Question

-Do any of the 5 principles (risk return trade off, time value of money, leverage, liquidity vs profitability, matching principles, portfolio effect, valuation) stand out at you based on anything you've experienced?
-The book discusses the recent Global Financial Crisis. Do you expect another crisis in the future? Why or why not?
-What do you think were the causes of the last financial crisis?
-Any ideas on how changes can be made to lower the chances of a future meltdown?

Answer 1

Portfolio effect or diversification is one of the most important principle for any investor which standouts. A collection of stocks, bonds, real estate and gold/silver are some of the baskets any investors can choose. This can be defined as the money that is pooled together through large number of assets.

I believe the next financial crisis will again be caused due to same set of issues but will be due to other set of asset class which is getting same kind of investment creating bubble.

Previous Financial crisis of 2008 was caused not because of one systemic failure but because of many factors culminating:

1. Sub prime lending
2. poor credit appraisal
3. Inflated prices of assets at all classes
4. High leverage