kUD WCNG INVLS1MLN1 ADVISCk

Group S
8|wesh Neupane Dev ka[ Dhungana
Shrawan kegm| and M|ngma Sherpa (Lama)
8ob M|||er
C||ent rof||e
8ob Mlller 42 yearold slngle can wlLhsLand blg losses wlLhln one year and ls a long Lerm lnvesLor Pe
does noL have any shorL Lerm requlremenL Pe ls ln accumulaLlon phase of lnvesLmenL llfe cycle Pls
porLfollo lncludes 70 percenL of porLfollo on LqulLles Canadlan Cll and Cas belng Lhe predomlnanL one
whlch ls sub[ecL Lo hlgh volaLlllLy and rlsk Pe ls a growLh orlenLed lnvesLor buL has hlgh emoLlonal
swlngs Pe currenLly has lllosloo of coottol because of whlch he belleves he could alLer hls porLfollo on
hls own Lo lncrease ln hls reLurn
kecommendat|ons
Jong belng an lnvesLmenL Advlsor for Mlller flrsL of all should Lry Lo ellmlnaLe Mlllers lllosloo of
coottol by maklng hlm aware LhaL such blases could resulL ln decllne on Lhe reLurn on lnvesLmenL Jong
should make clear Lo Mlller LhaL such blases are naLural Lo occur because of Lhe cycle of markeL
emoLlons such as panlc caplLulaLlon and despondency buL Lhls ls also Llme Lo make maxlmum flnanclal
opporLunlLy
Mlller has lnvesLed hugely on Canadlan Cll and Cas secLor 1hls secLor ls hlghly volaLlle buL also glves
huge reLurn on lnvesLmenL Lven Lhough currenL Lrend shows Lhe decllnlng Lrend Lhls secLor ls hlghly
expecLed Lo galn prlces ln fuLure So lL ls advlsable for Mlller Lo sLlck wlLh hls lnvesLmenL and walL
paLlenLly Lo Lap Lhe markeL opporLunlLles Pe can supporL Lhls facL by showlng Lhe overall Lrend of sLock
prlces of oll and gas lndusLry for lasL 30 years where Lhe prlce have decllned severely buL has galned
qulckly 1he lncreaslng demand of oll and gases wlll force Lhe economy Lo recover Lhe prlces of Lhese
sLocks
Mlller also suffers from conflrmaLlon blas as he ls relylng on lnformaLlon counLer such as news channels
and commenLaLors as opposed Lo hls advlsor and hls own vlew 1o reduce such blases Jong should
sLress LhaL he ls on besL poslLlon Lo commenL on Lhe markeL Lrends Lhan Lhe news channels as Lhey are
ofLen wrong ln predlcLlng markeL condlLlons
Jong should relLeraLe Mlllers ob[ecLlve and Lhe quesLlonnalre he fllled up Lo make sure LhaL Mlller
sLuck Lo hls old plan Pe should remlnd LhaL he was deLermlned LhaL he would noL change hls sLraLegy
because of some shorL Lerm flnanclal loses

Mary Swanson
C||ent rof||e
1he cllenL ls a non emoLlonal declslon maker 1he lnvesLmenL sLraLegy of Mary Swanson ls Long Lerm
moderaLely growLh orlenLed (lles beLween balanced and growLh sLraLegy) She has made hlgher
lnvesLmenL ln equlLles Lhan bonds le asseL allocaLlon of 60 equlLy and 40 bonds valued aL greaLer
Lhan $1 mllllon 1he lnvesLmenL Llme horlzon ls of 30 years She ls 8eLlred professor from unlverslLy of
8rlLlsh Columbla ln 2008 Lransferred u8C penslon Lo C Pagan SecurlLles She has no shorL Lerm llquldlLy
needs and we have assumed she already has llfe and healLh lnsurance whlch mlLlgaLes Lhe rlsk of maklng
unexpecLed changes Lo currenL growLh sLraLegy and asseL allocaLlon
kecommendat|on
Slnce Swanson ls non emoLlonal declslon maker she wlll be more persuaded lf raLlonal facLs are
presenLed Lo her agalnsL all Lhe bad news publlshed ln Lhe medla regardlng Lhe rlsks of flnanclal crlsls Lo
lnvesLors 1hus keeplng ln mlnd Lhe anxleLy LhaL Ms Swanson ls experlenclng and Lo reassure her LhaL
