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Educational Series: Simplifying Complex Investment Theories for Better Understanding In an era marked by information overload & complex financial markets, understanding the core principles of investment theories is paramount for investors, fund managers, RIAs, and family offices alike. 1. Modern Portfolio Theory (MPT): At its heart, MPT is about achieving the best possible return for a given level of risk. Simplified, it suggests diversifying your investment portfolio across various assets to reduce risk without sacrificing potential returns. Think of it as not putting all your eggs in one basket but spreading them across several baskets to minimize the loss if one falls. 2. Efficient Market Hypothesis (EMH): EMH proposes that stock prices reflect all available information, making it impossible to consistently achieve higher returns. In simpler terms, it argues that beating the market is largely a matter of luck rather than skill, emphasizing the importance of passive investing strategies like index funds. 3. Behavioral Finance: This theory acknowledges that investors are not always rational and that psychological influences can impact investment decisions. Simplifying this, it’s essential to be aware of emotional biases (like fear of missing out or reluctance to accept losses) that might lead you astray and focus on long-term investment strategies instead. 4. Dividend Discount Model (DDM): DDM values a stock by predicting dividends and discounting them back to their present value. Essentially, it’s like calculating the present worth of all the money you expect to receive from an investment, emphasizing the importance of future cash flows in determining an investment's value today. 5. Capital Asset Pricing Model (CAPM): CAPM helps in determining the expected return on an investment, considering its risk relative to the market. It simplifies to the idea that the riskier an investment, the higher the expected return should be to make it worthwhile. 6. High Yield Low Risk Model (HYLR): HYLR is typically achieved with a synergistic combination of multi-asset classes of investments to provide investors & fund managers with the ability to move quickly to mitigate national, regional & even local risks while simultaneously achieving higher returns than a single asset class investment would bring. Conclusion: While investment theories can seem daunting, their core principles are grounded in common sense: diversify to manage risk, be wary of market unpredictability, understand the psychological factors at play, value investments based on future benefits, and align expected returns with risk levels. By simplifying these theories, we not only make them more accessible but also empower ourselves with the knowledge to make smarter, more informed investment decisions. Let's continue to demystify the complex world of investing together. By Scott Stellmon #InvestmentTheories #FinancialLiteracy #PortfolioManagement #BehavioralFinance #InvestingBasics

Educational Series: Simplifying Complex Investment Theories for Better Understanding In an era marked by information overload & complex financial markets, understanding the core principles of investment theories is paramount for investors, fund managers, RIAs, and family offices alike. 1. Modern Portfolio Theory (MPT): At its heart, MPT is about achieving the best possible return for a given level of risk. Simplified, it suggests diversifying your investment portfolio across various assets to reduce risk without sacrificing potential returns. Think of it as not putting all your eggs in one basket but spreading them across several baskets to minimize the loss if one falls. 2. Efficient Market Hypothesis (EMH): EMH proposes that stock prices reflect all available information, making it impossible to consistently achieve higher returns. In simpler terms, it argues that beating the market is largely a matter of luck rather than skill, emphasizing the importance of passive investing strategies like index funds. 3. Behavioral Finance: This theory acknowledges that investors are not always rational and that psychological influences can impact investment decisions. Simplifying this, it’s essential to be aware of emotional biases (like fear of missing out or reluctance to accept losses) that might lead you astray and focus on long-term investment strategies instead. 4. Dividend Discount Model (DDM): DDM values a stock by predicting dividends and discounting them back to their present value. Essentially, it’s like calculating the present worth of all the money you expect to receive from an investment, emphasizing the importance of future cash flows in determining an investment's value today. 5. Capital Asset Pricing Model (CAPM): CAPM helps in determining the expected return on an investment, considering its risk relative to the market. It simplifies to the idea that the riskier an investment, the higher the expected return should be to make it worthwhile. 6. High Yield Low Risk Model (HYLR): HYLR is typically achieved with a synergistic combination of multi-asset classes of investments to provide investors & fund managers with the ability to move quickly to mitigate national, regional & even local risks while simultaneously achieving higher returns than a single asset class investment would bring. Conclusion: While investment theories can seem daunting, their core principles are grounded in common sense: diversify to manage risk, be wary of market unpredictability, understand the psychological factors at play, value investments based on future benefits, and align expected returns with risk levels. By simplifying these theories, we not only make them more accessible but also empower ourselves with the knowledge to make smarter, more informed investment decisions. Let's continue to demystify the complex world of investing together. By Scott Stellmon #InvestmentTheories #FinancialLiteracy #PortfolioManagement #BehavioralFinance #InvestingBasics

