Posts Tagged "tandem"

What is "Diversification"? There is more to it than you might think!

Posted by Preet on Jul 31, 2007 | 0 comments

Diversification basically means not putting all your eggs in one basket. If you hold only one stock and that company went bankrupt, then you would have lost all your money.  If you hold two stocks and one company goes bankrupt you have only lost half your money.  And so on, and so on. But there is a BIT more to it than just that. If you held two stocks in companies like Sprint and Verizon and someone invents a device that makes phones obsolete, then both companies might go under.  In this case you have diversified by holding two companies, but you picked two companies in the same industry! Further, if you held two mutual funds that both invested in large Canadian...

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Risk: Systematic Risk vs Non-Systematic Risk

Posted by Preet on Jul 26, 2007 | 0 comments

This is an advanced level topic – you may want to skip this post if you are just finding your feet with respect to finances! It assumes a basic understanding of portfolio diversification… With respect to any given stock market there are two types of risk (which is another word for variance according to Modern Portfolio Theory): 1) Systematic Risk and 2) Non-Systematic Risk. Systematic risk is the general ebb and flow of the market – kind of like the tendency for all stocks to get dragged down or move up in tandem at the same time to a certain degree.  For example, the 1987 market decline was a Systematic event in that it really didn’t matter...

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