The Master Final Study Guide Compiled TAO

The Master Final Study Guide Compiled TAO - Excess Capacity...

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Unformatted text preview: Excess Capacity Core Needs Higher Por tfolio Risk Active vs. Passive Funds 1) Passive vs. Active funds a) Do the worst active fund continue to be bad active funds? i) Yes, because they are the worst because of high expenses and high expenses persist b) Do the best active funds persist? i) Depends, if they are good managers than maybe, if they are just lucky, then who knows c) Typically there is a cycle of well performing funds to go from 3 to 4 to 5 star funds back to 3 star. i) Why? because 5 star get an inflow of funds which reduce their returns; portfolio managers cannot keep their strategy which made them the large returns when they have lots of money d) Why do bad funds stick around? i) People are dumb and invest in them ii) You can fool some of the people some of the time, and that is enough to make a living 2) Asset allocation of Active and Passive a) Asset Allocation/ Security Selection (Examples) b) A Active/ Active i) Variable asset class proportions ii) Active security selection within each asset class (1) Examples (a) Financial industry - Short Term Changes; (b) Warren Buffet Long term changes c) B Passive/ Active i) Fixed asset class proportions ii) Active security selection with each asset class (1) Examples (a) Institutional Investors Pension funds, insurance Companies, Endowments (b) FJJ Frank himself did this Id love to be warren buffet, but Id also love to do a 360 slam dunk d) C Passive/ Passive i) Fixed asset class proportions ii) Index Portfolios within each asset calss e) D Active/ Passive i) Variable asset calss proportions ii) Index portfolios within each asset class 3) Passive a) Beta = 1 b) R^2 = 100 c) = 0 d) N = same as index e) Turnover = low f) Expense = low Notes on the CD called Davis/Feinberg Interview 1) What did they invest in? a) Some mega cap b) Some less well known c) Some headline makers i) 12% of their portfolio was made up of Energy Companies 5 energy companies 2) Strategies a) Bought companies when they were out of the spotlight b) Buy mutual funds that have really strong managers c) Buy stocks in companies who have really good CEOs d) Study Short term to see events to get a long term perspective i) See if the short term has long term effects e) Only invest into stock where you have a really st rong knowledge of the indust ry f) Buy and Hold g) Spend months researching things and sometimes it will be a few years before you get a chance to buy that stock that you really like h) Companies deemed to be r isky are often better investments and those that are deemed bullet proof are often bad investments i) Look for companies that create value for their customers American Express and Costco i) When a company creates value for its customers or makes its customers happy, then the regulators tend to stay away....
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This note was uploaded on 09/08/2010 for the course BUS 172B at San Jose State University .

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The Master Final Study Guide Compiled TAO - Excess Capacity...

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