A zero investment portfolio is more of an academic pipe dream than it is a reality. That’s because, in the real world, it takes money to make money. But the zero investment portfolio is the hypothetical idea that you can have a portfolio that requires no equity. It’s the idea that all investments have a net value of zero, because money from one area (say you have $100 from short selling some stockaroos) is used to purchase the same amount ($100 in this case) of stock from somewhere else.
In its most common form, it’s buying and shorting equal amounts of securities, so that, hypothetically, you don’t need any additional input. But things like SEC rules, commission fees, and using proceeds as collateral for loans...all make this more folly than funsies in real life.
Don’t get us wrong...people still do strategies like this that work for them, but it’s not really a zero investment portfolio with all these real-life-hoops-of-fire investors must jump through. Welcome to the danger zone.
Related or Semi-related Video
Finance: What is Volatility?77 Views
In finance allah shmoop what is volatility beta this thing
that's the symbol for volatility on the street we mean
the wall one not the mean one and it is
so commonly used that the in crowd members just say
beta when they're referring to volatility unless they're from tennessee
in which case they say you ve all y'all all
right so here's a siri's of stock prices stamped each
day that has lo ve all or low beta and
here's a siri's that has high beta dead man's pulse
versus rocky mountains Well what makes a stock volatile uncertainty
Think about it this way If everyone knew for sure
what a given stocks earnings would be for the next
ten years quarter by quarter and they also knew what
the overall markets average earnings would be in a few
other things like revenue growth and world conditions and we're
going to be war inflation there wouldn't be a lot
of guesswork The quote right unquote price today would be
thirty two dollars eighty three cents and the quote right
unquote rate of compounding would be eight percent in the
stock would slowly go up but this rate but in
non disney land riel life well nobody really knows much
of anything So stockcharts look like this and nerve endings
of wall street traders look like this Neither of them 00:01:19.771 --> [endTime] looked much like this chart So that's all you
Up Next
What is Beta? Beta is a figure associated with public companies that measures how risky the company’s stock is in comparison to the market as a w...
Modern Portfolio Theory claims there's a smart way to invest. If it's not "put all your money under your mattress," we might be doing it wrong...
What does it mean to rebalance an account, and will we need a yoga mat? Hit play to find out.