Most sensible investment advice ever. (Mathematically proven) I started investing 3.5 years ago. Started with getting advice from - 1. Youtube videos 2. Random finfluencers 3. Telegram tipsters All of it was exciting at first, sometimes it worked, sometimes it didn't. This unstructured way of learning stopped making any sense. How can this be so easy? But seeing my tiny net worth move so quickly made me develop an interest in finance. To understand investments and finance, I planned to be more structured. So, I decided to pursue the CFA program. After clearing Level 1, The only investment advice that ever made perfect sense to me IS NOT - → Invest with a long term horizon → Invest in what you understand → Fundamental/Technical Analysis Each one of the above has its good and bad points. But the one advice I found to make perfect sense and is timeless is - "DIVERSIFY" Diversification makes sense mathematically (because of correlation). Correlation measures the degree to which two assets move in relation to each other. (Google if you wanna see the formula) Investing in uncorrelated (or negatively correlated) assets will reduce overall risk. This is a certainty and will always stand true. Now finding uncorrelated assets might be a challenge, but that's a different discussion. Also it may happen that the strength of correlation might change from time to time. And it will affect your overall risk. Correlation is not causation. But still it’s a pretty cool (useful) thing to have in the back of your head while making investment decisions. If you wanna take investing seriously, you need to go in deep. Surface level knowledge doesn't last long. ------------------------- Follow Mayank Rai for more such content. Repost for your connections ♻️ Comment your thoughts below 👇

My personal investment philosophy is very different than "modern" portfolio theory. Modern is in quotes because it was developed in 1952. 𝐓𝐡𝐞 𝐄𝐧𝐝𝐨𝐰𝐦𝐞𝐧𝐭 𝐌𝐨𝐝𝐞𝐥 focuses on a disciplined approach to investing, emphasizing long-term growth, diversification, and value. Here are the four key principles, I'll elaborate on each one: 1. Asset Allocation Over Stock Picking: Focus: The primary focus is on asset allocation rather than individual stock selection. The idea is that the decision of whether to be in stocks, bonds, commodities, or other asset classes has a much more significant impact on returns than the selection of individual securities. Categories: This includes deciding the proportion of investments in equities (stocks), fixed income (bonds), real estate, commodities, currencies, and alternative assets such as private equity and venture capital. 2. High Equity Commitment: Equity Types: This commitment extends beyond traditional public equities to include a wide array of equity investments. Examples: Real estate equity (investments in properties), commodity equity (ownership stakes in companies dealing with physical goods), private equity (investments in private companies), and venture capital equity (early-stage investments in startups). 3. Time Horizon Arbitrage: Long-Term Perspective: Endowments, foundations, and multi-generational families often have perpetual investment horizons, allowing them to take advantage of long-term opportunities. Illiquidity Premium: By investing in less liquid assets, these investors can capture an illiquidity premium, which is the additional return expected for holding assets that cannot be easily sold. 4. Value Investing: Buy Below Fair Value: The model emphasizes purchasing assets that are undervalued relative to their intrinsic value. Avoid Speculation: It discourages speculative investments and focuses on fundamental value, aiming to avoid overpaying for assets. Free Reminder: The biggest driver of an individuals returns is their savings rate.