Lhe currenL sLraLegy ls Lhe vlable sLraLegy and wlll yleld a hlgher reLurn ln Lhe long run lL should be
remlnded LhaL Lhe rlsk assoclaLed wlLh such a long Llme horlzon (30 yrs) lnvesLmenL ls hlgher Lhan shorL
Lerm lnvesLmenLs Powever Lhe reLurn ls also hlgher ln Lhe long run and a hlgher reLurn ln Lhe long run
ls achleved vla equlLy lnvesLmenLs Lhan from bonds uurlng 20072009 markeL Lurmoll (Lhe global
flnance crlsls whlch sLarLed due Lo collapse of uS houslng markeL ln 2006) mosL lnvesLors aLLenLlon
shlfLed from reLurns Lo rlsk and lnvesLors were rushlng Lo sell Lhelr sLocks aL lower prlces Looklng aL Lhe
Llme horlzon of 30 years and a moderaLely CrowLh orlenLed lnvesLmenL sLraLegy Swanson should be
wllllng Lo Lake some downslde rlsk of falllng sLock prlces ln Lhe shorL run 1hus Lhe Llmlng ls noL good Lo
sell Lhe sLocks aL low prlces haphazardly [usL followlng Lhe horde of people who are panlcked by medla
speculaLlon Also ln Lhe fuLure Swanson mlghL have Lo buy Lhose sLocks aL much hlgher prlce and she ls
already reLlred and mlghL noL have addlLlonal source Lo purchase such sLocks Swanson should be
opLlmlsLlc LhaL ln Lhe years Lo come Lhe markeL condlLlon wlll lmprove and Lhe sLock prlce wlll lncrease
lmprovlng chances of caplLal galns and LhaL would be Lhe rlghL Llme Lo sell lurLhermore Swanson
already has some proLecLlon from flxed sources of lncome made up of corporaLe bonds and guaranLeed
lnvesLmenL cerLlflcaLes lurLher securlLy agalnsL lnflaLlon ls provlded by fund allocaLlon of 3 gold and
3 real sLaLe boLh of whlch are noL severely affecLed by Lhe uS crlsls Powever Lo mlLlgaLe some rlsks
and provlde some rellef Lo Swanson Lhe flxed lncome slde of Lhe funds can be ad[usLed Palf of Lhe
funds from corporaLe bond can be shlfLed Lo governmenL bonds provldlng a more secured conLlnuous
source of lncome mlLlgaLlng Lhe rlsk of loss due Lo defaulLlng of corporaLe bond defaulLs lurLher
lnvesLmenL on gold can provlde securlLy whlch has lower (negaLlve or zero) correlaLlon wlLh respecL Lo
oLher asseL classes and hence lower volaLlllLy Cold allocaLlon can be lncreased Lo 10 whlle corporaLe
bond allocaLlon can be furLher reduced by half of lLs lnlLlal allocaLlon and Lhe resL converLed Lo
governmenL bonds
Pence Lhe ldea here ls Lo glve hope Lo Swanson Lo conLlnue wlLh Lhe currenL sLraLegy of lnvesLlng more
on sLocks by provldlng her a beLLer safeLy neL agalnsL falllng sLock prlces
ack and ke||y k|e|n
C||ent prof||e
lnvesLmenL ob[ecLlve save for reLlremenL
needed Lo achleve hlgh growLh for reLlremenL fund
orLfollo 83 equlLy and 13 bond
Pere [ack and kelly has a hlgh growLh lnvesLor proflle as Lhelr ob[ecLlve ls hlgh long Lerm growLh and ls
wllllng Lo Lake rlsk of an equlLy orlenLed porLfollo buL also wanL Lo hold some safe lnvesLmenL
alLernaLlve as bond
kecommendat|on
Slnce Lhelr prlme ob[ecLlve ls Lo save for reLlremenL and Lhe Llme for Lhelr reLlremenL ls 30 years 1hlrLy
years ls a very long perlod so Lhere ls enough Llme for Lhe (maybe) couple Lo save for Lhelr reLlremenL
So whaL l Lhlnk ls Lhey should lnvesL ln Lhe equlLy and bond regularly as before buL Lhey should lncrease
Lhe welghL of bond from 13 Lo 20 and so on as Llme passes so as Lo lncrease Lhelr porLfollo exposure
