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Random Notes for Final Exam in Portfolio Management

Random Notes for Final Exam in Portfolio Management -...

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Random Notes for Final Exam in Portfolio Management - Dr. Frank Jones 1) 12/7/09 a) Value trap – the tendency of a cheap stock to stay cheap, you think you are going ot make money off of it because it is a value stock but it never goes up in value. i) To work against this we analyze, MOMENTUM – when the stock starts to gain some momentum then you invest into it. a) Rs = Size adjustment ( r=rf+B(rm-rf)+rs) b) Value outperforms Growth – with no added risk c) Small outperforms large d) Small is more risky right, yes, but the difference between the two results in a “free lunch” for you if you invest in small e) The lower the P/E the more of a value stock it is f) Rebalancing – if your 60% stocks/ 40% bonds portfolio gets out of whack to say, 65% stock/ 35% bonds you need to – sell stocks and buy bonds 2) How to pick a good active manager a) Low Expense Ratio b) Look at how long the manager has been there for c) Check to see they have solid/ logical investment strategy – sound strategy i)
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