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3 Sure Ways To Trump Your Investing Fears
Often times when people here the word "invest" they become frightened. It is probably one of the most misunderstood words on our planet. As a result, many employees as well as other individuals refuse to invest their money in anything other than a...
How to Protect Your Nest Egg While Investing Online
Would you like to know how to protect your nest egg while
investing online? Well, read on and I will explain how I do it.
I'm not trying to hide anything. HYIPs, Rolling Maturity Date
HYIPs, Slow-rolling HYIPs all have their drawbacks. The...
Real Estate Investing-Starting Right Is Key to Profits
You've heard of the potential payoff from real estate investing.
The good news is, it's true! The bad news is, it won't happen
for most people. Why? They have unrealistic expectations. Real
estate investing isn't a "get rich quick" endeavor,...
Real Estate Investing Works In Your Area Too!
I hope you had a spectacular weekend!
Things have been going great here at Investor Wealth Academy, and we are very excited about some major developments coming down the line for us later this summer.
More on that later.
Last Friday I was...
Students investing in their future need to manage their finances today
With the A-level results coming out, the long wait for UK school leavers hoping to go to university will soon be over. All the hard work that has been put into achieving the grades required will now pay off and the fun and freedom that is student...
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The Capital Asset Pricing Model of Stock Investing (CAPM)
In 1990 Harry Markowitz, Merton Miller, and William Sharpe
shared the first Nobel Prize in the very young area of financial
economics. The Nobel committee recognized Harry Markowitz for
developing portofolio theory, Miller for the theory of corporate
finance, and Sharpe for the Capital Asset (stock market) Pricing
Model also known as CAPM.
CAPM was the crowning acheivment of theoretical economists bent
on proving that markets are efficient and work together
mathematically with the precision and elegance of a Rolex watch.
In the 1980s, researching financial economists began to notice a
slew of empirical results that are not consistent with the view
that stock market returns were determined in accordance with
CAPM and stock market efficiency.
It is useful for you to understand what CAPM is because you will
read or hear about it as you progress as a stock market
investor. CAPM is a regression model designed to separate out
the general stock market price changes from price changes
specific to a given stock. The general stock market price change
is called unsystematic risk. An investor can get the same return
as the general stock market buying a mutual fund that is indexed
to the stock market such as the Vanguard 500 fund (symbol
VFINX). For this reason the amount of profit you receive on a
specific stock that is as much as the stock market
indexes is
said to not be priced into the stock in terms of the risk you
are taking. The amount you make or lose on a given stock as
compared to the stock market averages is considered to be priced
by investors to compensate for the additional risk you take in
buying stock in a single company instead of a fund indexed to
the stock market. The profit or loss that you receive as
compared to the stock market is called systematic risk. The
capital asset pricing model measures systematic risk with a
regression coefficient called beta. When I talk about beta now
you know what it is; it is nothing more than a measure of
additional potential return an investor should receive for
purchasing a single stock based on how risky that stock is. I
want to emphasize that CAPM is based on the notion that the
stock market efficiently translates all information known about
the stock market into stock prices for stock investing purposes.
About the author:
Dr. Brown can teach you how to invest through The Delano Max
Wealth Institute (www.DelanoMax.com). He is dedicated to
providing you with courses and seminars that teach prudent
savings and investing habits. Dr. Brown is also a finance
professor at the University of Puerto Rico at Rio Piedras. He is
also recognized as an expert at low risk, high return investing
and takes great pride in helping others retire safely.
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