Preface

Throughout the book, we attempt to establish the appropriate theoretical base, while at the same time following through with real-world examples. Students ultimately will be able to translate what they have learned in the course to actual participation in the financial markets.

KEY UPDATES IN THE SEVENTH EDITION

A number of features have been added to the seventh edition that make using Fundamentals of Investment Management an up-to-date, exciting, and beneficial teaching and learning experience.

There are several significant additions to the end of the chapter material that should be noted. First we have added the American Association of Individual Investors’ (AAII) Stock Investor Pro Software to the text and included related end-of-chapter problems to give the students an opportunity to work with a database of 9,000 stocks. This is the largest database available with an investments textbook.Any chapter where a realistic exercise could be created uses Stock Investor Pro. Since the data covers common stocks, not all chapters will have exercises.

In light of the Enron debacle, we have included critical thought cases at the end of most chapters. Many of the cases deal with ethical issues in previous decades. Some of the cases such as ZZZZ Best enforce the concept that ethical behavior has been a problem with a long-standing history and not just the fallout from the Internet Bust. This material was formerly available in the Instructors’ Manual but many faculty thought it should be moved to the text where the students would have better access to it.

The potential of the Internet is thoroughly covered throughout the book with Internet websites listed for every chapter and more completely covered in Chapter 4,“Sources of Investment Information.” There are Internet exercises at the end of each chapter that involve the student in the real world, either to solve a problem, look up some information or to do some critical thinking. In addition, many websites are included in the margin to correspond with the real world companies examined in the text. The student will be encouraged to use many government websites such as the Federal Reserve Banks, the U.S. Department of Labor and U.S. Department of Commerce, as well as Wall Street websites, company websites, and the more common websites such as www.yahoo.com, www.google.com, and others. The book is also fully up-to-date on the impact of the Tax Act of 2001 on investment decisions and estate planning.

Chapter 9,“Issues in Efficient Markets,” includes more material on behavioral finance and irrational decision making in the stock market. In Chapter 10,“Investments in Special Situations,”we include an examination of the impact of 30 “bad news events” on stock returns, immediately after the event and 4 months and 6 months later. Events encompass the last 65 years including Pearl Harbor and the September 11 attacks on the Pentagon and the World Trade Center.

International investing continues to be a major focus of the financial markets and we continue to include more international material throughout the book. Worldwide markets are not only covered in Chapter 18, “International Security Markets,” but also integrated into many chapters of the text such as Yankee bonds, Eurobonds, and Foreign Pay Bonds in Chapter 11, “Bond and Fixed Income Fundamentals.” International material on market capitalization of different countries has been updated, as well as international market returns.

The seventh edition includes a look at the efficiency of U.S. markets in the aftermath of September 11, 2001, as well as the bursting of the Internet and Technology Bubble that caused the NASDAQ to fall from over 5100 to under 1500 in less than two years. These phenomenons are rare and provide an opportunity to examine the forces that drive markets to be efficient and value oriented. In addition to more material about online trading,we include a discussion of the ECNs (electronic communication networks) such as Island, Archipelago, Reuters, and others. These electronic trading markets may be the wave of the future and students need to be aware of how they work and the changes they have brought about in the marketplace. The concept of decimalization was presented in the sixth edition but in this seventh edition, decimalization is reality, and we examine the issues behind the move to quoting stocks in decimals rather than fractions and the effects that we have observed so far in the infancy of this process.

In the organization of the markets,we have introduced the Gramm, Leach, Bliley Legislation that rescinded the Glass Steagall Act. The Gramm-Leach-Bliley Act allows financial institutions to behave more like universal banks integrating commercial banking, investment banking, brokerage, and insurance under one financial institution.

Real estate analysis has been greatly expanded in Chapter 20, “Investments in Real Assets” to include a comprehensive six-part real estate analysis decision with the latest tax and depreciation rules considered. In Chapter 22,“Measuring Risks and Returns of Portfolio Managers,” you will find expanded coverage of returns and different management styles, and a full-blown analysis of the impact of asset allocation versus stock picking.

Of course many of the new features we introduced in the last edition such as economic value added (EVA), Treasury Inflation Protection Securities (TIPs), and SFAS #128 on earnings per share continue to be important. As always, we update all real world tables and graphs with the most current data possible within our time constraints.