Reference no: EM131256359
Discussion Question
Class,
By our initial conversations, I simply assume that all of you have are familiar with or in some way experienced the financial meltdown of 2008-2009, especially in the housing sector. What the likely scenario for most of you is lower valuations of your property, or lower portfolio investment value, with some recovery in the last few years. However, you are still lucky. The financial companies issuing mortgages for inflated house prices or underwriting debt backed by worthless mortgages are still paying a big price for such failures.
That takes us to the second week's discussion topic, which relates to the subject of risk and diversification. In chapter 6, you start reading about portfolio composition and the importance of putting together a diversified portfolio, risk aversion, risk diversification, etc. However, the book also states that simply putting together stocks with high correlation, regardless of number of stocks, will not achieve desired diversification, because you would still be exposed to similar industry risk, despite owning companies that are not similar at all.
The question is, is this assumption correct when it comes to creating a portfolio with companies in the same industry, such as the financial industry? Can you put together a portfolio of diverse financial companies, such as Wells Fargo (WFC), Citi (C), JP Morgan Chase (JPM) and Bank of America (BAC) all in the same industry, yet so different in what they do, and be confident that you have achieved diversification in your portfolio?
You might just dismiss it by saying they are all banks and all banks have suffered and someone with a portfolio consisting of just financial companies would not be even slightly diversified; however, I would like to point to the contrasting paths of now defunct Bear Sterns, Washington Mutual and the definitely much more prosperous Chase and Wells Fargo, same industry but no exact correlation in their performance.
Start by looking at the development of the stock prices for Wells Fargo, Citi, Chase and Bank of America. How have they performed in the past, and most recent years? How have they performed compared against each other? Again, the question is, can you achieve a diversified portfolio by holding companies in the same industry, the financial industry? Your book at different chapters says mostly no, but feel free to argue against that.
|
What is the clock frequency
: A 16-bit successive approximation ADC is to be designed to operate at 50,000 conversions/second. What is the clock frequency? How rapidly must the unknown and reference voltage switches change state if the switch timing delay is to be equivalent t..
|
|
Discuss the relationship between psychopathy and crime
: Describe how to build appropriate bridges between psychology and the justice field where those with deviant or criminal behavior can be appropriately treated given their psychological condition.
|
|
What are the two main rationales for government intervention
: What are the two main rationales for government intervention in employment discrimination? Why have affirmative action programs caused such controversy with the public?
|
|
Business or professional leader
: Watch a speech broadcast on C-SPAN by a business or professional leader. Critique his or her use of gestures, movement, posture, eye contact, facial expression, vocal delivery, and appearance. Using the principles of effective delivery presented i..
|
|
How have students performed compared against each othee
: How have they performed compared against each other? Again, the question is, can you achieve a diversified portfolio by holding companies in the same industry, the financial industry?
|
|
What was organic grocers inventory turnover
: What was Organic Grocers' inventory turnover, and how does that performance compare with that of the industry?
|
|
What are diagnostic criteria for internet addictive disorder
: Describe the research that has been done to determine when children develop a sense of self. At what age do children show a sharp increase in self-awareness? Consider someone you know who comes from a biracial family. What are some of the strugg..
|
|
Error on the gym bid notice
: CUSD caught the error on the gym bid notice three days before the bids were to be received. A day later it sent a notice out by mail to all potential bidders, including Dave's Dry Wall.
|
|
Explain the organizational change or cultural change model
: Analyze Dr. Marsh's challenges and their influence on an organization's culture. Summarize the leadership style you would adopt to influence the organization's culture and why. Explain the organizational change or cultural change model or steps you w..
|