Showing posts with label learning. Show all posts
Showing posts with label learning. Show all posts
Monday, July 26, 2010
Diversification is a strategy to reduce a portfolio's exposure to risk by investing across different asset classes. Investments like stocks, bonds and real estate respond differently to different economic situations. So, if an asset class is not performing well, your entire portfolio is not affected.
The aim of a well-diversified portfolio is to mitigate risk, yield stable returns and provide ample liquidity. It is unwise to put all your eggs in one basket. Diversification involves investing your money across various asset classes.
Here are a few pointers for a well-diversified portfolio:
The aim of a well-diversified portfolio is to mitigate risk, yield stable returns and provide ample liquidity. It is unwise to put all your eggs in one basket. Diversification involves investing your money across various asset classes.
Here are a few pointers for a well-diversified portfolio:
Balance investments:
Have you invested heavily on a particular stock? If so, you are taking a tremendous risk. Reduce the size of any large investment that could pull down the performance of your entire portfolio.
Tread with caution when it comes to adding risky investments to your portfolio.
Balance risk and goal:
Your goal, risk appetite and investment objectives determine the extent of diversification. Diversify across different asset classes. Is your portfolio over-weighed by bonds?
Consider increasing exposure to other asset classes like stocks, precious metals and real estate. A well-diversified portfolio will not be drastically influenced in value and returns under fluctuating economic conditions.
Diversify within asset class:
Take for instance stocks. You can invest across different sectors like FMCG, pharma, bio-technology, energy, BFSI and utilities.
So, if banking sector is undergoing a lull, it wouldn't adversely reflect on your portfolio performance. Similarly, invest across different market caps.
Allocate percentage:
A general guideline is to allocate the same percentage of your corpus as your age to conservative investments like bonds and the remainder to riskier assets like stocks. If you are 30 now, invest 30 percent in bonds and the rest in stocks.
This guideline merely indicates that you must invest in high risk, high returns instruments when young and migrate to low risk, stable returns as you grow older. Professionally-managed mutual funds are a good choice for investors who do not have time for market research.
Dangers of over diversification: Over diversification could start adversely impacting your portfolio's returns. If you are invested in stocks of 10 different companies that are from across different sectors that have low correlation, your portfolio is well-diversified.
On the contrary, if your portfolio contains stocks of 25 different companies, your portfolio could be plagued by excessive diversification. While you wouldn't be impacted by a fall, you wouldn't gain much either in good time. Further, it is difficult to manage and keep track of numerous stocks and investments in an over-diversified portfolio.
Tread with caution when it comes to adding risky investments to your portfolio.
Balance risk and goal:
Your goal, risk appetite and investment objectives determine the extent of diversification. Diversify across different asset classes. Is your portfolio over-weighed by bonds?
Consider increasing exposure to other asset classes like stocks, precious metals and real estate. A well-diversified portfolio will not be drastically influenced in value and returns under fluctuating economic conditions.
Diversify within asset class:
Take for instance stocks. You can invest across different sectors like FMCG, pharma, bio-technology, energy, BFSI and utilities.
So, if banking sector is undergoing a lull, it wouldn't adversely reflect on your portfolio performance. Similarly, invest across different market caps.
Allocate percentage:
A general guideline is to allocate the same percentage of your corpus as your age to conservative investments like bonds and the remainder to riskier assets like stocks. If you are 30 now, invest 30 percent in bonds and the rest in stocks.
This guideline merely indicates that you must invest in high risk, high returns instruments when young and migrate to low risk, stable returns as you grow older. Professionally-managed mutual funds are a good choice for investors who do not have time for market research.
Dangers of over diversification: Over diversification could start adversely impacting your portfolio's returns. If you are invested in stocks of 10 different companies that are from across different sectors that have low correlation, your portfolio is well-diversified.
On the contrary, if your portfolio contains stocks of 25 different companies, your portfolio could be plagued by excessive diversification. While you wouldn't be impacted by a fall, you wouldn't gain much either in good time. Further, it is difficult to manage and keep track of numerous stocks and investments in an over-diversified portfolio.
