The idea is that the more risk you take on a certain investment, the greater the equity you receive in the event of a loss.
Well, that sounds like a great thing to tell someone who’s thinking about taking out a big loan. But it’s not what I’d personally recommend. If you’re going to take out a loan (and I don’t mean to suggest that you could just use the equity you’ve built up to pay it back), you want to be sure that your portfolio is as diversified as possible (i.e.
Yes. The portfolio risk is not the same thing as the equity risk. The portfolio is the set of all the investments you have in all the risky investments you own. The equity is the set of all the investments you have in all the safe investments you own. But if your portfolio is all safe investments, it means that all your investments will be all risk investments. If your portfolio is all risk investments, then you will not be diversifying.
In the case of many portfolio managers, the portfolio is a single point in the middle of the risk and reward distribution. If, for example, you have a long, fixed position in a stock that you own a large chunk of and it goes up in value, you will be in the position of being riskier. If you own a large chunk of stock that is a volatile, short position, you will be in the position of being riskier.
That is the wrong way to look at it. A capital-weighted portfolio where you own a small portion of the stock can still be a risky portfolio. But the risk associated with a stock in a capital-weighted portfolio should be different from the risk you are in with just a small portion of the stock. When you have a large amount of stock in a portfolio, you are in the position of being riskier by any definition.
It’s easier to make a bad investment when you’re willing to invest in a risky portfolio. You invest in a small fraction, and you know there’s a big risk of being too risky.
When you’re in a large portion of a stock in a capital-weighted portfolio, you’re more risk-prone than other people. Even if you are willing to keep the stock in a small portion, it’s not as hard as you would on a major investment.
Investing in capital-weighted portfolios has a lot of time and effort. Its easier when you know you have a bigger risk than others. You know that a stock has a high risk, but youre willing to wait for the stock to go up in value. As a result, the more you invest in a capital weighted portfolio, the more you are willing to risk.
Capital weights are a form of investment risk. A portfolio that has large amounts of stocks weighted up is called a “capital weighted” portfolio, which means it has a greater chance of losing money than someone who invests in a “portfolio” with the same amount of stocks weighted down.
The problem with capital weights is that they don’t necessarily translate to a higher chance of you getting burned. When you invest in a stock, you assume that the value of the stock is going to increase over time. If it doesn’t, you might lose a small amount of money. However, the company’s management team is going to have to figure out how to maximize returns over time.