Institute of Chartered Financial Analysts of India (ICFAI) University 2006 Certification Finance Security Analysis - II - Question Paper

The market is dynamic and human mind ingenious. Certain risks would, therefore, keep on popping up, in the day to day operations e.g. the behavioral risks – misconduct, manipulation, malpractices, fraud and unfair trade practices – which would undermine the market integrity, erode into investor confidence and jeopardize the interest of hapless retail investors. These should be the areas of concern for the investors and the regulators. SEBI keeps constant watch to spot any unusual movement or activities for possible prompt action. There are a few types of meddling with the market integrity. A constant watch is kept to spot and stop other types of manipulations and malpractices. Plans are underway to institute a front line integrated electronic market surveillance system. Transparent, vibrant and efficient secondary market is necessary to give avenue for deployment of savings and also to prop up the primary market, to mobilize savings for investments needed for capital formation and economic growth. A number of risk containment measure have been put in the place to render the secondary market, fair and efficient.

Caselet 3

learn the caselet carefully and ans the subsequent questions:

11. What is value investing? How does 1 arrive at value stocks?

(8 marks) < ans >

12. explain the points that 1 should remember before investing in value stocks.

(6 marks) < ans >

Historically necessity or a few bad times bring good things in life. The great depression of 1929 and the so-called crash of US stock market gave birth to securities act, Securities Exchange Commission (SEC), “Regulation T” that is controlled by Federal Reserve to monitor the slow of funds in the stock market, especially the margin trading, through stock exchanges and regulators like SEC. It was during such a depressing period of 1930’s that something was devised through methodical and disciplined approach, which was called “Value investing”. This is stated to be the invention of Benjamin Graham. According to Benjamin Graham value investing consists of patience, common sense and in-depth analysis of published info. This is the real value investing followed by present-day investors, fund managers, analysts etc., for long-term investment purpose. Warren buffet was once Benjamin’s disciple at Columbia University’s school. Today Warren Buffet is 1 of the richest persons in the world and has considerable personal wealth, all of which is considered to be amassed due to the value investing. Investing in the stock markets is a long-term game. Value investing is the method of picking up undervalued stocks and holding them over a long-term.

Earning:   Approval pending.