Monday, July 26, 2010 Comments
Sunday, July 4, 2010
So this is the way the quarter ends: not with a whimper but with a bang.
First investors had their hair set on fire by the "flash crash" of May 6. Then came the jolt of June, as stocks lost another 5.2% and finished the month with five down days in a row.
As usual, the markets made a monkey out of anyone who had been certain about what had to happen next.
Europe is in worse shape than the U.S., said the consensus this spring—and, right on cue, European stocks outperformed the U.S. market sharply in June. Treasury securities, legions of experts declared earlier this year, were doomed to lose money—and promptly boomed, with long-term U.S. government bonds gaining 8% last month and 23% year-to-date. And even as the housing market faltered again, real-estate stocks did slightly better than U.S. equities overall.
Meanwhile, volatility burst back onto the scene. The widely followed "fear gauge"—the CBOE Volatility Index, or VIX—nearly tripled from April to May, after a long decline from the jagged days of late 2008 and early 2009. After falling back in early June, the VIX spiked again in the final days of the month.
Investors have taken note. On June 30, according to IndexUniverse.com, iPath S&P 500 VIX Mid-Term Futures, which tracks futures contracts on the volatility index, was the fastest-growing exchange-traded product in the country. It grew by 25% on that day alone, taking in $128 million from investors hoping to profit from the spike in turbulence. The iPath instrument has returned 9% over the last month and was up 46% in the second quarter, according to Morningstar, the investment-research firm.
Meanwhile, although figures aren't in yet for June, trading activity by clients at Charles Schwab was up 17% in May from April—which, in turn, was up 12% over March. At TD Ameritrade, the average number of daily transactions has grown at about 14% over the same period. "There are more people trading," says Jay Pestrichelli, a managing director at TD Ameritrade, "and there are more people trading options to try to take advantage of volatility."
Before you join the crowd trading on turbulence, there are a few things you should know.
First, while volatility provides a close mirror image of current returns, it is a poor forecaster of future returns. Robert Engle, a finance professor at New York University who shared the 2003 Nobel Prize in economics for his research on volatility, warns that "there really isn't any predictability in that direction." He explains, "Even though volatility tends to be high in bad markets, that doesn't mean the market is going to keep going down—it just means the market has been going down."
Prof. Engle adds that periods of high—or low—turbulence don't persist indefinitely. "When you're in a stormy period, there is a tendency for the storm to end," he says. "But it's not a very strong effect, and it can take a long and uncertain time." It is possible to forecast volatility "in general," says Prof. Engle, "but there's a lot of uncertainty around those forecasts."
In short, "volatility has a volatility of its own," says finance professor Robert Schwartz of Baruch College at the City University of New York. That is precisely why the prices of the various products based on the VIX vary drastically over time.
Just as you are likely to add earthquake coverage to your insurance policy after—but not before—the ground has been shaken, the VIX typically goes up as stocks go down, and vice versa.
Investors have a chronic habit of chasing any asset that rises and fleeing it when it falls, even though they should become less willing to buy into whatever grows more expensive and more eager to pick up whatever gets cheaper. (Just think of how much happier you were to hold stocks three years ago than you are today.) The surging interest in trading on turbulence seems to be working much the same way. As volatility has become more costly to "own," more people want to buy it. When it was cheaper, it went begging.
There is little doubt that adding some volatility insurance to your portfolio is a good idea. But the time to do so is when most other investors have no interest in it—not when it is in the midst of a sudden burst of popularity. If you want to capitalize on volatility, wait until markets are calm, not stormy, and the prices of the various VIX products come down. Right now, Prof. Engle says, "it's insurance, but it's gold-plated insurance."
Sunday, July 4, 2010 Comments
Tuesday, June 29, 2010
New Delhi: The popular perception is that companies in India are taking jobs away from Americans but the numbers on the ground tell a different story.
