Introduction
Economic environment is very dynamic and full of uncertainties. According to Bhalla (2010), investors chose to find a way of diversifying their investment pattern to help spread the risks. Choosing of the best portfolio should take care of both systematic and unsystematic risks (Markowitz 2013). Majorly unsystematic risk takes higher preferences when deciding on which are to invest. Managers that are risk takers go for risky investments, to get a higher return (Bhalla 2010). Generally, there is a need to have optimum portfolio that will thrive at all times of economic problems, in the present or the future (Markowitz 2013).
Body
Since there is a unique risk in every industry, there is need of choosing companies from different industries to take care of unsystematic risks (Porter 2009). Banking industry faces different risks from the supermarket industry, and locomotive industry. GKN is a firm with high risk with high return as well. This poses a serious risk if stands as a single investment as it may fail. To solve this problem, a successful firm or industry needs stability to act as a buffer in case of failure.
Conclusion
The best firm will be HSBC that has a low risk though with low return. Markowitz (2013) believed that when choosing a portfolio, investors are supposed to take care of the unsystematic risk by ensuring that they spread industries geographically (Markowitz 2013). HSBC that which is outside UK may save the investor in case the economic environment in UK becomes unfavorable to the other three industries. Tesco is the defensive stock among the other three stocks, while GNK, HSBC, and Lloyd are very aggressive. This forms the best portfolio stock as it takes care of all the above considerations (Markowitz 2013).
List of References
Bhalla, V 2010, Investment Management, New Delhi.
Markowitz, M 2013, “Portfolio Selection,” The Journal of Finance, Vol. 7 pp. 77-91.
Michael, P 2010, “The Five Competitive Forces that Shape Strategy,” Harvard Business Review, Vol. 2 pp. 104.
Porter, M 2009, Competitive Strategy, New York, Free Press.
