UGBA133 Final
What are Malkiel's General Approaches to investment - correct answer The firm-foundation theory and
castles in the air theory.
What is the firm-foundation theory - correct answer It revolves around the intrinsic value of the
company. This can be found via the dividend discount model and a DCF.
What is the castles in the air theory? - correct answer It revolves more around how a crowd of investors
is likely to behave. Since future earnings and dividends are difficult to know, it is simply a beauty judging
contest.
What is technical analysis? - correct answer It is the study of price, volume and its distribution, with little
regard to fundamentals that may inspire price movement.
What is a trend? - correct answer It is the most commonly accepted aspect of technical analysis. It is al
ine that connects a series of higher lows in an up trend or lower highs in a down trend.
Moving average direction also used.
What is support? - correct answer Support is usually a price where the price has not fallen lower in the
relevant past.
What is resistance? - correct answer It is usually a price where the price has not risen in the relevant
past.
After something breaks support it becomes the new resistance and after it breaks the resistance it
becomes the new support.
What is a breakout? - correct answer When resistance is exceeded. Resistance broken.
,What is a breakdown? - correct answer When price goes below support?
What is basing? - correct answer A stabilizing period after decline
What is consolidation - correct answer A stabilizing period after a run-up, considered a resting period
What is a relative strength index? - correct answer A momentum gauge that compares magnitude of
gains vs. declines.
what are stochastics? - correct answer A momentum gauge that shows close relative to price range over
a defined period.
What is a commodity channel index? - correct answer Used to identify trend strength and cycle changes.
What is a moving average convergance divergence (MACD)? - correct answer Illustrates trend strength
and momentum by comparing two moving averages.
What are price and volume indicators? - correct answer Money Flow: assesses positive or negative
volume based on close position relative to trading range, applied over a defined period.
Accumulation / distribution: assesses positive or negative volume based on close position relative to
trading range.
What are price channels? - correct answer Trend or price channels, usually drawn at a trend line and a
parallel above or below that have contained price.
What are examples of price channels? - correct answer Bollinger Bands, linera regression channels,
Donchian channels, moving average envelopes.
What is the Dividend Discount Model? - correct answer Value of Stock = Dividend per Share / (Discount
Rate - Dividend Growth Rate)
, What is fundamental analysis? - correct answer Develops an investment stance based on the study and
evaluation of a company, its industry and the economy.
What is growth investing? - correct answer Recognizing recent and future potential for outstanding
growth. Important to consider recent growth and projected growth, as well as positive earnings
surprises. These companies are generally expensive and you should sell when growth slows, as when it
does prices decline quickly.
What is value investing? - correct answer Buying companies cheap at bargain prices as they will be
profitable after taking advantage of irrationality.
Look at value metrics of industry and supportive news to make industry.
When stocks becomes fairly valued or business really is deteriorating, that is when to sell. The risk here is
that the business could just be bad in the first place.
What is GARP and a classic GARP metric? - correct answer Growth at a Reasonable Price
Growth stocks can be too expensive so good to look at these metrics:
- PE/G (price/earnings)/growth rate
what is SRI? - correct answer Socially Responsible investing. It can return equal returns as unethical
competitoin.
What is long / short - correct answer Allows profits for gains or short positions but also heddges out risks
in pairs
Catalysts and news driven? - correct answer Buy favorable events and short unfavorable events
Basically this is a type of investing that involves deep company and industry research searching for
underappreciated developments for a company
What are Malkiel's General Approaches to investment - correct answer The firm-foundation theory and
castles in the air theory.
What is the firm-foundation theory - correct answer It revolves around the intrinsic value of the
company. This can be found via the dividend discount model and a DCF.
What is the castles in the air theory? - correct answer It revolves more around how a crowd of investors
is likely to behave. Since future earnings and dividends are difficult to know, it is simply a beauty judging
contest.
What is technical analysis? - correct answer It is the study of price, volume and its distribution, with little
regard to fundamentals that may inspire price movement.
What is a trend? - correct answer It is the most commonly accepted aspect of technical analysis. It is al
ine that connects a series of higher lows in an up trend or lower highs in a down trend.
Moving average direction also used.
What is support? - correct answer Support is usually a price where the price has not fallen lower in the
relevant past.
What is resistance? - correct answer It is usually a price where the price has not risen in the relevant
past.
After something breaks support it becomes the new resistance and after it breaks the resistance it
becomes the new support.
What is a breakout? - correct answer When resistance is exceeded. Resistance broken.
,What is a breakdown? - correct answer When price goes below support?
What is basing? - correct answer A stabilizing period after decline
What is consolidation - correct answer A stabilizing period after a run-up, considered a resting period
What is a relative strength index? - correct answer A momentum gauge that compares magnitude of
gains vs. declines.
what are stochastics? - correct answer A momentum gauge that shows close relative to price range over
a defined period.
What is a commodity channel index? - correct answer Used to identify trend strength and cycle changes.
What is a moving average convergance divergence (MACD)? - correct answer Illustrates trend strength
and momentum by comparing two moving averages.
What are price and volume indicators? - correct answer Money Flow: assesses positive or negative
volume based on close position relative to trading range, applied over a defined period.
Accumulation / distribution: assesses positive or negative volume based on close position relative to
trading range.
What are price channels? - correct answer Trend or price channels, usually drawn at a trend line and a
parallel above or below that have contained price.
What are examples of price channels? - correct answer Bollinger Bands, linera regression channels,
Donchian channels, moving average envelopes.
What is the Dividend Discount Model? - correct answer Value of Stock = Dividend per Share / (Discount
Rate - Dividend Growth Rate)
, What is fundamental analysis? - correct answer Develops an investment stance based on the study and
evaluation of a company, its industry and the economy.
What is growth investing? - correct answer Recognizing recent and future potential for outstanding
growth. Important to consider recent growth and projected growth, as well as positive earnings
surprises. These companies are generally expensive and you should sell when growth slows, as when it
does prices decline quickly.
What is value investing? - correct answer Buying companies cheap at bargain prices as they will be
profitable after taking advantage of irrationality.
Look at value metrics of industry and supportive news to make industry.
When stocks becomes fairly valued or business really is deteriorating, that is when to sell. The risk here is
that the business could just be bad in the first place.
What is GARP and a classic GARP metric? - correct answer Growth at a Reasonable Price
Growth stocks can be too expensive so good to look at these metrics:
- PE/G (price/earnings)/growth rate
what is SRI? - correct answer Socially Responsible investing. It can return equal returns as unethical
competitoin.
What is long / short - correct answer Allows profits for gains or short positions but also heddges out risks
in pairs
Catalysts and news driven? - correct answer Buy favorable events and short unfavorable events
Basically this is a type of investing that involves deep company and industry research searching for
underappreciated developments for a company
