Question

Have you ever traded any stocks? If yes, discuss how you personally decide about your portfolio(Have you change your methods in the past few years). Do you buy the majority of your stocks for a short sell or not? Which market/s have you used for your tradings? Do you prefer riskier stocks with a higher return or do you think of yourself as a risk-averse person? Explain why you find your method of trade the best. If you have a very successful trading story feel free to share it with the class. If you never traded any stocks, Discuss which market would be your preferred place to trade. What kind of stock you would choose and how you would determine the shape of your portfolio. (Basically, think about the questions above and try to answer how you would approach them if you want to start trading) Different financial institutions use various approaches to their trades and shaping their optimum portfolios. Most of them expect their potential employees to have a clear idea about the benefits of their approach and their objectives. Thinking about these questions and learning from other’s experiences can help you practice getting ready and prepare your answers more efficiently. Some companies like Dimensional fund advisors use more advanced financial methods such as more developed versions of the 3-factor model initially introduced by Nobel winner Fama and French for their trades. More companies are getting attracted to this approach

Answer 1

Stock trading and / or stock investments is an art as well as skill. Art because to select a stock with a view that it will perform better requires not only knowledge but also skillful thought process. Which may vary from person to person. A stock selection method may change from stock to another because it depends upon factors like the industry, demand and supply of the stock, support from industry peers, reputation of a company etc..

Buying and short selling of a stock depends on goals of a trades or an investor. If you are bearish on a certain stock you may resort to short selling of a stock in order to obtain gain from stock’s falling prices. But before taking plunge into short selling it is important to understand that negativity of that stock is temporary or cyclical. Without knowing actual reason it is dangerous to sell or buy a stock.

Greater risk greater return may not always prove true. Some stock may show you greater return with similar greater risks but this may not be the case with stocks of all companies on exchange. Before investing into high beta stocks first think if it is worthy enough to put our hard-earned money in such security and is this risk worth taking.

Just because a beta of a certain stock is high it may not be prove it is going to generate higher returns for an investor. You can apply different stock selection techniques based on parameters like P/E ratio, return on asset, debt to equity ratio, earning per share ratio etc.

Diversification of your portfolio can save you from risk of steep fall in returns from a single stock. Investment in different instruments may also prove beneficial in the long run. Different techniques can be applied to judge performances of companies in different industries so that stock selection methods should form strong back up to go ahead with the investment plan.

Stock selection should also consider doing analysis of economy, industry and competition in the same among the companies, political situation in the country, government rules and regulation affecting the products produced by the concerned companies.

Therefore, constructing a good investment portfolio should encompass combination of different investment management strategies.