Hello everyone. Thank you for joining me again in the fourth and final course in our investment and portfolio management specialization. A very big congratulations to all of you on your achievement so far. I appreciate all the feedback we have been receiving. I'm glad to know that so many of you are enjoying the course so far. Thank you. So in this final course, we're going to turn our attention to performance measurement and evaluation methods, something very basic to all investments. I have assembled for you the state-of-the-art methodologies in the area of performance measurement. You will not only learn the theory, but also get a chance to apply the tools you'll learn in several examples. I've tried to cut back on lectures and give you ample time to do more examples. The design of the course flows in what I think are three logical modules. The first module is devoted to performance measurement and benchmarking. The second will deal with measuring risk-adjusted returns. And finally the third module focuses on style analysis and performance attribution. So whatever the investment you're considering, the performance of an investment is the return or the increase of wealth over time that the investment generates, relative to the amount of risk involved. So in the first module therefore, we're going to deal with various definitions used in performance measurement. So the first central problem of performance measurement is how do you assess the increase in your wealth over a given time frame? And how you view this return in terms of some measure of risk it took to obtain this, right? So we will therefore first focus on calculating different measures of wealth growth and different measures of risk. After we've calculated the growth in our wealth and have assessed the risk it took to obtain that wealth, we will address the next logical question, how does it compare to some alternative investments, benchmarks? How large was the risk-adjusted return compared with the risk-adjusted return achieved with alternative investments? And this will lead us to a discussion of benchmarking and comparing returns to benchmark returns. Benchmarking seeks to determine whether the performance of an investment is better than what we could have obtained following a simpler or less costly investment plan. Benchmarking, while widespread today, is nevertheless a relatively new phenomenon. As recently as the 1960s, investors were still comparing their returns to treasury bills, or government bonds, on an absolute basis. Investors thought that zero is the absolute benchmark. Now, zero return is still the first fundamental level of performance evaluation, but as investment opportunities get more and more complex, you might want to know how various segments of your investment perform relative to other alternatives. So, much has changed therefore, since the time when the Dow Jones 7500 Index was the only available index. A wide variety of equity benchmarks are now available for investors to use. So, if you hold a selection of small stocks in your portfolio for example, it makes little sense to benchmark your selection of small stocks by comparing your returns to those of large stocks in the S&P 500. It would be much better to compare your returns to a small cap benchmark. All right, so with this brief introduction let's get started with the first module. Enjoy.
