Why build an investment portfolio

Many people invest in “single hanging” one stock, and after holding it for a period of time, they continue to “hang it alone” with another one. However, we see that institutional investors all hold stocks in the form of portfolios, so why should they set up portfolios? Let's talk to everyone today.

First, portfolios can spread risk; we've all heard of not putting all your eggs in one basket. Furthermore, in behavioral finance, it is described that most people have excessive self-confidence behavioral biases, and are more willing to invest in things they are familiar with, especially when their company or industry is booming, such as when LeTV employees buy LeTV, and Kangde new employees buy Kangde Xinran and Enran employees. But then the black swan came, and these three waves of employees burst into tears of joy! There are none. Investment portfolios can prevent investors from losing money in the first place.

Second, there is often a close relationship between risk and benefit. Here, let's talk about the famous modern asset mix theory. In this theory, volatility represents risk, and yield represents return. Each asset has a set of volatility and yield data, and a combination of assets also has a set of volatility and yield data. By counting various combinations of data and marking them on a coordinate axis, in this graph, the vertical coordinate is the yield, and the horizontal coordinate is the fluctuation rate, so a graph of the relationship between return and risk of the asset portfolio can be obtained. As can be clearly seen from the chart, the leftmost combination has the least volatility when the yield is the same. If you connect these combinations, you can get a famous curve, called the combinatorial frontier curve, also called the effective frontier.

This sounds complicated, but what's the use of this curve? Don't worry, I marked two dots on the picture and you'll see. The volatility of point A and point B in the chart is 0.18, which indicates that the risk of these two combinations is the same, but the yield of point A is significantly higher than point B. This means that although the risk of A and B is the same, the return of the A combination is higher. With this concept, we can choose A portfolio investment if we accept the same level of risk.

Of course, you might say retail investors simply can't make this picture. However, once you have this kind of concept, you have an overall view. The focus changed from the rise and fall of individual stocks to a focus on the risks and benefits of the portfolio. What effect would this have? If there are 10 stocks in the portfolio and 2 of them continue to rise, this is enough for the portfolio to grow for a long time. And if you “sell” one stock every time, you need every stock to make money if you want to make a profit continuously.

At the same time, holding stocks in a portfolio is more beneficial for recovering investment results. It is clear which stocks are driving the growth of the portfolio and which stocks are lagging behind.

Finally, building your own portfolio is actually a creative process where you'll be more aware of your preferences and the results of how they perform in the market. Continued improvement of the portfolio will also drive you to learn more about finance and lead to a more professional path.

OK, that's all there is to this issue. Here is the US and Hong Kong Stock Watch. I hope everyone can build an investment portfolio they are satisfied with.

$AMC Cinemas (AMC) $ $AMD (AMD) $ $Wanchun Pharmaceutical (BYSI) $ $BlackRock Fund (DSU)