What is meant balancing Equity Portfolio? Why it is very important?
Let us take simple chemistry knowledge from our school days
H2 + O2 ->H2O
Even though, Hydrogen and Oxygen combined together forms Water this equation is not balanced, it actually violates Law of conservation of Mass.
Hence equation is balanced like this
2H2 + O2 → 2H2O
Even if you are consuming protein, ask a nutrition expert, expert will tell you quality of protein you eat is very important. There are 20 essential Amino Acids, if they are not available in right proportion quality of protein reduces. Good protein has quality of 1 , say what you have consumed has quality of 0.7 it means even if you have assimilated 10 grams, only 7 grams is useful rest will go waste.
This proportion even exists in your equity portfolio, Portfolio should be balanced. The weights of equity can be derived by its historical price data (It is not a lagging indicator-these proportions change by small delta over long intervals). Equity with proper proportion has minimum standard deviation (risk) for a given return on investment.
It can be computed mathematically. Balanced equity for Investors (Not day traders) gives better returns in long run compared to any other proportion.
This is factor number one to consider after selecting right scrips by fundamental analysis for investment.
Second important factor is diversity, look at the data, Nvidia lost 278 Bn USD in a day’s trading, Lehman crashed in a day. Indian Equity markets are not different from this. Yes Bank, Suzlon, Jet Airways, DHFL, even reputed brand like some of the equities of TATA and Infy came down by as much as 30% during crisis. Good companies recover, bad companies will not, and some companies need very long time periods.
Hence rather than walking in the dark and without any clue, being aware about such risk and to know how much impact it will have on our total portfolio holding value makes sense.
https://www.AntsAnalyzer.com
is a web-based application that is coupled with Large cap, mid cap and small cap equities (above 5000 cr market cap) from NSE, that helps by giving what is balanced portfolio composition and is your diversity adequate to safeguard your interest through 2 reports.
Note these two factors are independent of each other, first factor gives right balancing and second one diversity. One need to have both to protect Investment value.
Try it today! Write your feedback and we can share how it works.
Please share it with your friends who invest in equities.
Thank you!
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