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Portfolio Management

Prepared By:Noorulhadi Qureshi

Lecturer Govt College of ManagementSciences Peshawar

LECTURE ONE

Introduction to Portfolio

Management

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What is Portfolio?

Portfolio refers to invest in a group of

securities rather to invest in a single

security.

Dont Put all your eggs in one basket

Portfolio help in reducing risk without

sacrificing return.

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Portfolio Management

Portfolio Management is the process of

creation and maintenance of investment

portfolio.

Portfolio management is a complex

process which tries to make investment

activity more rewarding and less risky.

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Major tasks involved with

Portfolio Management

1. Taking decisions about investment mix

and policy

2. Matching investments to objectives

3. Asset allocation for individuals and

institution

4. Balancing risk against performance

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Phases of Portfolio Management

Portfolio management is a process of many activitiesthat aimed to optimizing the investment. Five phasescan be identified in the process:

1. Security Analysis.2. Portfolio Analysis.

3. Portfolio Selection.

4. Portfolio revision.

5. Portfolio evaluation.

Each phase is essential and the success of each phaseis depend on the efficiency in carrying out eachphase.

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1. Security Analysis.Security analysis is the initial phase of the

portfolio management process. There aremany types of securities available in themarket including equity shares, preferenceshares, debentures and bonds. It forms the

initial phase of the portfolio managementprocess and involves the evaluation andanalysis of risk return features of individualsecurities. The basic approach for investing insecurities is to sell the overpriced securitiesand purchase under priced securities. Thesecurity analysis comprises of Fundamental

Analysis and technical Analysis.

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2.Portfolio Analysis:

A portfolio refers to a group of securities that are kepttogether as an investment. Investors make investment invarious securities to diversify the investment to make itrisk averse. A large number of portfolios can be created

by using the securities from desired set of securitiesobtained from initial phase of security analysis.

By selecting the different sets of securities and varyingthe amount of investments in each security, variousportfolios are designed. After identifying the range of

possible portfolios, the risk-return characteristics aremeasured and expressed quantitatively. It involves themathematically calculation of return and risk of eachportfolio.

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3. Portfolio Selection

During this phase, portfolio is selected on the basis ofinput from previous phase Portfolio Analysis. The maintarget of the portfolio selection is to build a portfolio that

offer highest returns at a given risk. The portfolios thatyield good returns at a level of risk are called as efficientportfolios. The set of efficient portfolios is formed andfrom this set of efficient portfolios, the optimal portfolio ischosen for investment. The optimal portfolio is

determined in an objective and disciplined way by usingthe analytical tools and conceptual framework providedby Markowitzs portfolio theory.

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4. Portfolio Revision

After selecting the optimal portfolio, investor is requiredto monitor it constantly to ensure that the portfolioremains optimal with passage of time. Due to dynamic

changes in the economy and financial markets, theattractive securities may cease to provide profitablereturns. These market changes result in new securitiesthat promises high returns at low risks. In suchconditions, investor needs to do portfolio revision by

buying new securities and selling the existing securities.As a result of portfolio revision, the mix and proportion ofsecurities in the portfolio changes.

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5. Portfolio Evaluation

This phase involves the regular analysis and

assessment of portfolio performances in terms of

risk and returns over a period of time. During this

phase, the returns are measured quantitativelyalong with risk born over a period of time by a

portfolio. The performance of the portfolio is

compared with the objective norms. Moreover,

this procedure assists in identifying theweaknesses in the investment processes.