Share portfolio advisory: Use of the Markowitz method to optimize the risk/return ratio in individual investor shares portfolio

João José De Melo Neto,Isabel Lausanne Fontgalland

doi:10.33448/rsd-v11i2.25921

João José De Melo Neto, Isabel Lausanne Fontgalland

Open Access

https://doi.org/10.33448/rsd-v11i2.25921

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Abstract

With the growing development of the Brazilian financial market, the interest of small investors was visible, from the year 2019 and until june 2020 the entry of individual investors in the stock exchange had a growth of 174.7% reaching 2,824,239 people according to B3. Despite this significant number, only 3% of the population that has some investment product owns shares of publicly traded companies, given this information is really the niche market that can be exploited. In most cases this small percentage is due to the profile of the Brazilian investor, which can be termed as conservative. Even investors who own a stock portfolio have a low value intended for this type of capital market product. This fear can be attributed to the lack of time to study the market and even by not having knowledge of it, another point that we have to take into account is the emotional and psychological insecurity of gains and losses in the small investor's portfolio, tied to poor risk management. Given the scenario, we advise some stock portfolios by reducing their risks or optimizing their returns by Markowitz's method that uses statistical and rational methods. It became apparent during the study the cost benefit and assertiveness of the same. For the development of this work, the Design Thinking method was used.

Highlights

Given the improvements over the years, especially at the beginning of the 21st century in the National Financial System, especially with regard to the capital market, with the growth in the number of investors in b3 shares or other assets, Brazil became increased one the safest country and locus of protection of minority investors who are mostly individuals, and played a fundamental role in implementing the concept of Corporate Governance in publicly traded companies
Our advisory was executed in January 2020 with ten clients who already had stock portfolios among their investments, and the gains/losses of their portfolios were measured from July 2019 to December 2019
Markowitz's portfolio theory dates back to the 1950s, in Brazil this technique is little used for the improvement of portfolios and its implementation in financial advisory can be considered an innovation in the country

Summary

Introduction

Given the improvements over the years, especially at the beginning of the 21st century in the National Financial System, especially with regard to the capital market, with the growth in the number of investors in b3 shares or other assets, Brazil became increased one the safest country and locus of protection of minority investors who are mostly individuals, and played a fundamental role in implementing the concept of Corporate Governance in publicly traded companies. The average annual growth of 6.44% between 2008 and 2018 jumped to 106.7% in 2019 and 68% by July 2020 reaching 2,824,239 people investing in publicly traded companies (B3, 2020) This shows that investors are safer and more confident in leaving their money invested in these companies, becoming members and believing in the growth purpose that they propose to implement through their management policies, mission, objectives and values. According to studies by ANBIMA (2020), in 2019 only 44% of the Brazilian population, which represents 42 million people, had some type of application Of these 44%, the majority invested in savings accounts (84.2%), followed by investment funds (6%), private pension funds (5%), private securities (5%), government bonds (4%), shares (3%) and foreign currencies (2%)

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