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160 - Investment Planning 4 Buy and hold A Investors hold on to their securities to minimize transaction costs because they do not believe that active management adds any additional returns to their portfolios For bond investing, investors look for vehicles whose maturities (or duration) approximate their stipulated investment horizon in order to reduce price and reinvestment risk B A buy-and-hold strategy should not be confused with a passive strategy With a passive strategy, the asset allocation percentages are maintained over time by rebalancing the portfolio A buy-and-hold strategy does not rebalance a portfolio C The purchase of index funds is an example of a buy-and-hold strategy These funds attempt to match the makeup of an index, such as the S&P 500 5 Portfolio immunization A Immunization allows an investor to earn a speci ed rate of return on a bond portfolio regardless of the direction of interest rates The investor becomes immunized to changes in interest rates over a time horizon B Active rebalancing of bonds ensures that the duration of a portfolio always equals the investor s time horizon C Two methods for immunizing a portfolio: (1) Purchasing a series of zero-coupon bonds whose maturities correspond with the planning horizon (2) Assembling and managing a bond portfolio whose duration is kept equal to the planning horizon The portfolio of bonds must be rebalanced whenever interest rates change D Duration declines more slowly than the term to maturity; if interest rates do not change, a bond portfolio may still need to be rebalanced to correspond to the investor s time horizon Only zero coupon bonds have a duration that decreases at the same rate as their term to maturity 6 Swaps A A swap is a technique for managing a bond portfolio by selling some bonds and buying others with the proceeds, in order to achieve bene ts in the form of tax treatment, yields, maturity structure, or trading pro ts B There are several types of swaps (1) Substitution swap The swapping of bonds with virtually identical characteristics (ie, same maturity, coupon, credit rating, and call and sinking funds) selling at different yields The price difference is viewed as an arbitrage opportunity (2) Intermarket spread (sector) swap This is a variation of a substitution swap It is used when the difference in yield between two markets is excessive An investor may swap a government bond for a triple-A rated corporate bond if the yield is more favorable (3) Pure-yield pickup swap The sale of a low-yield bond and purchase of a high-yield bond The swap is usually for a bond with a longer maturity or lower quality in order to bene t from a higher yield (4) Rate anticipation swap Seeks to take advantage or avoid the impact of an expected change in interest rates If higher interest rates are anticipated, an investor will swap longer-term maturities for shorter-term maturities; if lower rates are anticipated, shortterm maturities are swapped for long-term maturities (5) Tax swap An investor attempts to take advantage of locking into a loss by selling a bond and buying a similar bond.



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Application data: This refers to the data that is core to the application domain itself For example, if we are developing a portal application, it would include the news stories If we are developing an application for selling some set of products online, it would be the product catalogs Personalization information: This is data about the users of the application For example, it might include information about the user name and interests Data related to personalization can be secure (credit card numbers) and can also be modifiable by the user (ie, name and address information) or it can be read-only (ie, history of user purchases) Application metadata: This is data about the application data For example, the list of product catalog tables in the database might be stored in a table called PRODUCT_CATALOG_TABLES This information is thus analogous to the datadictionary type of metadata that most databases have It exists in the database because it is dynamic, easier to manage (ie, it is an alternative to the file-system), or needs to be queried Application logic: Databases can store code that is accessed and executed via the application components As we will discuss later, storing code in the database typically yields applications that have better performance Report data: Obviously, it is important to generate reports on sales at a product site Likewise, information about page views and user interest are important This type of information is gleaned either from automated reports that summarize existing information in the database or via data mining, which aims to identify trends in data Reporting is necessary but confounding because it steals resources away from the application back end and can thus affect overall performance

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The network is divided into different tiers: BC-PE Tier The BC-PE tier contains only BC-PE routers participating in B-VPLS instances. Aggregation Switch Tier The aggregation switch tier contains IB-PE routers participating in both the B-VPLS and the I-VPLS. (The boundary between the backbone domain and the customer domain is located in these IB-PE routers.) Edge Switch Tier The edge switch tier is in the customer domain and contains Q-in-Q switches (native PBN 802.1ad network), regular Ethernet (null/dot1q) switches, and MTUs connecting CE to IB-PE routers with spokepseudowire within the I-VPLS instance.

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Now that we have some idea of the underlying data and how it is divided, let's return to understanding the client, network, and server pieces discussed earlier

Data warehouses collect large amounts of data from multiple data stores across the entire enterprise using an extract-transform-load (ETL) process to convert the data

Although Figures 2-2 through 2-4 show different ways to split up the business logic, they all contain three basic components: the client, the server, and the network (which is not shown but is implied by the arrows)

Topic 48: Investment Strategies - 161 7 Technical analysis A Underlying assumptions of technical analysis (1) Prices are determined by supply and demand (2) Supply and demand are driven by rational and irrational behavior (3) Security prices move in trends that persist for long periods of time (4) The actual shift in supply and demand can be observed in market price behavior B The major challenge of technical analysis is the ef cient frontier hypothesis Ef cient markets assume that new information will cause instantaneous price adjustments, past technical relationships cannot be repeated, technical analysis requires too much subjective interpretation, and decision variables change over time C Technicians believe that the speed with which new information is impounded into prices is slow, whereas fundamentalists believe that prices adjust quickly, and ef cient market hypothesis analysts believe it happens almost instantaneously D There are two types of views (1) Contrarians follow the rule of doing the opposite to what the general investor does Therefore, contrarians believe the majority of traders, investors, and institutional advisers are wrong most of the time (2) Smart money traders follow a different logic from contrary opinion technicians They follow the money movement of what they consider to be sophisticated traders E Contrarians use the following tools: (1) Mutual fund cash positions (2) Investor credit balances in brokerage accounts (3) Investment advisory opinion (4) Over the counter (OTC) versus New York Stock Exchange (NYSE) volume (5) Chicago Board Options Exchange (CBOE) put/call ratio F Smart money traders use the following tools: (1) The Con dence Index (2) T-bill yields and Eurodollar rates (3) Short sales by specialists (4) Margin debit balances in brokerage accounts G The Con dence Index (CI) is found in Barron s and is the ratio of Barron s average yield on 10 top-grade corporate bonds to the yield on the Dow-Jones average of 40 bonds This is given by Barron s average yield on 10 top-grade corporate bonds (1) CI Dow-Jones average of 40 bonds (2) The Con dence Index measures the difference between high-quality bonds and a large cross section of bonds It is also stated as Quality bond yield CI Average bond yield (3) The Con dence Index rises during periods of con dence as the yield spread narrows and drops during periods of pessimism as the yield spread widens Therefore, the Con dence Index moves in the opposite direction of yield spreads H Market indicators used in technical analysis (1) Dow Theory.

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