Publication forthcoming in the Journal of Financial Economics! I am incredibly excited to announce that my study “Ambiguity and private investors’ behavior after forced fund liquidations”, joint work with my co-author Steffen Meyer, has been accepted and is now forthcoming in the Journal of Financial Economics! What are we doing in our study? We asked ourselves the following question: If there are periods with high ambiguity (uncertainty) in the stock market and when controlling for volatility, are investors becoming reluctant to invest in the stock market? We use a dataset from real-world investors at a German bank who are exogenously closed out of mutual funds on days with high or low ambiguity (VVIX) and get the invested amount reimbursed in their cash account. Using this setting, we investigate how much they reinvest out of those refunds. As they did not actively sell the funds, we would assume that they fully reinvest the amount in a similar fund. We find that investors reinvest 87% of forced liquidations when the refund occurs on a day of low ambiguity and 0% on a day of high ambiguity. Hence, investors become inert instead of reinvesting when ambiguity is high and keep the refund in their cash holdings. The effect reverses approximately six months after the liquidation. If investors reinvest, they decrease their risk-taking under ambiguity. Our results are not driven by risk, rebalancing decisions, experiencing losses, or attention and are robust to alternative ambiguity measures. The paper is open access and available at: https://lnkd.in/dT2tux6H Aarhus BSS - Aarhus University Aarhus University

Having been around the block a few times regarding portfolio construction and rebalancing, I have had my share of mistakes, missteps and misguided assumptions. It turns out that what makes sense in textbooks and academia does not always apply “In the Moment(um)”. Here in lies a major frustration for investors (and me). Textbook investing and “In the Moment(um)[i]” investing both have their place and time, it’s just not the same place and time. My Lesson: While patience is a virtue, one must evolve or be left behind. Hear me out... https://lnkd.in/g27mbdKU

I’ve been learning about F.I.R.E. for quite sometime, and wanted to share this simple, commonly recommended, and beginner friendly investment strategy that anyone can do. This is only for people based in the US. I hope this can be a starting point to setup an investment plan for career starters or anyone who thought investment is hard. Let me know if it’s helpful! Anything else to suggest for beginners? Here's a visual flowchart of how to manage money for beginners: https://lnkd.in/gmWbpYMq #financialindependance #personalfinance #financialfreedom #investment

The 3 Best Investments for Busy Professionals You want to invest but you don’t have the time to keep monitoring and checking your investments, here are investments options that don’t need much of your time or monitoring: ➡️1. Commercial paper This is lending to big corporates at very attractive rate. Returns: 20%+ Minimum Amount: 5M Duration: 6 or 9 months Risk level: Medium How to: Use Afrinvestor 2.0 or contact a broker ➡️2. Treasury Bill This is lending to the government. Returns: 15%+ Minimum Amount: 100k Duration: Less than one year Risk level: Low How to: Use Afrinvestor 2.0 or contact a broker ➡️3. High Interest Savings Account This is locking your funds in a bank account or app that pays high rates. Returns: Up to 20% Minimum Amount: 1k Duration: As you wish Risk level: Low-Medium How to: Apps like Optimus by Afrinvest 📌Why these investments? The returns are fixed. From the onset you already know what your interest is. Once you process the investment, move on with your life. On maturity, you get back your money and internet gain. 👉These and many more are what we guide our students to invest in the Wealth Builders Academy, the 3 weeks online school where I hold your hand to start and smash your investment journey. See the link below to join the next cohort. https://lnkd.in/d_tvKdAk Kindly REPOST this for others to read and learn. They will appreciate you❤️

