The Investment Process/ The Portfolio Mgt. Process

THE INVESTMENT PROCESS/ THE
PORTFOLIO MGT. PROCESS
Portfolio management comprises all the processes

involved in the creation and maintenance of an
investment portfolio.
P.Mgt. is a complex process which tries to make the
investment activity more rewarding and less risky.
OR
P.Mgt. is a process encompassing many activities
aimed at optimising the investment of one’s funds.
To continue
1. Investment Policy
2. Security Analysis
3. Portfolio Analysis
4. Portfolio Selection
5. Portfolio Revision
6. Portfolio Evaluation
To continue
Investment policy
The essential ingredients of the policy are :
a. The investible funds
b. Objectives
c. knowledge
To continue
Security Analysis
- Over 7000 companies are listed.
- Securities are of two types : ownership securities
and creditorship securities and other new
securities.
- This step consists of examining the risk-return
characteristics of individual securities.
- Basic strategy : BUY UNDERPRICED
SECURITIES AND SELL OVERPRICED
SECURITIES. HOW TO identify it ?
Security analysis – To continue
There are two alternative approaches :
1. Fundamental Analysis :
A. Company Analysis
B. Industry Analysis
C. Market Analysis
The fundamental approach suggests to compare the Intrinsic
Value ( IV) with Current Market Price ( MP).
Overpriced = MP > IV ─ SELL

AS PRICE OF OVER VALUED SHARES WILL DECLINE
TO continue
Under priced = MP < IV ─ BUY
AS PRICES OF UNDERVALUED SHARES WILL
INCREASE.
2. Technical Analysis
The technical analyst believes that share price movements
are systematic and exhibit certain consistent patterns.
Hence He studies past movements in the prices of shares to
identify trends and patterns. He then tries predict the future
price movements.
To continue
Thus diversification of one’s holding is
intended to reduce risk in investment.
Each individual security has its own risk
return characteristics which can be
measured and expressed quantitatively.
The return and risk of each portfolio has to
be calculated mathematically and
expressed quantitatively.
To continue
This phase of P.Mgt. consists of identifying
the range of possible portfolios that can be
constituted from a given set of securities
and calculating their return and risk for
further analysis.
3. Portfolio Analysis
A portfolio is a group of securities held

together as investment. Investors invest
their funds in a portfolio of securities
rather than in a single security because
they are risk averse.
4. Portfolio Selection
 The proper goal of portfolio construction is
to generate a portfolio that provides the
highest returns at a given level of risk.
 A portfolio having this characteristic is
known as an EFFICIENT PORTFOLIO.
 From this set of efficient portfolios, the
OPTIMAL portfolio has to be selected for
investment.
5. Portfolio Revision
 Having constructed the optimal portfolio, the
investor has to constantly monitor the portfolio to
ensure that it continues to be optimal.
 As the economy and financial market are
dynamic, changes take place almost daily.
 New securities with promise of high returns and
low risk may emerge.
 The investor now has to revise his portfolio in
the light of developments in the market.
To continue
 This revision leads to purchase of some
new securities and sale of some of the
existing securities from the portfolio.
 It is necessitated by some investors
related changes such as availability of
additional funds, changes in risk attitude,
need for cash for other alternative use etc.
Portfolio Evaluation (P.E.)
 The objective of constructing a portfolio and
revising it periodically is to earn maximum
returns with minimum risk.
 P.E. is the process which is concerned with
assessing the performance of the portfolio over
a selected period of time in terms of return and
risk.
 It provides a feedback mechanism for improving
the entire portfolio management process.
To continue
 The portfolio Mgt. process is an ongoing
process.
 It starts with security analysis, proceeds to
portfolio construction, continues with
portfolio revision and evaluation.

The Investment Process/ The Portfolio Mgt. Process

Uploaded by

Copyright:

Available Formats

The Investment Process/ The Portfolio Mgt. Process

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

The Investment Process/ The Portfolio Mgt. Process

Uploaded by

Copyright:

Available Formats

THE INVESTMENT PROCESS/ THE

PORTFOLIO MGT. PROCESS

Portfolio management comprises all the processes

Overpriced = MP > IV ─ SELL

A portfolio is a group of securities held

You might also like