This textbook is designed as a core text for finance courses that cover market investments, portfolio formation, and the management of investment portfolios. As such, the text seeks to convey insight and actual wisdom as to the nature of these activities. When combined with a commitment to thinking independently, the text offers the student a rigorous preparation for entry to the funds management industry.
The text is presented in three parts. In Part A, the text introduces the fundamental techniques of investment analysis: a "bottom-up" and "top-down" analysis of the firm aimed at an evaluation of the underlying share as a "buy", "hold", or a "sell" recommendation. Part B offers the reader an intuitive grasp of the nature of investment growth, both across time and across assets. Part C introduces the reader to the technicalities of portfolio construction and portfolio management. The text concludes with an assessment of the funds management industry.
The text builds in step-by-step stages with Illustrative Examples that consolidate the student’s progress and understanding through each chapter. Each of parts A, B, and C (above) has sufficient material to justify a separate course. If the student has exposure to a more foundational course in finance, Parts A and B can be covered as a single course. If from other courses, the student is familiar with the essence of Parts A and B and with statistical concepts, the text can be covered as a single course. The text can therefore be presented readily at either an undergraduate or postgraduate level at a pace appropriate to the student’s prior exposure to the concepts.
Table of Contents
PART A Foundations of investment analysis
2. The valuation of equity shares: the P/E ratio
3. Shareholders’ required rate of return (the cost of equity capital)
4. Financial leverage: the value of the firm and the economic cycle
5. Accounting statements and ratio analysis
PART B The nature of investment growth
6. The nature of growth (the exponential function)
7. Prediction of returns (the normal distribution)
8. Statistical relations for component assets
9. Growth over many periods
10. Growth with many assets
PART C Principles of portfolio construction and management
11. Portfolio choice between risky and risk-free assets
12 A fundamental model of asset pricing and portfolio allocation
13 Fluctuations of opinion: stock mispricing
14 Portfolio algorithms
15 Institutional portfolio management
16 Conclusion and text review
Michael Dempsey is Professor of Finance at Ton Duc Thang University in Ho Chi Minh City, Vietnam, having previously been Professor of Finance and Head of Finance at RMIT University, Melbourne, Australia. His personal web page can be found at dempseymichael.com.
"This book offers a comprehensive, yet intuitive, overview of portfolio theory and investment analysis for a student with little background in these subjects. I especially like how self-contained and accessible the book is. A beginning student with a little mathematics background should have no difficulty following the arguments and formulae." — Professor Raghavendra Rau, Sir Evelyn de Rothschild Professor of Finance, Cambridge Judge Business School, University of Cambridge, Cambridge
"This book is organized in three excellent parts. The author, Michael Dempsey, not only provides a great depth of knowledge about the foundations of investments, portfolio analysis and management, but also shows carefully how the techniques acquired can be used and implemented in various business situations. Students and professionals who want to excel in the financial services industry would greatly benefit from reading this interesting book." — Duc Khuong Nguyen, Professor of Finance, Head, Department of Finance, Auditing and Accounting, Deputy Director for Research, IPAG Business School, Paris.
"Professor Dempsey does an excellent job in explaining investment and portfolio management in a clear and easy-to-understand style. The illustrative examples in the text will surely help students better understand complexities and bring more clarity to the analysis. I highly encourage anyone with an interest in finance, students and professionals alike, to read this book and to have it on their shelves." — Sabri Boubaker, Ph.D., Professor of Finance, South Champagne Business School & University of Paris Est