- Always think of rewards in the context of risk
- Stock weights are as important as stock picks
We continue our series on using portfolio theory to build a portfolio via a detour to explain the capital asset pricing model (CAPM). This week, we want to demonstrate how to use the CAPM to value shares held in the equities slice of a multi-asset portfolio.
Essentially the purpose is to establish whether the prospective reward for owning a share is attractive compensation for the risk taken.