Equity markets 2

Equity Markets
Investors Perspective
Market Efficiency
Risk-Return
Capital Market Line
CAPM
Diversification
Index
Equity Investors - private equity
1. • Individuals
2. • Corporates
3. • Seed funding (friends, family;

(…)

…. • Pension Funds
3. • Mutual Funds (open-end fund)
4. • Hedge Funds
5. • Insurance Companies
6. • Trusts (close-end fund)
7. • SovereignWealth Funds
8. • Corporates
Valuation Methods
Discounted Dividends/Cash Flow
◦ Shareholder has the right to a proportion of Company's profits. Those are either reinvested
or distributed to Shareholders in form of dividend. Discounting Dividend stream/ Discounting Free Cash Flow and `terminal value' allows to value the shares.
Comparables
◦ The shareprice is valued based on its key
financials and using `multiples' characteristic
for its market segment
Multiples
Most common multiples:
◦ Price / Earnings
◦ Price / Net Asset Value
◦ EnterpriseValue / Operating Profit
◦ EnterpriseValue / EBITDA Industry Specific
◦ Price / Sales
◦ Price / Capacity or Production
Factors affecting share price
Market/Industry Factors
Firm Specific
All factors afecting the expectationas about
the Company's future performance and factors affecting the overall demand for equities.
What is your bet when investing in
a given security?
You are not betting that the Company's results
will be good….
But that they will be better than the market currently expects
Or
That other investors will shortly…
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