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6 Reasons for investing in Florida Investment Property
6 REASONS for investing Florida Real Estate Investment Property NOW I invite you to take the next few minutes to learn the truth about the real estate market, how it compares to other methods of building assets and why it is such a lucrative form...
Five tips for Investing
One of the most common requests I receive is for investing help.
In this article, I try to present just a few basic investing tips
to remember when you plan for your future through investing.
1. Have a plan and know where you are going with your...
Investing in Stocks and the Game of Monopoly
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author bylines are included. A courtesy copy of your
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Porter's Five Forces Analysis
If you’ve ever listened to Warren Buffett talk about investing, you’ve heard him mention the idea of a company’s moat. The moat is a simple way of describing a company's competitive advantages. Company's with a strong competitive advantage...
What Is A Mission Statement?
In order to do your mission statement you need to be able to answer the following:
Why should this business exist?
Who will be its customers and how will it benefit them?
Why will they be better off?
These questions are easy to...
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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
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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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