Equity markets 2c

Why is liquidity important
Allows to close the position quickly and without a significant influence on the
price
Volume
Liquid markets:
Deep
Safe
Intuition
With the same expected return do you prefer risky
or riskless asset?
What does the risky asset give you that the riskless
cannot?
You are a stock market investor: would you add to your portfolio
- a stock that earns in market boom or
- a stock that earns in market downturn?
B
r ( x ) = w × r + w × r
T
Diversification
Portfolio approach
it's not about the riskiness of asset
that is added to the portfolio
But about the impact of this asset on the portfolio risk - return profile
Equity Risk Management
When buing a share one takes:
◦ Equity market risk
◦ Company's specific risk
First way of risk management is always to:
MITIGATE
Two approached to stock investing
Stock picking
- selecting the companies one by one
Index investing
- investing in wide range of shares, adjusted by overweigting/underweighting
specific sectors or shares
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