📚 𝟱 𝗘𝘀𝘀𝗲𝗻𝘁𝗶𝗮𝗹 𝗕𝗼𝗼𝗸𝘀 𝗳𝗼𝗿 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿𝘀: 𝗜𝗻𝘀𝗶𝗴𝗵𝘁𝘀 𝗳𝗿𝗼𝗺 𝗠𝘆 𝗥𝗲𝘀𝗲𝗮𝗿𝗰𝗵 📚 In the world of finance, continuous learning is key to staying ahead. Here are five crucial books that can enhance your investment strategies and mindset, based on my personal analysis: "𝗧𝗵𝗲 𝗜𝗻𝘁𝗲𝗹𝗹𝗶𝗴𝗲𝗻𝘁 𝗜𝗻𝘃𝗲𝘀𝘁𝗼𝗿" 𝗯𝘆 𝗕𝗲𝗻𝗷𝗮𝗺𝗶𝗻 𝗚𝗿𝗮𝗵𝗮𝗺 📖 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀: Graham's principles of value investing provide a robust framework for evaluating stocks and managing risks. His timeless advice helps investors build a solid foundation in investment philosophy. 𝘌𝘹𝘢𝘮𝘱𝘭𝘦: Use Graham’s approach to assess undervalued stocks in today's market. "𝗖𝗼𝗺𝗺𝗼𝗻 𝗦𝘁𝗼𝗰𝗸𝘀 𝗮𝗻𝗱 𝗨𝗻𝗰𝗼𝗺𝗺𝗼𝗻 𝗣𝗿𝗼𝗳𝗶𝘁𝘀" 𝗯𝘆 𝗣𝗵𝗶𝗹𝗶𝗽 𝗙𝗶𝘀𝗵𝗲𝗿 📖 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀: Fisher’s focus on qualitative analysis and management quality offers a unique perspective on long-term growth potential. 𝘌𝘹𝘢𝘮𝘱𝘭𝘦: Apply Fisher's criteria to evaluate the innovative potential of tech startups. "𝗔 𝗥𝗮𝗻𝗱𝗼𝗺 𝗪𝗮𝗹𝗸 𝗗𝗼𝘄𝗻 𝗪𝗮𝗹𝗹 𝗦𝘁𝗿𝗲𝗲𝘁" 𝗯𝘆 𝗕𝘂𝗿𝘁𝗼𝗻 𝗚. 𝗠𝗮𝗹𝗸𝗶𝗲𝗹 📖 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀: Malkiel’s overview of investment strategies and market efficiency emphasizes the importance of diversification and informed investing. 𝘌𝘹𝘢𝘮𝘱𝘭𝘦: Use Malkiel’s insights to create a balanced portfolio that mitigates market risks. "𝗥𝗶𝗰𝗵 𝗗𝗮𝗱 𝗣𝗼𝗼𝗿 𝗗𝗮𝗱" 𝗯𝘆 𝗥𝗼𝗯𝗲𝗿𝘁 𝗧. 𝗞𝗶𝘆𝗼𝘀𝗮𝗸𝗶 📖 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀: Kiyosaki’s book challenges traditional views on money and financial education, offering practical advice on personal finance and investing. 𝘌𝘹𝘢𝘮𝘱𝘭𝘦: Leverage Kiyosaki’s principles to develop a more proactive approach to wealth-building. "𝗧𝗵𝗶𝗻𝗸𝗶𝗻𝗴, 𝗙𝗮𝘀𝘁 𝗮𝗻𝗱 𝗦𝗹𝗼𝘄" 𝗯𝘆 𝗗𝗮𝗻𝗶𝗲𝗹 𝗞𝗮𝗵𝗻𝗲𝗺𝗮𝗻 📖 𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀: Kahneman’s exploration of cognitive biases is crucial for understanding and improving decision-making processes in investing. 𝘌𝘹𝘢𝘮𝘱𝘭𝘦: Use Kahneman’s insights to recognize and counteract emotional biases that could affect your investment choices. Have you read any of these books? What are your other top recommendations for investors? Share your thoughts and insights in the comments! ⬇️ #Investing #Finance #InvestmentBooks #InvestorEducation #FinancialLiteracy #ValueInvesting #MarketAnalysis #InvestmentStrategies #FinancialEducation #PersonalFinance

At Cambridge Partners we utilise Modern Portfolio Theory with our evidence-based investment approach. This means systematically reviewing, appraising and implementing academic research findings to provide optimal investment solutions. https://lnkd.in/gSimZe7s