Friday, 10 January 2020

Unit 9: Portfolio Management

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Unit 9: Portfolio Management

Every strategy has certain performance implications.

The word strategy implies a conscious effort to achieve stated goals.

Their concern is to at least meet their minimum acceptable return levels without taking excessive risk.

They want a comfortable and stress-free retirement.

The asset-allocation design will determine results in both short- and long-term periods.

What's more, both risk and returns will be driven far more by asset allocation than stock selection or market timing.

The asset allocation decision refers to the allocation of portfolio assets to broad asset markets; in other words, how much of the portfolio's funds are to be invested in stocks, how much in bonds, money market assets, and so forth.

Each weight can range from 0% to 100%.

Examining the asset allocation decision globally leads us to ask the following questions: What percentage of portfolio funds is to be invested in each of the countries for which financial markets are available to investors? Within each country, what percentage of portfolio funds is to be invested in stocks, bonds, bills, and other assets? Within each of the major asset classes, what percentage of portfolio funds is to go into various types of bonds, exchange-listed stocks versus over-the-counter stocks, and so forth? Value investing is termed as conservative investing.

In the case of value investing, bargains are often measured in terms of market prices that are below the estimated current economic value of tangible and intangible assets.

The strategy of growth investors is to identify the shares whose future returns are expected to grow at a fast rate.

Growth investment style identifies shares based on the growth potential of companies.

These types of investors look into the future potential returns from the company.

Historical returns need not exhibit a close relationship with growth rate or historical earnings per share.

Notes Investment Risk Pyramid: A portfolio strategy that allocates assets according to the relative safety and soundness of investments.

The bottom of the pyramid is comprised of low-risk investments, the mid-portion is composed of growth investments and the top is speculative investments.

Random Diversification: Also known as naïve diversification, it refers to the act of randomly diversifying without regard to relevant investment characteristics such as expected return and industry classification.

Value Investing: In the case of value investing, bargains are often measured in terms of market prices that are below the estimated current economic value of tangible and intangible assets.


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