Equity exposure = a share, which is a set portion of a business, which generally: is reasonably-sized, is well-managed, has customers and staff has been around & succeeded to make a profit for awhile, pays its shareholders a dividend = a collection of such shares … which is equity exposure
Equity risk Theoretical measures: Beta, volatility, tracking error… Neat and mathematical, but not that practical
The main equity risks Market price Intrinsic value Buying when shares are above fair value – ie not having an idea of valuation Having to sell, when prices are below fair value – ie short-term cash need
The main equity risks Investing without a clear focus on valuations - Either as an expert yourself or from the manager who manages your money Investing in equities when you have a short-term time horizon
Equity exposure is about investing in operating businesses - aiming to grow profits and pay dividends Investors need it to avoid inflation’s erosion and to grow in real terms Equity prices move widely around a stable, growing intrinsic value Main equity risks: not focusing on valuation a short time horizon Active managers can outperform after fees, by focusing on valuations: Buy (& hold) when prices are low Sell (& avoid) when prices are high
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