Essay on Thompson Asset Management

Speaker's notes: Risk is an everyday part of financial life. There are few decisions we can make which do not come with some degree of risk. However, it is important to understand and distinguish between different types of risks so we can better 'hedge' against potential unforeseen events and minimize our institution's exposure to financial dangers.

E.g. A combination of investments in Umbrellas and Ice Creams will eliminate the risk of one another, i.e., the low returns from ice creams in rainy season will be compensated by the umbrella sales. High returns in one industry, in this case, always offset low returns in the other to give a positive return with certainty because returns on the two assets are inversely correlated.

The lower the risk that is associated with an investment, that investment usually has a potential for lower returns. Conversely, if there are high levels of risk associated with an investment, and in turn a potential for a higher return.

An investment philosophy is one’s approach to tolerance for risk in investments. It may be conservative which means you accept very little risk and are generally rewarded with relatively low rates of return. Another investment philosophy is moderate also known as risk indifference, this means one accepts some risk as they seek capital gains through slow and steady growth. Lastly, one may have an aggressive investment philosophy or be more of a risker seeker. Often times, people strive for a very high return by accepting a high level of risk. Going into the game, we were informed that like

magnitude of these risks, this paper advocates for a more proactive solution. Active investing in

describe how the factors of safety, risk, income, growth, and liquidity affect that investment alternative.

In the United States, a society plagued by capitalism, investing has become a way of life. To most Americans it begins with opening a savings account and slowly allowing that money to grow through the compounded interest rate over the years. While it may not seem like a big step in generating more income, nonetheless, this is a positive movement in the market of investments. With the many types of investments available knowing which are reliable, or safe, or yield good returns, are just some of the questions on the investors mind. Within each asset class there are investments to suit different kinds of risk, duration, returns and liquidity.

The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

Return on investment - The ratio of money gained or lost on an investment relative to the amount of money

50) __________ says to seek out investments that offer the greatest expected risk-adjusted real return.

With attention to the previous information given, the principle of risk-return tradeoff is based on the thought that individuals are opposed to taking risk, meaning individuals would prefer to get a certain return on their investment rather than risking and getting an uncertain return. (Titman, Keown, & Martin, 2014) This principle tells us that investors will receive higher returns for taking on a bigger risk however; a challenge often seen in investors is how to calculate the tradeoff between risks and return with riskier investments. A higher expected rate of return is not always a higher actual return.

De minimis risk is defined as the incremental risk produced that is sufficiently small that there is no incentive to modify the activity (Asante-Duah, 2002).

Showing passion and interest for safety. Risk management does not mean do thing conservative. We should keep our passion to catch any opportunity to enlarge our profits, but we have to consider the downside for different potential loss due to the uncertain risk

Finally, when the expected return up to 10 percent, it will result an undiversified and higher risk portfolio whereby dependent based on the higher risk financial assets.

The above graph is used to represent a high and a low risk investment. As it describes, a high-risk investment may at first seem to be a very bad investment, but will become a high return investment after a short time. However, for a low risk investment, there will also be positive returns, but not so significant, as those of a high-risk investment.