Portfolio Risk
Portfolio Risk
If I wanted to buy shares at a local business in the Nashville region, the initial step is to conduct a market analysis of the companies in the region. The market analysis will focus on the price of the investment. Moreover, I will also consider the performance of the business by focusing on the growth of the potential companies I would possibly invest the funds. Growth is important as it shows the ability of a business entity to multiply the investment and increase the revenue expected from the investment. Conducting a market analysis will involve the evaluation of the published financial statements of the companies that interest me. These financial statements are often available to the public after the completion of every financial year (Connor, Goldberg, & Korajczyk, 2010, p. 2). After selecting the best company for investment, the first step of making an investment is to find a stockbroker who conducts the business on my behalf. The broker understands the nature of the financial markets, and he or she is in a good position to determine the appropriate time of purchasing or selling the shares in the market. The second, and most important step, is to make an investment using a particular fund. Instead of selecting bonds and shares individually, the fund will enable me to invest in a variety of assets. The variety is important for minimizing the risk involved in cases where one of the financial assets fails to perform well. Given that my decision was to invest in shares, the mix chosen will include both ordinary and preference shares.
The sector of the industry I would invest in is the automobile industry. One of the most prolific companies in the Nashville region is the Firestone Tire and Rubber Company. The company was set up in 1900 for the manufacture and supply of pneumatic tires usable by buggies, wagons, and other various forms of transport mechanisms that use wheeled transport. The specific investment in this sector is to use the fund to buy shares at the company at the price advised by the broker. The price at which I buy the shares in buy will be the cost of the investment and the extra amount realized on selling them will be the profit of the investment. The risk posed by this investment is the stagnation or decline of the share prices because of the conditions within the market (Thomsett, 2008, p. 3). If the prices fall below the price of the purchase, then there is a possibility of losing all the funds invested within the portfolio. However, I think the investment in shares at the Firestone Tire Company have less risk because the company produces tires used by vehicle manufacturers. The market is relatively stable because the demand and supply of vehicles are often stable in the market.
DJIA stock is high volatile because of the nature of the trade. Volatility increases the risk element of the stock because the rate at which the prices of the stock fluctuates is high. Fluctuations make it difficult for the stockbroker to predict the price of the shares with precision (Thomsett, 2008, p. 3). Therefore, the chances of losing the entire invested are high. On the other hand, Firestone Company is not in a very volatile market. It is not easy for the price of vehicles to shift significantly unless three are unexpected market conditions affecting the consumers on a global scale.
References
Connor, G., Goldberg, L., & Korajczyk, R. (2010). Portfolio Risk Analysis. Princeton: Princeton UP.
Thomsett, M. (2008). Winning with Options: The Smart Way to Manage Portfolio Risk and Maximize Profit. New York: AMACOM.
