As from April 2013 my Journey in Investing is to create Retirement Income for Life till 85 years old in 2041 for two persons over market cycles of Bull and Bear.

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"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

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Saturday, 3 October 2009

Portfolio Management - Portfolio Risk

Portfolio Risk is composed of the following risks:
  • Systematic Risk or Market Risk
  • Non-Systematic Risk or Non-market Risk

Market Risk refers to the risk common to all stocks and the risk cannot be diversified in the same market e.g. Singapore stock market

Non-Market Risk is the risk associated with the stock of that particular company. Non-systematic risk can be diversified away by holding greater number of stocks in the portfolio.

In Joel Greenblatt's brilliant book, You Can Be a Stock Market Genius, he provides the following statistics by owning the following number of stocks:

  • 2 stocks eliminates 46% of non-market risk of just owning one stock
  • 4 stocks eliminates 72% of the risk
  • 8 stocks eliminates 81% of the risk
  • 16 stocks eliminates 93% of the risk
  • 32 stocks eliminates 96% of the risk
  • 500 stocks eliminates 99% of the risk

Have you done a good job in your Portfolio management to mitigate the Non-Market Risk?

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