So, in this risk-return world, basically investing in the market portfolio means investing in the total market index fund. This means that as a return I can aspect the weighted average return of every stock and as a volatility less than the weighted average of the risk, in a way that we achieve the highest sharp ratio because all the specific risk of the stock flows away thanks to the diversification effect, because given the weighted average return, if a specific stock falls another one will go up in a way that my weighted average return is preserved, and the only risk I'll feel is if all the stocks falls in the same time, aka the market risk. So: given the market risk, we know thanks to the growth theory that the market itself in the long term always go up, because the technology advancement increases and this will reflect in the market profits, and so in the market returns. The downside of this notion is that of course if a specific stock achieves great returns, my other stocks will fall imposing to the portfolio always the weighted average return, but because is impossible to predict what stock is undervalued for the average investor due the actions of the hedge funds that make the market efficiency possible that use all the available information to price the stocks, the best way for the average investor is to invest in a certain proportion of the risk free asset and the market portfolio, the variation among the investors is only different due the risk tolerance of the individual. Did I get it right? Thanks for your wonderful explanations btw
I'm a new investor, to learn investing I have watched Crash Course "Economy" series, and now I just watched your course. Also, I'm reading some books. It's really amazing that the world has nice people like you guys, who will provide such time and knowledge for free!. (It brings goosebumps). It's sad that people will go to trendy junk, get rich quick stuff etc ... instead of learning the real thing. Keep it up bro 👍🏻
So, in this risk-return world, basically investing in the market portfolio means investing in the total market index fund. This means that as a return I can aspect the weighted average return of every stock and as a volatility less than the weighted average of the risk, in a way that we achieve the highest sharp ratio because all the specific risk of the stock flows away thanks to the diversification effect, because given the weighted average return, if a specific stock falls another one will go up in a way that my weighted average return is preserved, and the only risk I'll feel is if all the stocks falls in the same time, aka the market risk.
So: given the market risk, we know thanks to the growth theory that the market itself in the long term always go up, because the technology advancement increases and this will reflect in the market profits, and so in the market returns.
The downside of this notion is that of course if a specific stock achieves great returns, my other stocks will fall imposing to the portfolio always the weighted average return, but because is impossible to predict what stock is undervalued for the average investor due the actions of the hedge funds that make the market efficiency possible that use all the available information to price the stocks, the best way for the average investor is to invest in a certain proportion of the risk free asset and the market portfolio, the variation among the investors is only different due the risk tolerance of the individual.
Did I get it right? Thanks for your wonderful explanations btw
Don't confuse market prices with growth - this is not clearly linked!
I love the examples 👍🤙
It's amazing work! I'm enjoying this course a lot. Thanks man
Thank you so much, that means a lot to me. I spent a long time on the course :)
I'm a new investor, to learn investing I have watched Crash Course "Economy" series, and now I just watched your course. Also, I'm reading some books.
It's really amazing that the world has nice people like you guys, who will provide such time and knowledge for free!. (It brings goosebumps).
It's sad that people will go to trendy junk, get rich quick stuff etc ... instead of learning the real thing. Keep it up bro 👍🏻
Skew is delicious