Objective:
The primary learning objective of this lesson is to equip learners with the quantitative tools and techniques necessary for measuring and analyzing the effectiveness of their investing skills. By the end of this lesson, participants will be able to apply various financial metrics and analytical methods to assess the performance of their investment portfolios in real-world scenarios.
Comprehensive Content Overview:
Investing skills encompass a range of competencies, including the ability to select investment vehicles, manage risk, and analyze performance. Let’s explore the key quantitative techniques used to measure the effectiveness of these skills:
- Return on Investment (ROI).
- Net Present Value (NPV).
- Internal Rate of Return (IRR).
- Sharpe Ratio.
- Alpha and Beta measures.
- Standard Deviation.
- Performance Benchmarking.
In-depth Explanations with Actionable Insights:
Return on Investment (ROI) is a straightforward metric that calculates the gain or loss generated on an investment relative to the amount of money invested. The formula is as follows:
ROI = (Current Value of Investment – Cost of Investment) / Cost of Investment
Example: If you invest $1,000 in a stock and it’s worth $1,200 after one year, the ROI is (1,200 – 1,000) / 1,000 = 0.20 or 20%.
Net Present Value (NPV) discounts all future cash flows of an investment back to the present to determine the value added by the investment.
Example: If you expect to receive $1,000 next year ...
