Skip to main content

Put all Your Eggs in One Basket!!

The classical portfolio management theories like Markowitz Portfolio Theory and The Efficient Frontier suggest that investment in financial assets must be done in such a way that return from one asset offset the return from another asset. By doing so, investor will be indifferent about the economic cycle and the overall return from the asset will be better in the long run. Hence these theories suggest investors that if any investor want to be better off from their investment they should simply: 
Don’t put your all their eggs in same basket.
Of course it’s easy said than done. There are techniques that should be followed to make the best selection of assets for a portfolio. And no matter how careful an investor is in selecting the assets in portfolio, he/she is not 100% sure that it offsets the risk.

There theories were devised when the things around the world were much simpler. Technology and world market had not expanded so exponentially. The flow of information and its impact in the prices of financial assets were not so immense.

As the development in technology and specifically information technology continues, market failures are becoming more frequent. In current world, there is so rapid flow of information that even the financial intermediaries are unable to keep track of the new information. To make things worse, many Financial Institutions and investors don’t knot know what to do with that information they receive. Further, many suffer with “Knowledge Diarrhea”, a buzz word that has been gaining popularity which means information overload and inability to handle the information.

No portfolio theory or the financial system has been able to protect the investors. Large number of banks, financial institutions and business corporation have given their way to the financial crunches. The list includes many giant companies of the past, which are now just a history.
In the light of these developments there are few questions that everyone should be asking:
  1. Are the financial systems laid out in developed nations right?
  2. Do those portfolio theories still hold true in the context of the world?
  3. Should developing nations follow the financial system of developed nations that have failed over and over again.
These questions have led to development of new concept in the financial market – as “The Economist” suggest:
Put all your eggs in one basket and watch them closely
This concept has emerged simply because no one is able to rightly predict the future trend of the market and even best rated companies have failed overnight.

So if you are going to invest in this rapidly changing world, the best strategy would be to
  • invest in one asset
  • watch its progress closely and 
  • take another position as soon as you see any hiccups in the market
There are probably no other strategies at the current point of time that will protect investors from the financial crunches. However, this is also not a 100% foolproof strategy. But investors following this strategy are seen to be better off than those following the classical strategy.

Comments

Post a Comment

Popular posts from this blog

Newton's Law of Bookkeeping

This is how science and accounting blend together. Newton’s Law of Motion III. “ For every action there is an equal and opposite reaction. ” Double Entry Bookkeeping System: “ For every transaction that happens, there are two effects, one opposing the other, debit and credit. ” According to Newton, whenever objects A and B interact with each other, they exert forces upon each other. When you sit in your chair, your body exerts a downward force on the chair and the chair exerts an upward force on your body. There are two forces resulting from this interaction - a force on the chair and a force on your body. These two forces are called action and reaction forces and are the subject of Newton's third law of motion. ~ The Physics Classroom F­ A = F B The double entry bookkeeping system is the basis of all the transactions that takes place in the world. It is the very foundation of the accounting system which helps to run the business of the world...
Post a Comment
Read more

My Wish in My Rareview

Peope around the world have strange believes. Some are shocking and some very surprising. Some believe that worshipping will make it rain on the field suffering from drought. Some antient people believed that tsunami or hurrican or any natural disaster was the wrath of God due to some ill activities of human. People do believe, and as a universal law of attraction...... 'YOU RECEIVE WHAT YOU BELIEVE'. I had been to Shree Pashupatinath with a good friend of minethis morning. It was my first time with her to any holy place. I just feel so awesome when I go to Pashupatinath Temple. We had been there because its a favourite place of her as well. While we were worshipping around the tample, at a particular spot - she asked me to turn around and look up, towards the GAJUR.  The Gajur was visible throuh a small peek hole created by positioning of many structures within the temple. Only the Gajur was visible through the hole. It looked beautiful. 'Wow its wonderfu', I sa...
Post a Comment
Read more

Time Management Isn't Working Right!! Is it?

For ages we have been focusing on time, “Manage your time”, “Manage on time”, We have been working for 12-16 hours a day; just to get perfectly exhausted and find out we don’t have enough time for family and loved ones. Result: guilty feeling and dissatisfaction which takes toll on us physically, mentally, and emotionally, further leading to declining levels of engagement, increasing levels of distraction, high turnover rates, and soaring medical costs.   The way we are working isn’t working .   In the article “Manage Your Energy, Not Your Time”, Tony Schwartz and Catherine McCarthy propose a new perspective for managing self by managing energy that can be built and expanded rather than finite time. Managing energy will help to increase and regularly improve work capacity .  With their proven rituals, anyone can increase the level of productivity. In other words, do more at less time. However, to succeed, renewal efforts need solid support and commitment from ...
Post a Comment
Read more