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Does Your Life Include a RIPE Plan?—Planning Tips for Retirement, Investing, Protection, and Estate Planning – Part 1 (Retirement)
Does Your Life Include a RIPE Plan?—Planning Tips for Retirement, Investing, Protection, and Estate Planning – Part 1 (Retirement) by: Janet L. Hall No matter what your age or years of work, it’s almost never too late to start planning for your...
DXInOne E-Currency Exchange: Hidden Profitable Investing Opportunities
Very few oportunities online have the privilege of claiming they
can guarantee to make a profit for you. It's probably hard to
believe at first, but once you grasp how the e-currency exchange
system actually works you can see that it's not out of...
InvestingInWireless.com Reports: “Communications in Homeland Defense: Wireless is the Way to Go."
For Immediate Release
December 9th, 2004
InvestingInWireless.com Reports: “Communications in Homeland Defense: Wireless is the Way to Go."
POINT ROBERTS, WA. December 9th, 2004 - www.InvestingInWireless.com, an investor news portal for...
No Load Mutual Funds or Exchange Traded Funds (ETFs)?
If you are fed up with early redemption charges and ever increasing mutual fund management fees on top of bad-performing fund managers, read on. There is a quiet revolution going on in the no-load mutual fund industry and you, the individual...
Offshore Investing
Offshore investing: spreading risk helps sleep
The world’s economies still dance to different tunes and have different boom and bust cycles that tend to offset each other, even though the differences are getting smaller. As a result,...
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The Capital Asset Pricing Model of Stock Investing (CAPM)
In 1990 Harry Markowitz, Merton Miller, and William Sharpe
shared the first Nobel Prize in the very young area of financial
economics. The Nobel committee recognized Harry Markowitz for
developing portofolio theory, Miller for the theory of corporate
finance, and Sharpe for the Capital Asset (stock market) Pricing
Model also known as CAPM.
CAPM was the crowning acheivment of theoretical economists bent
on proving that markets are efficient and work together
mathematically with the precision and elegance of a Rolex watch.
In the 1980s, researching financial economists began to notice a
slew of empirical results that are not consistent with the view
that stock market returns were determined in accordance with
CAPM and stock market efficiency.
It is useful for you to understand what CAPM is because you will
read or hear about it as you progress as a stock market
investor. CAPM is a regression model designed to separate out
the general stock market price changes from price changes
specific to a given stock. The general stock market price change
is called unsystematic risk. An investor can get the same return
as the general stock market buying a mutual fund that is indexed
to the stock market such as the Vanguard 500 fund (symbol
VFINX). For this reason the amount of profit you receive on a
specific stock that is as much as the stock market
indexes is
said to not be priced into the stock in terms of the risk you
are taking. The amount you make or lose on a given stock as
compared to the stock market averages is considered to be priced
by investors to compensate for the additional risk you take in
buying stock in a single company instead of a fund indexed to
the stock market. The profit or loss that you receive as
compared to the stock market is called systematic risk. The
capital asset pricing model measures systematic risk with a
regression coefficient called beta. When I talk about beta now
you know what it is; it is nothing more than a measure of
additional potential return an investor should receive for
purchasing a single stock based on how risky that stock is. I
want to emphasize that CAPM is based on the notion that the
stock market efficiently translates all information known about
the stock market into stock prices for stock investing purposes.
About the author:
Dr. Brown can teach you how to invest through The Delano Max
Wealth Institute (www.DelanoMax.com). He is dedicated to
providing you with courses and seminars that teach prudent
savings and investing habits. Dr. Brown is also a finance
professor at the University of Puerto Rico at Rio Piedras. He is
also recognized as an expert at low risk, high return investing
and takes great pride in helping others retire safely.
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