INVESTMENT

The concept of "Investment portfolio" was formed more than three decades ago, but the more years pass, the more not only life changes, but also various principles and theories of investment.

 If you conduct an experiment and put before someone the task of forming the most ideal investment strategy, then it would most likely combine the maximum profitability with the minimum risk. Obviously, in reality, this is of course impossible. No wonder people spend so much time developing different methods that come close to "ideal investment"

 What is the meaning of modern investment theory?

 The concept itself means a set of principles for the analysis and rational selection of the components of the investment portfolio. The task of portfolio theory is to achieve the best risk-return ratio, as well as effective diversification.

 We remind you that risk is present in any investment, and when you receive a large income from its use, the excitement of both a professional investor and a beginner increases. Everyone has their own understanding of the acceptable risk. Some investors prefer high risk, while others, less assertive, seek to minimize it. Naturally, the higher the risk, the higher the expected return should be.

 This theory was first formulated by the renowned economist Harry Markowitz in 1952. In short, she argues that, given risk, the maximum return on a portfolio should not be the only criterion when making investment decisions. In order to minimize risk, diversification must be applied to the portfolio.

 What does modern theory mean to you?

 Currently, modern portfolio theory has a tremendous impact on the way investors view risk analysis and portfolio management. The main idea will not cause any doubts among any modern investor.

 But this also has significant drawbacks of the theory in the modern world. First, many people have to get used to a particular understanding of risk. Secondly, buying a priori a risky instrument is not a problem in the case of an experienced investor, however, it may be psychologically difficult for a beginner to “break” himself. Most importantly, although modern theory suggests that it is theoretically possible to pick up instruments whose returns are not directly related to other components of the portfolio, in practice any market analyst will say that this is not the case. An example is the situation of market tension, when even independent instruments begin to behave in such a way as if there is a relationship between them.

 Conclusion

 This analysis leads to an obvious conclusion: it is very difficult to outplay the market. This is possible only for people, as a rule, who are used to taking risks above average. There are people like Warren Buffett and Peter Lynch who view Modern Portfolio Theory as the usual theory, which it basically is. Ultimately, the success of a portfolio of investments depends on individual skills and the amount of time that needs to be devoted to strategy. Recently, the acquisition of not very promising financial instruments, over time, bring the best results.