INTRODUCTION TO PORTFOLIO MANAGEMENT : INTRODUCTION TO PORTFOLIO MANAGEMENT MEANING OF PORTFOLIO : MEANING OF PORTFOLIO If the investors find to invest in group of securities instead of investing them in single group it is known as Portfolio Meaning of Portfolio Management : Meaning of Portfolio Management It deals with the analysis of individual securities as well as with the theory and practice of optimally combining the securities into portfolios. WHAT IS A PORTFOLIO MANAGEMENT : WHAT IS A PORTFOLIO MANAGEMENT Investor is facing the problems in choosing the securities
His choice depends upon the risk and return of individual characteristics
The investors faces with the infinite of choice of securities
The economic and financial problems changes the characteristics of securities Slide 5: An investors invests only in an expectation of good returns with low risk of bearing
It is evident that rational investment activity involves creation of investment of portfolio
It also makes use of technical analysis and conceptual theories regarding rational allocation of funds PHASES OF PORTFOLIO MANAGEMENT : PHASES OF PORTFOLIO MANAGEMENT SECURITY ANALYSIS
PORTFOLIO EVALUATION SECURITY ANALYSIS : SECURITY ANALYSIS The securities are classified into equity shares and preference shares and creditor ship securities such as debentures and bonds.
Convertible debentures, Deep Discount Bonds, Coupon Bonds, Floating Bonds,, Depository Receipts etc. are some of securities the investors has to chose those securities which he considers worthwhile to be included in his investment portfolio Slide 8: Security analysis is the initial stage of portfolio management process.
This step consists of examining the risk-return trade off relationship.
It deals with the procedure of under priced and over priced securities APPROACHES OF SECURITY ANALYSIS : APPROACHES OF SECURITY ANALYSIS FUNDAMENTAL ANALYSIS : FUNDAMENTAL ANALYSIS It is the older approach
It concentrates on Factors affecting the company
Examples: EPS, Dividends etc
It also studies about the factors effecting the industry analysis
Examples: Growth, development, exports etc
Share price was determined by the fundamental factors
It works out true worth or intrinsic value comparing with market price Slide 11: It helps the companies to identify the strong companies whose shares are worthy to be included in the investor’s portfolio TECHNICAL ANALYSIS : TECHNICAL ANALYSIS It is second alternative approach to security analysis
A technical analyst believes that share price movements are systematic and exhibit certain consistent patterns.
He predicts the future price movements on the basis of past movements in the prices of shares.
It is compared with the future predicted price to determine the extent of miss pricing
Technical analysis is an approach which concentrates on price movements and ignore the fundamentals of the shares. EFFICIENT MARKET HYPOTHESIS : EFFICIENT MARKET HYPOTHESIS According to School of thoughts the financial market is efficient in pricing securities.
The efficient market hypotheses holds the market prices instantaneously and fully reflect the relevant information
It holds the share price movements randomly and not systematic
Efficient market hypothesis is a direct repudiation of both fundamental and technical analysis PORTFOLIO ANALYSIS : PORTFOLIO ANALYSIS Portfolio analysis phase 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 PORTFOLIO SELECTION : PORTFOLIO SELECTION The goal of portfolio is to generate a portfolio that provides the high returns at a given level of risk
A portfolio is having this characteristic is called as Efficient portfolio
The inputs from the portfolio analysis can be used to identify the set of efficient portfolios
From this set of efficient portfolios the optimal portfolio has to be selected Slide 16: Harry Markowitz’s provides the conceptual frame work and analytical tools for determining the optimal portfolio PORTFOLIO REVISION : PORTFOLIO REVISION After the construction of portfolio the investor has to monitor the portfolio to ensure that it continues to be optimal.
The investors has to revise his portfolio in the light of developments in the market
This revision leads to purchase some new securities and sale some of the existing securities. Slide 18: The mix of securities and their proportion in the portfolio changes as a result of the revision
Portfolio revision may also be necessitated by some investor related changes PORTFOLIO EVALUATION : PORTFOLIO EVALUATION Portfolio evaluation is the process which is concerned with assessing the performance of portfolio over the selected period of time in terms of risk and return
It provides a mechanism for identifying weaknesses in the investment process and for improving deficient resources