Three reports made to the International Congresses of the European Federation of Financial Analysts Societies on the development of investment analysis by computer are discussed in Part I. The 1966 and 1968 reports were mainly concerned with processing investment statistics, pricing individual shares or selecting portfolios by mathematical means. By 1970, however, some of the more elaborate schemes for pricing equities and selecting portfolios had been abandoned, more emphasis being given to data processing of investment statistics and to analysing by computer special categories of investments where a considerable volume of regular investment statistics are available and extensive calculations are required.

The authors then proceed to describe two practical computer applications dealing with specialised classes of share. Part II deals with the application of simple statistical techniques to investment trust shares in an attempt to select those that are “cheap” or “dear”. The suggested method, tested for the first nine months of 1971, showed that the shares recommended as “buys” recorded a gain of 4.1% better than the investment trust index, whilst the “sales” underperformed the index to the extent of 6.8%.

The finances of the television rental companies have distinct analogies with those of a life assurance business. TV sets have a life span like a mortality experience and their installation costs involve a new business strain; Part III demonstrates how a computer model of a TV rental company can be used to assist the analyst in forecasting future profits, allowing for likely changes in costs, taxes, etc. Similar techniques are, in fact, applicable for the analysis of South African gold mining shares which form a homogeneous group with a considerable volume of regular statistical information (see Part IV).

The authors conclude that these computer applications, whilst requiring much further research, offer considerable prospects provided that accurate, reliable and specific input material is available.