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Unformatted text preview: When creating a portfolio, it is important to diversify. Economist Harry Markowits taught people to treat a portfolio as a whole and not each stock as individuals but as a result of mental accounting that is not what happens. Standard deviation measures an investments risk while a beta measures its volatility compared to the market, greater than one means it exceeds the markets movement, equal to one matches the market, and less than 1 means it is less volatile than the market. On building a portfolio, it should be designed as a pyramid with the safest, CDs, money mutual funds, treasury bonds, on the bottom and the most risky, IPOs, foreign stocks, on the top. Alok Kumar identify certain stocks as lottery type and for those who seek higher wealth and have a gambling problem are more likely to buy these underperforming stocks for a chance to strike rich quick. Investors are more likely to be diversified as a result of investment goal diversification, the allocation into certain levels of risk to achieve goal through their pension...
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- Fall '10