Investment Port
Investment Policy, Ethics, and Portfolio Management
March 10, 2010
Mid-Term Problems
Chapter 13 Question 1) Briefly describe the results of studies that examined the performance of alternative industries during specific time periods and discuss their implications for industry analysis.
Industry analysis is performed and relevant because different industries have different performance over time periods and during different stages of the business cycle. Yearly performance studies have revealed that different industries have a wide range of rates of return. In 2007, the stock market as a whole experienced a price change of about 3.5% but yet the industry performance ranged from 83.05% to -55.86%.[1] These same studies have also found little correlation between industry performances on a year over year basis, so an industries prior performance does predict future performance. In short, what this data supports is sector rotation throughout the different phases of the business and economic cycle by shifting a portfolio to the sectors that perform best during that phase of the cycle.
Chapter 13 Question 4) Discuss the contention that differences in the performance of various firms within an industry limits the usefulness of industry analysis.
One of the largest problems industry analysis alone faces is that firms within the industry may perform very differently. So simply performing industry analysis is insufficient. The competitive forces with in an industry as outlined by Michael Porter shows that the forces of the competitive field can affect different firms differently. There is also many other factors that can affect a firms performance within in industry including its size, financial condition, management, and product portfolio. This really limits the usefulness of industry analysis but when it is combined with company analysis it can paint a much better picture. Taking both into account combining an attractive industry with a solid company
March 10, 2010
Mid-Term Problems
Chapter 13 Question 1) Briefly describe the results of studies that examined the performance of alternative industries during specific time periods and discuss their implications for industry analysis.
Industry analysis is performed and relevant because different industries have different performance over time periods and during different stages of the business cycle. Yearly performance studies have revealed that different industries have a wide range of rates of return. In 2007, the stock market as a whole experienced a price change of about 3.5% but yet the industry performance ranged from 83.05% to -55.86%.[1] These same studies have also found little correlation between industry performances on a year over year basis, so an industries prior performance does predict future performance. In short, what this data supports is sector rotation throughout the different phases of the business and economic cycle by shifting a portfolio to the sectors that perform best during that phase of the cycle.
Chapter 13 Question 4) Discuss the contention that differences in the performance of various firms within an industry limits the usefulness of industry analysis.
One of the largest problems industry analysis alone faces is that firms within the industry may perform very differently. So simply performing industry analysis is insufficient. The competitive forces with in an industry as outlined by Michael Porter shows that the forces of the competitive field can affect different firms differently. There is also many other factors that can affect a firms performance within in industry including its size, financial condition, management, and product portfolio. This really limits the usefulness of industry analysis but when it is combined with company analysis it can paint a much better picture. Taking both into account combining an attractive industry with a solid company