Investment and Analysis - Essay Example

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Investment and Analysis

I would like to point out that the conventional wisdom of wisdom may not necessarily break down in situations of extreme market volatility. This is because making investments is all about diversifying in the right manner using the relevant tools. In 2008 and 2009, there was the occurrence of a serious stock-market cataclysm that led to massive loss of wealth in the US. Market reports estimated that investors lost approximately $6 trillion worth of wealth. The stock-market cataclysm not only led to massive loss of wealth but also eroded investor’s faith in the conventional wisdom of diversification. However, the failure of the diversification does not arise from the concept of diversification itself. This is because diversifying investments does work especially when done with the appropriate tools. In the newspaper excerpt, the writer noted that there is a tendency of assets correlating hence limiting the opportunity for investors to diversify. Investors who record losses during periods of high market volatility are the ones who do not manage to establish a well rounded portfolio. A well rounded portfolio consists of assets that do not have the tendency of swinging up and down in correlation with each other. This means that investors need to diversify their assets to include those that have very the least correlations.In recent times, starting from the year 2000, investors who have diversified their investments among companies that have different sizes have managed to record positive gains. ...Show more


Topic: Investment and Analysis Name Professor Institution Course Date Modern Portfolio Theory The theory of modern portfolio implies that investor’s decision to address market risks is based on the fact that there are different combinations of investments in a portfolio…
Author : kristianmetz
Investment and Analysis essay example
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