FINANCIAL PLANNING

Financial Planning

Financial Planning

Question 1a

Technical analysis is research into the supply and demand of investments based on historic trade information, in terms of both price and volume. Technical analysts, often called chartists, believe that it is possible to detect the onset of a movement in stock or market value from one equilibrium condition to another. To do this, they use charts and computer programs of past stock, commodity, and market movements to identify trends that they believe will predict pricing movements. Chartists are not concerned about why conditions are changing, they only want to identify the beginning of the change to take advantage of short- and intermediate-term gains. While most of these analysts predict short and intermediate pricing trends, some also forecast long-term market cycles based on their data. (DeMark 1994 pp.89-101)

Like many professionals in the security industry, chartists believe that the value of the market is determined by supply and demand for stocks. Furthermore, like others, chartists think that the supply and demand is influenced by many factors, not always rational, which are weighed continuously and subjectively by the market. First, chartists contend that information about stocks leaks into the market over extended periods. Stock prices change gradually as information moves from industry insiders to analysts and finally to investors. Second, chartists believe that a further time lag occurs because investors do not unanimously agree about the validity of the information or its impact upon the security in question. The gradual nature of price changes gives investors time to act to take advantage of a trend. (Argenti 1994 pp.12-19)

Question 1b

Few personal investors will have sufficient funds to invest directly in a commercial property, however there are opportunities for indirect investment. (Fabozzi 1999 pp.23-31)

For the small investor, only looking to invest a couple of thousand pounds, the choices are limited to a small number of unit trusts and life funds that invest in property or buying shares in property companies, such as British Land and Slough Estates (though these are often more linked to the equities market, rather than property market performance).

A few investors will be able to buy a complete property directly, however the cost of the property is likely to be 10 or 20 times the size of a residential buy-to-let, making direct investment prohibitive to most. The advantages to a direct investment are the additional rental income and tax benefits. The disadvantages are that real estate is relatively ...