A portfolio was created on November 20, 2004 with one million dollars. The initial investment in the portfolio was done by investing in 15 different NYSE stocks from 8 different industries with the total of $700,000. 250,000 was invested in bonds and remaining 50,000 in money market mutual fund.
The primary objective of this portfolio is to increase my understanding in portfolio management, efficient market, various returns and risks from investing, various decision making factors for stock selection and portfolio protection using derivative securities.
The US stock market is expected to be an efficient market in the world. Information is widely available in the market to many participants at approximately the same time as information is reported on media. Even though its not costless its usually included as cost of business. Information is largely generated randomly so investors in this market can adjust security prices very quickly. Prices reflect fully all available information.
Financial securities are assets that carry risk and return. The stock market consists of high risk securities and low risk securities like blue chip stocks. While low risk securities could be used to minimize the risk involved with the stock, high risk securities tends to offer high yields for investments. Some of the risks involved with securities are
interest rate risk, market risk, inflation risk, and business risk. Total risk that any financial asset carries is the composition of two risks. One is the systematic risk (also known as general risk or market risk), which is the risk that can not be diversified by domestic diversification, but can be lowered with international diversifications. Second type of risk is the specific risk, which is specific to a particular security issue, and can be diversified.
Building stock portfolio consist of two steps;
1. Asset allocation
2. Security Selection
Through the security...