Commercial Rationale, Direction And Priorities
y a portfolio should includes at least one 'safe'share. This will usually be a 'blue chip'company, probably a constituent of the FT-30 share index. Sometimes a gilt is included instead.
Thereafter we are looking for 'volatility'.
This means shares that are moving up and down. A simple way of spotting such shares is to look in The Financial Times (or other financial news site) to see what shares have a wide difference between the 'High'and 'Low'for the year. These shares can then be monitored for a while, using either the moving averages method or charting methods.
Another method is to take a long-term view by looking up the highs and lows from previous years and plotting each of them on a graph where the y-axis (vertical) is in a logarithmic scale. This means that instead of going 1, 2, 3, 4, 5, etc. it goes 1, 2, 4, 8, 16, etc.
The reason is that we are not seeking to measure the amount by which the share price moves, but the ratio by which it moves, i.e. has it increased by 50% ? If you really want to be clever, you can always buy logarithmic graph paper for the purpose. The most volatile shares will be those where the gap between the lines is widening.
A short cut is simply to look for shares with a wide gap between the high and low figures and buy those whose current prices are near the low, and hope for the best. You are trading some accuracy for expediency.
It should be stressed here that volatility means that the shares are prone to go down quickly as well as to go up quickly. It is advisable to diversify to the extent of ensuring that the shares are not always in the same sector, e.g. they are not all in electronics or construction.
If all this sounds too much trouble, shares can simply be chosen at random. This may seem like a complete cop-out, but actually such portfolios have often been known to perform better than the FT 30
Next:
- Demack on How To Develop A Vision To Ensure Success - Philosophy, Policies And Values
- Demack on How To Develop A Vision To Ensure Success - Horizon Of A Vision Statement
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