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Securities Analysis and Portfolio Management (assignment)
Finance & Accounting
Pages 11 (2761 words)
In September 2010 Simon reviewed his equity portfolio, which was then valued at 4 million. Simon had been much impressed by a biography of Warren Buffett and had take to heart the principle that “Buying quality is always the cheapest in the long run.” …
Simon’s stockbroker is Louis who does not believe in making unnecessary changes to portfolios. Apart from some rebalancing after the initial impact of the credit crisis to make each of the ten holdings approximately equal in value at the time the portfolio has been largely unchanged for several years. Louis is no longer working as a stock broker and Simon is now using the services of Cheryl who has strong views about Simon’s portfolio. Cheryl, a graduate in finance from York University, believes that markets are essentially efficient and admires the work of Harry Markowitz and Fama and French. She believes that the important thing is to have a good portfolio rather than good individual investments. Cheryl tells Simon that she doesn’t feel that he even has the best companies now even if they had been when the portfolio had been set up. Cheryl goes on to say that that a good portfolio needs to include exposure to overseas companies and smaller companies thus reducing the “beta” and improving the “alpha” of the portfolio. Cheryl also argued that it is vital to watch the “momentum” and have stop-losses on all the holdings in order to protect against primary downside movements. Simon is very concerned about his share holdings after talking to Cheryl and has approached you for advice. You ascertain that Simon, who doesn’t work, is 65 years old and is receiving a more than adequate income from his existing portfolio. ...
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