Portfolio Analysis And Investment

984 words - 4 pages

Portfolio Analysis and Investment

This assignment is concerned with your understanding of the key issues relative to portfolio analysis and investment. In completing this assignment you are to limit your scope to the US stock markets only. Use the Cybrary, the Internet, and course resources to write a 2-page essay which you will use with new clients of your financial planning business which addresses the following issues and/or practices:

? How individual investors make investment decisions in practice rather than in theory; and
? How investors manage their funds/savings/ investments in light of current stock markets.

In your response, build upon extant portfolio theory and make sure to talk about different types of risks that investors might face and how they go about managing such risks. This means you need to consider topics such as efficient frontier and optimal portfolios; as well their relevance to investment theory. Furthermore, given the nature of the assignment, avoid bringing the brokerage industry into your discussion. In other words, assume you can invest directly in the stock market and do not need any financial intermediaries like brokerage houses.

Investment theory is based upon some simple concepts. Investors should want to maximize their return while minimizing their risk at the same time. In order to accomplish this goal investors should diversify their portfolios based upon expected returns and standard deviations of individual securities. Investment theory assumes that investors are risk averse, which means that they will choose a portfolio with a smaller standard deviation. (Alexander, Sharpe, and Bailey, 1998). It is also assumed that wealth has marginal utility, which basically means that a dollar potentially lost has more perceived value than a dollar potentially gained. An indifference curve is a term that represents a combination of risk and expected return that has an equal amount of utility to an investor. A two dimensional figure that provides us with return measurements on the vertical axis and risk measurements (std. deviation) on the horizontal axis will show indifference curves starting at a point and moving higher up the vertical axis the further along the horizontal axis it moves. Therefore a risk averse investor will choose an indifference curve that lies the furthest to the northwest because this would represent the maximum expected amount of return vs. risk for a portfolio. In practice investors are not totally rational. They are subject to the effects of framing upon financial scenarios that cause them to choose an option that provides less utility due to cognitive reasoning. This is especially apparent in situations where investors are facing potential losses. Investors have the tendency to overestimate the probability of unlikely events and underestimate the probability of moderately likely events. (Alexander, et al, 1998).

In all practicality most investors are rational and do choose...

Find Another Essay On Portfolio Analysis and Investment

Mate Selecivity and Investment Analysis

2328 words - 9 pages . It was then that I took heed of his personality change and his attempts to avoid my presence. Gradually, we no longer put in as much investment into the relationship as we previously did. Not long after, we stopped talking to each other and that was the end of the relationship. I was somewhat disappointed in our parting, but eventually I realized that there were other attractive and valuable potential mates in the world. I figured that what I

Creating A Diversified Investment Portfolio Essay

1169 words - 5 pages realize that to diversify does not mean to invest randomly. Quite the opposite is true. Diversification requires the development and the implementation of a plan with the correct balance of security and risk, in order to accomplish the growth and/or income one desires. The purpose of diversifying an investment portfolio is to prevent the concentration of all of an investor's money in one place. Thus, financial security will rely on the strength of

Information Portfolio- Secondary information collected and gathered for analysis (good or bad) to identify the concepts of sports marketing.

2373 words - 9 pages the sales of tickets, licensed merchandise, and food creating excitement and atmosphere, which adds to the overall experience when a spectator is involved in a sport.All of these areas structure the sports marketing industry and influence the profits that are made by the involved companies, divisions and individuals.Journals:(2004). News Analysis: Cricket puts best foot forward. Marketing, p17This journal extract is commenting on the England and

FIN 402 Modern Portfolio Theories.

1212 words - 5 pages portfolio to that of the market.Looking at current market conditions our portfolio, with its Sharpe Ratio of 2.3, ranks close to conservative investment mutual funds. Alger Balanced Institutional (ABLRX) is a conservative rate mutual fund and it holds a Sharpe rating of .69 (finance.yahoo) which is significantly lower than our portfolio. Although having a higher Sharpe rating is considered to be a good thing, this team feels that the current state

Investment Policy Statement

4725 words - 19 pages Product Disclosure Statement", available at:http://www.perpetualinvestments.com.au/pdf/P516-AD. pdf, 2005[Viewed on 29th April, 2006]•Reilly, F.K and Brown, K.C. - Investment Analysis and Portfolio Management. Eighth Edition. 2006. Mason, Ohio: Thomson/South-Western.•Strong, R. (2002), Portfolio construction, management, and protection, 2nd ed, South Western College Pub. Cincinnati, OHANNEXUREAppendix ACovariance Matrix - Without Risk

