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I have been going through your notes where I read that ‘a well-diversified portfolio can be used to remove the unsystematic risk by the shareholders’. Could you please explain to me what is a well-diversified portfolio of shares is and how it helps to remove unsystematic risk in detail?
I explain this in the free lectures that go with the notes., and you cannot expect me to type out all my lectures here 🙂
It is pointless to use the notes without watching the lectures because they are only lecture notes. It is in the lectures that I work through the examples and explain and expand on the notes.
If you are not watching the lectures for any reason then you need to buy a Study Text from one of the ACCA Approved publishers and study from there.
I have seen ur lecture and what I understood is that diversification refers to the strategy of investors diversifying their investment in various companies so that they would be able to get their hands on cash even if one company goes into liquation. Is that correct?
Almost 🙂
Any investor will be hoping that dividends will increase and that the market value of their shares will increase. However clearly there is always the risk that both will fall in the future.
So instead of investing all their money in just one share and taking that risk, if they spread their investment between several shares then although some might do badly, others will do well and their total income and total worth of their shares will be less risky (they will fluctuate less).
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