By Jamie Sperrazzo
Contributing Writer
Finance 101: The Importance of a
Diversified Portfolio
One of the most important factors of investing is building a diversified portfolio. If you put all of your money into one stock, you are taking on a higher risk. What this means is that if you are invested in only one stock, you have no chance of making money if the value of that holding goes down. If you invest in multiple stocks, even if the value of one stock goes down, you still have a chance of having a portfolio with positive returns. Not only is it important to invest in more than one stock, it is important to be diversified into different sectors. You may have a portfolio with several different stocks, but if they are all competitors or are in similar businesses, then you still are taking on too much risk. If you look at the SIMM Equity fund, we have holdings in many different sectors in order to diversity ourselves, which gets rid of any firm-specific risk.
If you are interested in joining SIMM next year, you can take it as a class or as an extracurricular activity. Any major and all experience levels are welcome. Researching companies and presenting recommendations provide education that can’t be found in any other class. If you are interested feel free to contact Steve Zimmer at zimmersm11@bonaventure.edu
This Week
Long Fund:$260,161
Energy Fund:$241,000
GAINERS
CHK 16.2%
HOG 6.9%
GILD 5.9%
APPL 4.9%
CMC 4.7%
LOSERS
TRN -5.0%
LMT -2.1%
TIP -0.2%
Trading Activity
BUY
Bank of America Corporation (BAC)
Bank of America provides various banking and financial products and services to various types of customers in the United States and internationally. Their segments include consumer and business banking, consumer real estate services, global wealth and investment management and global banking. The reason SIMM decided to pursue this investment opportunity is because of the recently paid $16.5 billion in legal settlements to resolve Department of Justice charges that it misled investors in mortgage bonds. With their legal settlements out of the way, we believe Bank of America will now be able to focus more of their attention on growing their commercial banking division.
BUY
SPY Put Contracts, Strike Price of $172:
As volatility crept into the market over the past two weeks and with a stock market correction occurring, the Equity Fund looked to hedge its risk by buying put contracts on the S&P 500. A put contract is the right, but not the obligation, to sell an asset at an agreed price on or before its expiration date. Buying put contracts for risk management is like buying any type of insurance; you are paying for security in the event of something disastrous happening. Buying at a strike price of $172 was covering us for about 7-8% downside at the time of purchase. Meaning, if the market (S&P 500) were to drop 10% by the middle of January 2015, our fund would only drop by about 7-8%. While we hope the market does not significantly drop come January, buying these helps limit potential downside in the event of a bear market.
sperrajd11@bonaventure.edu
