Overweight is one of the many terms used in economics, with greater frequency in the stock market, therefore You can usually read in the media the recommendations of economic analysts where they usually use well the term overweight or underweight.
Terms that can lead many to be confused by misinterpretation. So this time we are going to know a little about them.
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In this article you will find:
What is overweight?
In the Stock Market Overweight equals buy, while underweight equals sell.
Beyond this simple meaning, the recommendation when using the term overweight is to increase, that is, to include it in the portfolio with a greater proportion than that value has.
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Conceptually, it is to give value to a certain good or service above the value it has in the market, based on certain economic criteria.
In financial market jargon, the term is widely used in asset valuation trading.
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It is important to know that this overweight occurs as a result of the expectation that the return value of the financial asset will be above the benchmark or the performance of sector.
Therefore, the manager will seek to exercise maneuvers in his portfolio, giving greater weight to said values that could obtain greater performance and reducing the weight of the values that generate less performance.
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Overweight in practice
When a company overvalues an asset or It is because the careful analysis of said asset has been carried out, considering that its real value is higher than it currently has, therefore, make a bid or offer in order to make this asset attractive and therefore revalue in the future, (in the case of an asset financial).
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As mentioned above, it is widely used in trading and in general within the financial market sector. Its use has been instrumented with emanations for long perspectives, since investment houses usually publish estimates regarding a value, indicating that the situation is of overweighting the security, in this sense, when the valuation at a higher price, investors take the opportunity to enter bullish positions until reaching the price objective.
This term can sometimes suppose the obtaining of a competitive disadvantage with respect to the existing conditions in the market, not must always be detrimental, since the price of that good could be oriented favorably towards future estimates of the same.
On the other hand, contemplating the demand when thinking that in carrying out the overvaluation of an asset or, it is due to the existence of positive characteristics of the same and therefore, its marginal utility should not be so decreasing, compared to the marginal utility of other goods with similar properties, resulting in an increase in their demand. The competition factor is one more element to take into consideration, since it can influence the demand for a good, causing it to reach very high levels, thanks to factors of differentiationsuch as utility, quality, durability, etc.
It is worth noting that, in the case of a financial asset, it will depend on the economic outlook, how good it is, and the economy as a whole. In addition, in the case of a good, it will be difficult to maintain a certain regular demand, because consumer expectations fluctuate according to fashions and preferences, for multiple factors, where advertising is one of the most determining factors, especially in a competitive environment since it represents the most direct and precise way to capture the final consumer.
