Conventional Wisdom Asset Mix Essay
3. Benjamin Graham Asset Allocation
CONVENTIONAL WISDOM ASSET MIX.
The Conventional Wisdom Asset Mix, focuses around the risk appetite and investment horizon of individuals or corporate organisations.
The conventional wisdom asset mix assumed individuals or investors are either risk averse or have greater tolerance to take risk . If investors are properly classified in this regard then the choice of asset mix will tilt in same proportion. For example , return on stocks is higher than bonds, because bonds are less risky than stocks . Other things being equal, if investor is classified as being risk or savvy, then his portfolio mix will have more of stocks than bonds and vice versa .
On the other hand, if …show more content…
3. FORMULATION OF PORTFOLIO STRATEGY
After investors have successfully made their choice asset mix, then come next is the strategy. There are two strategies available for investors, they are
• Passive Portfolio Strategy
• Active Portfolio Strategy
Both strategies are centred on market efficiency or inefficiency assumptions. The active portfolio strategy is based on the assumption that the capital market is inefficient so investors can capitalise on this by using any of these 4 principal vectors (1. Market timing, 2. Sector rotation 3. Security Selection 4. Use of specialised concept
Passive portfolio strategy assumes market is fairly efficient as such the search for superior return in active trading strategy is considered futile, however, they suggest or recommend that
• Assets in the investors’ s portfolio should be well diversified in line with acceptable risk or tolerance of the investors.
• Hold assets in the portfolio for long time so long as risk- return on the portfolio is consistence with investors’ preferences.
4. SELECTION OF