Personal Investment

Topics: Capital asset pricing model, Modern portfolio theory, Investment Pages: 12 (3678 words) Published: May 3, 2013
Section A Personal investment in the UK – is it a science or a matter of good fortune?

Good morning ladies and gentlemen,

My names Moaweya Alksibati and my student ID: u1268623

Today I am going to talk about the personal investment in the UK and whether the success of this investment can be attributed to Luck of Science.

I would like to welcome Lord Nigel Lawson, DR. John Hughman and Justin Urquhart for attending today and I hope you enjoy the topic I am talking about.

I will try to start talking about personal investment in general so I can guarantee that non-specialised attendees can understand the process of the personal investment.

The London Stock Exchange is one of the world’s oldest stock exchanges and can trace its history back more than 300 years. There is a long history that people participate in UK’s investment activity. Personal investing is an important part of personal financial management. Substantially, this type of investment is taken action by an individual. Usually, the investing efforts are concentrated on creating a safe financial cushion used in after years. The cushion may include investments such as individual savings accounts, participating in pension plans, and the transaction of shares, bonds and other options. In order to better manage their own investment so as to improve their living standards, personal investors need create an investment portfolio. Portfolio plays a crucial role in personal investment. Markowitz tells us that effective combination of a portfolio provide a given level of risk with maximum excepted return, or a given expected return with the minimum level of risk (Ou, 2005). Therefore, if personal investors can manage their portfolio well, market will be defeated by them and get good return. Unfortunately, it is impossible that everyone can get return in investment in the UK. For this reason, there will be always a debate that “personal investment in the UK – is it a science or a matter of good fortune”? The aim of this article is to evaluate and discuss the debate and draw a conclusion.

Evaluation and discussion
The opinion of this essay is that although “personal investment in the UK” has the element of luck, on the whole, it is a science.

As a way to explain and predict the things from the universe, the science is systematic, logically and rationally. If personal investors in the UK want get much return and reduce investment risk, they need to learn and use some theories, principles and approach to have the abilities to manage their portfolio well and make predictions on investments’ trend to achieve their goals. With the development of the investment theory, more and more theories, principles and approach are come up with the scholars, experts and investors.

Modern portfolio theory is a theory published by Harry Markowitz (1952). The theory focus on how risk-averse investors can create a portfolio to make the best on expected return in view of a given level of risk, stressing that risk is a connatural part of higher return. While investors have been conscious, in a qualitative sensation, of gains arising from variety of share holdings, the Markowitz model stood for the first virtual quantitative analysis of these gains (Witt and Dobbins, 1993a). Markowitz creates a formulation called Mean-Variance and efficient frontier to calculate how can get the better expected return. The Markowitz model provided the basic for the modern theory of portfolio management (Witt and Dobbins, 1993b). If investors use the modern portfolio theory to optimize their portfolio, they may gains lowest risk of portfolio under the same expected return. So it is a science.

The model named capital asset pricing model (CAPM) was introduced by Jack Treynor (1961, 1962),William Sharpe (1964), John Lintner (1965) and Jan Mossin (1966) independently, depending on the inchoate work of Harry Markowitz on variety and modern portfolio theory. Markowitz, Merton Miller...
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