain most of their earnings to finance expansion of operations rather than paying dividends to shareholders.
TRUE!!!
what is alpha?
While a stock's beta measures its performance related to the overall market, alpha measures the portion of a stock's return that's achieved independent of the market. Alpha is influenced by factors that are unique to the company and its industry group.
A breakout below the support level is_____. To profit from this, investors may enter _____ or _____
a bearish signal. ; a sell stop order slightly below the support level OR purchase put options on the stock
what is the SIFMA index?
a seven-day market index of Variable Rate Demand Obligations (VRDOs) with at least $10 million outstanding.
After observing a head and shoulders top formation and believing that it represents the reversal of an upward trend and a ____indicator, technical analysts may instruct their clients to.....
bearish ; either sell their existing position to avoid a large loss on the stock or to profit by selling the stock short.
what are the two types of trend reversal formations?
head and shoulders top and head and shoulders bottom
Technical analysts tend to...
ignore the fundamental approach and assume that markets are efficient and all information (both public and private) has already been incorporated in a security's price. These analysts consider the past history of both securities and the markets to formulate their opinions.
what is the Short Interest Theory?
According to the short interest theory, short sellers must eventually cover their short sales and, as they purchase the stock, it will cause the market price to increase. Other short sellers, fearing future increases in the stock's price, will cover their short sales and create additional upward pressure on the stock (commonly referred to as a short squeeze).
what is the Dow Theory?
According to this theory, a major trend is confirmed only when both the Dow Jones Industrial Average and Dow Jones Transportation Average reach a new high or new low. Without this confirmation, the belief is that the market will drift back to its previous trading pattern.
what is the Advance-Decline Theory?
According to this theory, it's a bullish indicator if there's a positive advance-decline figure (i.e., more advancing issues than declining issues). However, it's considered bearish if the market averages (e.g., the Dow Jones Industrial Average) are up, but the advance-decline figures are negative.
what is the modern portfolio theory?
One of the basic assumptions of the Modern Portfolio Theory is that investors are risk-averse. Essentially, investors prefer the lowest risk possible to obtain a given level of return. Or, put another way, investors want the highest return possible given a specific level of risk.
What is CAPM?
The Capital Asset Pricing Model defines the relationship between risk and return
which index is considered the best indicator of small capitalized companies?
The Russell 2000 Index
which index is considered the broadest of all indexes and averages?
The Willshire Associates Equity Index
what is the put/call ratio?
The put/call ratio is a technical market indicator and is found by dividing the volume of all put transactions by the volume of all call transactions on a daily basis. Technical analysts view the put/call ratio as a contrarian indicator. The higher the ratio, the more oversold the market, and the higher the probability that the market will reverse course and turn bullish. The opposite is true for a low put/call ratio, which is viewed as a bearish indicator.
what is a top-down analysis approach?
a broad analysis of the economy is conducted first and then specific industries are identified that seem to benefit from the anticipated future economic conditions. Ultimately, particular companies are chosen from within those industries.
A breakout above the resistance level is considered_______. To profit from this, investors may _______ or ______
a bullish signal ; enter a buy stop order slightly above the resistance level OR purchase call options on the stock once the breakout has occurred.
Value stocks are characterized by...
a low P/E ratio, a history of profits, a high dividend yield, and a low market-to-book ratio.
the general guideline is that customers should have an amount invested in debt (as a percentage of their overall portfolio) that's...
approximately equal to their age. Or, put another way, simply subtract a person's age from 100 to arrive at the percentage that should be invested in equities.
what is the indexing approach?
basically concedes that most investors don't outperform the market. The goal of indexing investors is to find the least expensive and most tax-efficient products that reconcile with their objectives.
The bottom of the saucer pattern is a ____ indicator for the stock
bullish
a head an shoulders bottom formation indicates a...
bullish indicator
what is the 30-day visible supply?
compiled on a daily basis (with weekly average shown) by adding together the total dollar value of all municipal securities being underwritten on a competitive and negotiated basis which are expected to reach the market over the next 30 days. Issues that are due to mature in 13 months or more are included in the totals. The visible supply gives an indication of the supply side of the market.
what is the Bond Buyer Placement Ratio?
compiled on a weekly basis at the close of business on Friday. The ratio represents the dollar amount of bonds that were sold by underwriting syndicates over the week as a percentage of the amount of bonds that were issued that week. To be included, an offering must be for $1 million or more. The placement ratio gives an indication of the demand side of the market.
what is the bond buyer indexes?
compiles information regarding different indexes that are widely watched in the municipal bond industry. These indexes provide an indication of the average weekly yields for both general obligation and revenue bonds.
what is the Willshire Associates equity index?
consists of stocks that trade on the New York Stock Exchange, the NYSE Mkt LLC, and Nasdaq.