Lo bond and decrease Lo rlskler lnvesLmenL le equlLy ln Lhls way Lhey can acLually have a flexlble
lnvesLmenL porLfollo so as Lo meeL Lhelr long Lerm ob[ecLlve And also shlfL Lo defenslve proflle as Lhelr
reLlremenL Llme comes closer 1hls wlll mlLlgaLe Lhe rlsk of havlng noLhlng when Lhey reLlre 1hls also
goes along wlLh Lhe naLure of human behavlor as Lhey don'L wanL Lo Lake rlsk as Lhelr reLlremenL comes
nearer Lo secure Lhe fuLure
And Lhe lnvesLmenL ln equlLy and bond could be dlverslfled ln fuLure buL noL now as Lhls would llmlL Lhe
posslblllLy of growLh l agree LhaL correcL dlverslflcaLlon reduces Lhe chances of loses buL lower rlsk also
means LhaL Lhere ls lower chance of growLh So Lhls lower growLh would noL be good for achlevlng Lhelr
LargeL And also Lhe whole sLock markeL ls down so even lf Lhe lnvesLmenL ls dlverslfled Lhey wlll have Lo
face loss So Lhey should keep Lhelr dlverslflcaLlon low currenLly as Lhey aL Lhls Llme can bear Lhe rlsk
ulverslflcaLlon should be lncreased as Lhelr age grows older and sLarL avoldlng rlsk

erb and 8arb N|cho|s
Customer rof||e
lnvesLmenL Cb[ecLlve CrowLh ln value
1he Llme horlzon of Perb and nlchols was 10 years and Lhey wanLed hlgh growLh ln Lhese 10 years of
Llme Slnce Lhelr proflle lndlcaLes LhaL Lhey had hlgh rlsk Lolerance Jong had lnvesLed 73 of Lhelr
funds ln equlLles and remalnlng 23 on bonds 1hey had shorL Lerm llquldlLy needs buL lL was ln facL noL
a problem because Lhey had solld lncomes So Lhey dldn'L need cash Slnce LaxaLlon was a ma[or lssue
for Lhem Jong lnvesLed Lhelr cash ln dlvldend funds whlch were Laxed aL lower raLes
kecommendat|on
Plgh rlsk Lolerance of nlchols lmplles LhaL Lhey could adopL PC (Plgh CrowLh SLraLegy) whlch consLlLuLes
80 equlLles and 20 bonds under Lhls sLraLegy Lhey would be wllllng Lo Lake on Lhe downslde rlsk of
an equlLyorlenLed porLfollo buL sLlll wanL Lo hold some bonds Lo reduce volaLlllLy So Jong's approach
of lnvesLlng 73 ln equlLy and 23 seems Lo be approprlaLe
8uL one facL ls clear LhaL due Lo Lhe falllng sLock markeLs nlchols feared LhaL lf Lhe Lrend conLlnues Lhe
sLocks could fall Lo zero 1o overcome Lhls fear of nlchols Jong has Lo convlnce Lhem showlng hopes
LhaL afLer every recesslon ends Lhe markeL achleves hlgher valuaLlon Pe can supporL Lhls facL by
showlng Lhe 10yr rolllng average reLurns for equlLles slnce Lhe 19Lh cenLury Pe can furLher supporL hls
loglc by glvlng examples of hlsLorlcal evenLs llke Cuban Mlsslle Crlsls (1962) Clobal markeL crash (87)
Aslan currency crlsls (98) and J1C 8omblng ALLack (2001) All Lhese slLuaLlons flrsL led Lo markeL sell
offs buL flnally wenL Lo hlgher levels and nlchols could hope LhaL Lhls Llme also lL would be Lhe same
lnvesLmenL ln dlvldend funds would also be an approprlaLe opLlon slnce LaxaLlon was an lssue for Lhem
and dlvldends were Laxed aL relaLlvely lower raLes ln Canada
Jong could also use some parL of behavloral flnance (use of cognlLlve and emoLlonal facLors) Lo
convlnce Lhem Lo sLay on Lhe PC (Plgh CrowLh) sLraLegy Pe could show Lhem Cycle of MarkeL
LmoLlons" LhaL was an emerglng branch of academlc lnvesLmenL declslons and convlnce Lhem Lo
malnLaln Lhls PC sLraLegy by showlng LhaL uepresslon wlll be followed by Pope Lhen by 8ellef and
flnally by CpLlmlsm




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