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Finance - Coggle Diagram
Finance
Market Finance
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Risks
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Stress Tests
Tests required by regulators (e.g. Dodd Frank) to understand what would happen to a company should markets crash, $ dollar, liquidity decrease and it was suddenly impossible to borrow money, etc.
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Insurance
Risk pooling
If n policies, each has independent probability p of a claim,
then the number of claims follows the binomial distribution.
The standard deviation of the faction of policies that result in a claim is: \( \sqrt{p.(1 - p)/n} \)
Law of large numbers: as n gets large, standard deviation approaches zero.
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Stock Markets
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CAPM
Beta
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the regression slope coefficient when the return on the ith asset is regressed on the return of the market
\( \beta_i = \frac{ COV(r_i, r_{market}) } { Var(r_{market}) } \)
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Advices
Rich Dad, Poor Dad
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Work for what you learn, not what you earn
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Beware of liabilities disguised as assets (e.g. buying main property and preventing any other investment)
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The Intelligent Investor
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Focus on pricing. Buy only stock when its price is below its intrinsic value, i.e., its value as it relates to a company's propensity for growth.
Analyse the long-term development and business principles of the companies in which you're considering investing before buying any stock.
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Understand that you will not pull in extraordinary profits, but safe and steady revenues.
The first thing you should do before you invest isn't to look at a stock's history. That's important, sure, but what's more important is looking at the history of the stock market itself.
Then, look, for example, at the correlation between stock price and the company's earnings and dividends over the past ten years. Then consider the inflation rate, in order to see how much you'd really earn, all things considered.
Defensive investor's strategy: Safety is main focus. Invest in both high-grade bonds (e.g. AAA government debt securities) and common stocks. 50-50 or 75-25. For common stocks, invest in ~10 diverse, big, well-known companies with long histories of success.
Use "formula investing", a.k.a. "dollar-cost averaging". E.g.: always invest the same amount every month. Readjust your portfolio every 6 months.
Enterprising investor's strategy: more common stocks than the defensive investor's strategy. Take higher risks. But no matter how exciting or promising an investment opportunity seems, limit high risk stocks to a max. of 10% of your overall portfolio.
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By country
Japan
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Set up automated contributions to tsumitate, with e.g. Rakuten US Stock Index Fund (VTI)
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