In the last five years alone, 90 Indian companies have created 16,576 jobs in the US by investing $5.5 billion in new companies and saved over 40,000 jobs by making 372 acquisitions and investing $21 billion (for 272 deals).
These were some of the interesting findings of a recent study on How America Benefits from Economic Engagement with India by the India-US World Affairs Institute of Washington, the Robert H Smith School of Business, University of Maryland and the Federation of Indian Chambers of Commerce & Industry.
These were some of the interesting findings of a recent study on How America Benefits from Economic Engagement with India by the India-US World Affairs Institute of Washington, the Robert H Smith School of Business, University of Maryland and the Federation of Indian Chambers of Commerce & Industry.
Authored by Professor Vinod Jain of the University of Maryland and Kamlesh Jain, director of research & education at the India-US World Affairs Institute, the study covers India's foreign direct investments into the US and US exports to India, as well as an assessment of their impacts on the American economy.
Indian companies have been investing abroad, including in the US; with the rise of India Inc., the magnitude and impact of such investments have increased. Some Indian companies to which work was being outsourced earlier are now 'insourcing' such jobs within the US itself, using American workers to perform value-added work.
More than two-thirds of the $5.5 billion of the greenfield investments in the US were made by 10 companies: Essar Steel, JSW Steel, TCS, Welspun Group, Reliance Adlabs, Indage Group, HCL, Flag Telecom, RIL, and Tata Communications. Over 40,000 jobs were created or saved by 85 acquisitions (data for which was available); the number of jobs saved for 372 transactions would be much higher.
Between 2004 and 2009, US exports to India grew 269 per cent, while India's exports to that country grew 136 per cent. US exports to India have grown faster than exports to all other countries. In 2009, India was United States' 17th largest goods export market, and 15th largest supplier of goods imported into the US. Interestingly, in the 1700s, America traded more with India than with all of Europe combined.
The US exports high-tech products such as aircraft, electrical machinery, optic and surgical instruments, chemicals, plastics, pharmaceuticals, vehicles, and railway stock and traffic signal equipment. With the US-India civilian nuclear agreement, US exports to India are likely to grow even faster in the coming years, creating more jobs in the US.
Just manufactured exports to India were linked to 96,000 manufacturing and non-manufacturing jobs in the US in 2009, the study estimates. These numbers do not include agricultural, mining, and services exports, which have their own implications for jobs in the US. For instance, in 2007, the US exported services worth $9.4 billion to India, compared to the goods worth $15 billion that are the focus of this study.
The 2.57 million Indian-Americans also contribute to the US economy and society in many ways. According to a recent survey by the US Census Bureau, there were 231,000 businesses owned by Indian Americans in 2002, which employed 615,000 workers and generated over $89 billion in revenues. Indian immigrant entrepreneurs have founded more engineering and technology companies during 1995-2005 than immigrants from Britain, China, Japan, and Taiwan combined.
Currently, there are almost 10,000 Indian-American owners of hotels/motels in the US, who own 40 per cent of all hotels in the US and 39 per cent of all guest rooms, and employ over 578,600 workers. There are about 50,000 physicians (and 15,000 medical students) of Indian heritage in the US.
Education is one of America's finest exports. The foreign students who come for higher studies to the US not only bring talent, but also contribute to the US economy via tuition and living and other expenses. India has had the largest number of foreign students in the US among all countries of origin for eight years in a row. In 2008, there were 94,563 students from India, who contributed $2.39 billion to the US economy.
The other benefits of engaging with India include noble laureates like Har Gobind Khurana (Medicine, 1968), Amartya Sen (Economics, 1998), CEOs in several corporations like Indra Nooyi (PepsiCo), Vikram Pandit (Citigroup), educators like Pradeep Khosla (dean of engineering, Carnegie Mellon University), Nitin Nohria (dean, Harvard Business School), and journalists like Fareed Zakaria (editor, Newsweek), to name a few.
Business Standard
Tuesday, June 29, 2010 Comments
Friday, June 11, 2010
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Francis Bacon (1561 - 1626)
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Friday, June 11, 2010 Comments
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