the risks in "markowit" line are not defined. the text explaining the Markowit line do not define Risk in the curve line. if you read again the text regarding markowit line (sorry for mispeel Markowit", you will see that no definition of the risk is given. so, how can you find some stocks with specific risk to make the Markowit line "more beautiful".
I think that if I suppose that competitive positioning of each stock dose not change. this means no companies go bankrupt or loose competitive positioning and that 'risks" in the Markowit line are 'short term "risks such as small fire, the decline of profit in one quarter, a bad news such as thief of the manager. all of risks which dose not destroy competitive advantage/positionning of a company, are the risk in the markowit line. if i suppose these things, we have markowit line.
of course, even if we do not know what are risks in the Makowit line, we can still get benifit of the diversification. this is why no one care what is risks in the Markowit line.
most stock investors and I focus on possibility of bigger profit of a stock. this is strategy analysis. so, I think MBA program is ideal for stock investment.
the analysis of a stock should be begun with competition analysis and then we look at financial reports to prove the result from the competition analysis. of course, both processes can be incorrect and we get a stock whose price is lower and lower. the critical part is the competition analysis. is this product still better than other products and, so, this stock has price higher than price of other stock. dose the Phillip led light bulb is still better than a chinese light bulb. if two bulb are the same , and only the brandname Phillip is better than brand name Chinese , then possiblly Chinese bulb stock will go up. the finnancial reports may, but not must, help you to realize what happens. this is core of business and the core of stock investment.
what I want to say is that DCF model with supposition that a company grow for 15 % for nest 5 year is only for you to understand the concept of stock value. stock value can not be known exactly. stock value is investor's conception of business risk, risk of loosing or chance of getting some competitive advantages. this risk is conceived by the investors, and this way a stock price appear on the screen. the art of stock investment is art of anticipating the business risk. we anticipate business risk and we accept a stock price for this risk. the person with good knowledge of business , the persons with MBA degree, for example, can anticipate business risk better.
because each investor has his own financial position, they accept business risk differently. this make a case in which both buyer and seller get benefit when they trade. the seller want 20% per year and, so sell stock which yield 5% a year . the rich buyer want only 5% a year, and , so will buy.
suppose, I open a vietnamese restaurant in us. I can not know wheather my busines will growth 15% for the next 5 years. it is funny to think about 5 years. but if a stock investor realize that I have good knowledge of vietnamese food and I have good management skill which are competitive advantage, the investor will buy the stock of my business.
if we choos a wrong stock, which is loosing competitive advantages, we loose money and all of skills of diversification, swap, future, are meaningless.
I read some books in CFA program but I still want to read more book on competitive advantage. I want to know more about how a company break the competitive advantages of other company or how to realize competitive advantages in each industries. a book which explains the competitive advantages in airline industry, retailing industry, online selling industry or manufacturing industry would be great. I want to know how competitive advantages explained in Porter books can be applied in each industry or in two competing companies.
sorry for my not good English. I write this quickly