When a stock is trading between what's been identified as its support and resistance levels, it's considered to be in the....
consolidation phase
the top of an inverse saucer shows that the stock is _______ and it is a ____ indicator
expected to fall ; bearish
what is a bottom up analysis approach?
focuses on fundamental analysis and the evaluation of companies based on a number of factors. The goal is to find stable companies that have a history of profits and to determine whether a company is undervalued relative to its peers. The analysis will also consider the economic climate to further validate the investment decision.
A breakout occurs when the stock's price either _________. When this happens, technical analysts believe the price of the stock ________.
increases above a resistance level or declines below a support level. ; will continue on its course.
what is momentum investing?
investors often move rapidly from one sector of the market to another—essentially in an effort to chase money flows. Many of these investors use sector specific ETFs to accomplish this rapid movement from one sector to another. For example, if gold stocks are in favor, they will overbuy in that area; however, if auto stocks are subsequently moving higher, they will change focus rapidly.
the bond buyer municipal bond index?
represents the average of the prices of 40 recently issued and actively traded municipal bonds. The prices are calculated based on quotations that are obtained from municipal broker's brokers. The index is published daily and the components of the index are adjusted twice per month.
what is the 11 bond index?
shows the average yield on 11 of the 20 bonds that are in the 20 Bond Index and has an average rating that's equivalent to Aa1 for Moody's and AA+ for S&P.
what is the 20 bond index?
shows the average yield on 20 general obligation bonds with 20-year maturities and has an average rating that's equivalent to Aa2 for Moody's and AA for S&P.
the revenue bond index?
shows the average yield on 25 revenue bonds with 30-year maturities and has an average rating that's equivalent to A1 for Moody's and A+ for S&P.
what is the Random Walk (efficient market) theory?
states that security analysis doesn't produce investment recommendations that will allow investors to consistently outperform a randomly selected portfolio. Therefore, a professionally managed portfolio will perform just as well as a portfolio that's selected in a non-discriminatory fashion (e.g., throwing darts at a newspaper listing of stock prices). The theory also states that stock prices represent all of the available information regarding a company's performance.
alpha represents...
the difference between an asset's expected return (as implied by beta) and its actual return. If a security's actual return is higher than its beta, the security has a positive alpha; however, if the return is lower, it has a negative alpha.
Value investors are most concerned with....
the fundamental value of businesses as opposed to their current share price and believe that companies that are out of favor and underperforming may be overlooked. Many of these investors have very long-term time horizons and seek out companies that are undergoing a fundamental change such as a restructuring or shift in leadership
what is the Bond Buyer?
the online newspaper of the municipal industry that contains news that's pertinent to both the municipal market and the financial community in general. It also contains announcements such as notices of sale, call notices, and a new issue calendar. Thirty day visible supply: shows issues that are due to mature in the next 13 months and the next 30 days worth of expected transactions
the value of beta describes...
the risk of a portfolio or asset as compared to the total market, which is measured as volatility. The total market is assigned a β value of 1; however, some representation of the total market (usually the S&P 500 Index) is commonly employed.
what does the term market neutral refer to?
the strategy of attempting to profit by buying some securities while at the same time selling short other securities.
what is the Municipal Market Data (MMD) Curve?
the yield curve of the highest-rated (AAA) municipal bonds and it's published by Thomson Reuters.
where on a trend graph will you find the support level where the analysts will describe the stock as being oversold?
there's a decline to a particular price level that causes investors to purchase at the attractive lower price. This buying stops the price decline which is found at the lowest points (bottom)
what is the Russell 2000 Index?
tracks the smallest 2,000 stocks in the Russell 3000 Index and is considered the best indicator of small capitalized companies.
What is value analysis?
used by investors (or funds) that are interested in stocks of companies that are intrinsically undervalued or trading at a discount to their book value.
