Supplementary Lesson 2 Money and Risk Management

7/29/2019 Supplementary Lesson 2 Money and Risk Management

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SUPPLEMENTARY LESSON 2MONEY AND RISK MANAGEMENT

THE REAL DEAL 2013 ASX Schools Sharemarket Game

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ASX Schools Sharemarket Game

SUPPLEMENTARY LESSON 2: STUDENT WORKSHEET

Money and risk managementYou’re in the middle o a basketball game and the opposing team is continually breaking through your deence andshooting goals.

What will you have to do i you want to win…shoot more goals?

Well, maybe, but perhaps the better strategy would be to deend, stop them rom shooting goals and then get the balldown your end. Deence needs to come frst and then you can shoot the baskets.

So what’s this got to do with investing? Well, one o the things you need to think about is how you will protect yourinvestment. Yes you want to make money, but i you don’t protect it in the frst place you may not get very ar.

Your goal frst and oremost is to preserve your capital – your $50,000.

In doing this you want to be able to cut your losses (deend) and let your profts run (attack).It is important to remember that the sharemarket can be risky.

The sharemarket doesn’t always go up!

Take a look at this chart o the All Ordinaries Indexrom 2005 – 2007At the end o 2007 you might have thought that the market always goesup…however, take a look at the next chart.

The All Ordinaries Index: 2006 – 2009You can now see that the market also goes down. The period rom late2007 to early 2009 is known as the Global Financial Crisis. As you can see,it would have been very important to have risk management strategies inplace in order to survive this downward market.

(Continued over)

Graph 1

Graph 2





Graph 3

Now look at this 3 month period –

o the All Ordinaries Index Volatility means the market is moving up and down a lot.In this chart there is a lot o volatility. Now i you were investedover a longer period o time, this type o movement may notbother you that much (because the market is moving moresideways rather than up or down). However, i you are investingover a shorter period (as in the Game) it highlights the need tomanage your risk and to have a plan.

So when investing in the sharemarket it is vital that you manageyour risk.

I you have money invested in the Sharemarket Game and the market starts to become more volatile(as in graph 3) what do you think you could do to protect your portolio?





Protecting your portfolioHere are some ways you can protect your portolio.

The frst level o deence:

Don’t put all your eggs in one basketInvest in 2 to 3 dierent sectors.

I you put all your money into one sector and that sector alls,this is not going to help you preserve your capital. Also i youwere able to put all your money into one company and theirshares dropped, again you would potentially lose a signifcant

amount o money.In the Game you are not able to invest all o your dollars intoone company; you have to invest in at least our.

So, already you have started to manage risk.

A good idea is to go back to the section on industry sectorsand see how these sectors have perormed over the past year.Look at the companies you have chosen. Which sectors do theyft into? Make sure that you are investing in at least 2 to 3dierent sectors.

Ask yoursel:

• Have you invested in more than one sector, i so which ones and why?

• I you have not yet invested, what sectors do you think you might invest in? (For more help on sectorssee Quickstart guide 2: Company research)

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The second level o deence:

Your position sizeHow much will you invest in each company? Somestudents start o by investing $1000 – $2000 in a company.Be careul o this because every time you buy or sell youare paying brokerage and this can add up very quickly.Plus i some companies do really well you want to ownenough o these shares to make some good profts.

The third level o deence:

Decide whether you will invest deensivelyor aggressivelyIn the sharemarket you will fnd that there are companies that areknown as deensive companies and those that are known as aggressivecompanies. Aggressive companies are also reerred to as cyclical stocks.

When choosing whether you will invest aggressively or deensively, youwill also need to decide on what you think the market is going to doe.g. keep going up, move sideways or all.

Listen to the audio ‘Aggressive vs. Deensive’ (recorded 2009) andanswer the questions on the next page to work out whether you will beaggressive or deensive in the Game.

Link to audio:https://www9.asx.com.au/smg/media/aggressive_vs_deensive.mp3


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Aggressive vs. Defensive1) What does it mean to be aggressive?

2) What does it mean to be deensive?

3) What are deensive stocks – give an example o a type o business that is deensive?

4) What are aggressive stocks – can you give an example o a business?

5) Is a bull an investor who is aggressive or deensive? Why?

6) Is a bear an investor who is aggressive or deensive? Why?

7) I you think the market is going to go up, what type o stocks would you buy? Aggressive or Deensive?

8) I you think the market is going to go down, what type o stocks would you buy? Aggressive or Deensive?

9) What things do you need to think about beore setting up a strategy?

What will you be?Aggressive or Deensive

Supplementary Lesson 2 Money and Risk Management

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