Portfolio Management Concepts

742 words - 3 pages . However, in comparison to benchmark return, we can conluded that portfolio has still not achieved maximum diversification and it need to follow portfolios on efficient frontier that offers him maximum return with benchmark standard deviation of 0.72% on daily basis. Answer 3) Behavior Analysis relates to the concept of Behavior Finance which is a branch of investment world that explain the stock prices anomalies because

Merrill Finch Inc. Case Study

2116 words - 8 pages undiversified risk of holding an individual asset. For this investment analysis, the standard deviation for T-bills is 0% , 20% for High Tech, 13.2% for Collections, 18.8% for U.S. Rubber, 15.2% for a market portfolio, and 3.4% for the 2-stock portfolio.•Coefficient of Variance. The Coefficient of Variance (CV) is a standardized measure of the amount of risk per unit of return. It is calculated by dividing the standard deviation by the

IT Portfolio

2137 words - 9 pages applying PPM in organizations. The research paper's object is implementation of organization project management techniques while pursuing strategy of project portfolio based on logical, systematic analysis of scientific studies, situational analysis by comparative method.Beginning of project managementProject Management (PM) refers to the subject field of planning, organizing, securing and managing resources to achieve specific goals. It looks like

Modern Portfolio Theory

4176 words - 17 pages affect their value. Then there is the question of the number of stocks required for diversification. How many is enough? Mutual funds can contain dozens and dozens of stocks. Investment guru William J. Bernstein says that even 100 stocks is not enough to diversify away unsystematic risk. By contrast, Edwin J. Elton and Martin J. Gruber, in their book "Modern Portfolio Theory And Investment Analysis" (1981), conclude that you would come very

Accounting.

1903 words - 8 pages specialist portfolio is constructed with a targeted tracking error of between 4%-7% per annum.Review Indicative Specialist PortfolioThe output from the optimisation process is reviewed and checked for reasonableness. Allowance might be made to the assumptions that supports the optimisationModify Specialist PortfolioWith the aid of implied alpha analysis, the indicative portfolio is modified to a Specialist portfolio.4.Investment Guidelines, Risk

Why is the risk of a portfolio of shares normally lower than the average risk of the shares of the portfolio?

2154 words - 9 pages price risk including holding Options, Dollar Cost Averaging, holding Mutual funds, using the Buy and Hold method and the various techniques of asset allocation.BibliographyP. A. Collier, Financial and treasury management: stage 4, Oxford: Heinemann Professional, 1988James L. Bicksler, Paul A. Samuelson, Investment portfolio decision-making, D.C. Heath, 1974Frank K. Reilly, Investment analysis and portfolio management, 6th Edition, Dryden, 1999Websites:www.businessweek.comwww.axaonline.com

Similar Essays

Key Issues Relative To Portfolio Analysis And Investment

1777 words - 7 pages AbstractThis essay is concerned with understanding the key issues relative to portfolio analysis and investment. The scope of this essay will be limited to the U. S. Stock markets only. This essay will be built upon extant portfolio theory and will discuss different types of risks that investors might face and how they go about managing such risks. Under consideration will be topics such as efficient frontier and optimal portfolios as well as

Discuss These Titles About The Asx: Risk And Return, Aims Of Investment, Considerations For Setting Up A Portfolio, Shares & Alternative Investment. Make Reference To The Profiles!

1739 words - 7 pages strategy for investment will be for the sole purpose of retirement with a golden nest egg (affluence). The best way for Jim and Joan to obtain the golden nest egg is thorough investing in shares with dividends to give them a sustainable and reasonably secure return. Aims of investment differentiate due to many different factors as these three investors made evident.Considerations for setting up a portfolio:When drafting a potential portfolio

Investment Management. Equities Investment Project Game. Includes Specific Shares And Risk Analysis.

3328 words - 13 pages Executive Summary.Investment Philosophy.牋牋牋牋My investment philosophy is based on the top down approach. I have a growth strategy and a semi-efficient view of the market.牋牋牋牋I have invested 100% of my portfolio in equities for several reasons: higher profitability of equities comparing to other types of assets, high equity yields and competitive advantage.Original Portfolio.牋牋

Hibernia National Bank Business Analysis With Swot, Charts, Graphs, And Investment Recommendations

3150 words - 13 pages previously were classified as securities in interest-earning assets. As interest rates have remained low, the rate of prepayments on mortgage-backed securities has increased, and those securities have been replaced with lower-yielding, shorter-term instruments. The yield on Hibernia's investment portfolio for the quarter ended March 31, 2003, was 4.68%, down 83 basis points from a year earlier and down 39 basis points from fourth-quarter 2002