INVESTING YOUR OWN PORTFOLIO

You have won the jackpot of a European Lottery with a prize of 30 000. After distributing a portion of the prize to a local charity, you decide that it is a good idea to invest the rest of the prize. However, you are doubtful about which asset class or financial vehicle is more suitable given the current international context.

Bear in mind that you are in your early twenties and that your financial restrictions are negligible. While you are Not a Risk Lover, you feel comfortable with a portfolio with a high risk-reward profile. You seek professional advice and contact two recognized investment advisors.

Investment Advice Summary

You had a virtual meeting with each of advisor and then you summed-up their financial advices as follows:

	Advisor 1	Advisor 2
Percentage invested in Bonds	85%	40%
Percentage invested in Equity	15%	60%
Investment Vehicle	Mutual Funds	Exchange Traded Funds (ETF)
Geographic Exposure	European Funds only	Global ETFs
Currency Exposure	Unhedged	80% FX-hedging into your local currency
Liquidity	Low to Moderate	High
Portfolio management style	Active	Passive
Rebalancing Frequency	Every six months	Every two years

5. Behavioral Finance:

Since you have your own investment portfolio, you became more diligent to get financial market updates on a frequent basis. Also, you follow up the news feed of Warren Buffet, a guru of the stock market. One of his milestone strategies is called Value Investing. (2.5 points per each correct answer; total of 10 points)

1. Do you believe that Buffet is subject to Anchoring when stock picking?
2. Time ago, you read that Warren Buffet suggested to buy stock Biogen (BIIB). Immediately, you called your advisor and insisted that BIIB stock must be in your portfolio. Which behavioral bias explains your reaction?
3. Is the Markowitz portfolio selection model compatible with Behavioral Finance? Explain your answer
4. Does the performance of investors such as Warren Buffet validate a Behavioral Finance approach? Why?