Various assets or types of investment (stocks, bonds and cash equivalents) held and/or managed directly by investors, constitute a portfolio. In order to build up a coherence between risk tolerance and the investing objectives, investors favor large cap value stocks based on index funds if their strategy is conservative, an aggressive stock position if they are risk-takers (risky markets : real estates, futures, international investments). The choice of the strategy and its implementation is what is called portfolio management. Investopedia gives the following definition of portfolio management: "The art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for individuals and institutions, and balancing risk against performance." Investment Management concerns the professional management of various securities and assets. The managers' aim is to meet the defined investment goals for the benefit of their investors. They can also mange portfolios on behalf of private investors. This is called "private banking". Basically, their job is to perform financial analysis, asset selection, stock selection, plan implementation and monitoring of investments.
[...] o Beta (systematic risk's measurement) The risk of a portfolio can be either systematic or diversifiable. Systematic risk refers to the risk common to all securities for instance a market risk, whereas a diversifiable risk belongs to individual assets. A portfolio of 30-40 securities in a developed market makes the portfolio enough diversified and will limit systemic risk. But in case of a highly volatile market, more securities would be needed. Consequent from the historical data analysis, the beta coefficient is allows to measure the return performance of a given stock versus the return performance of the market. [...]
[...] Even if correctly benchmarked, it is quite difficult to outperform, due to the percentage shrinking as the time they hold positions increases, but also to the cost linked to the active management (fees, higher transaction costs, tax on gains ) Nevertheless it can appear as an attractive strategy if the market segment chosen are not fully efficient. V. The importance of data analysis to optimize the results 1. Technical vs. fundamental data analysis ♦ Technical Analysis A technical analysis consists on studying the activity of the market price. Elements such as political or economical factors influence the price trend, so it is why analysts will closely observe them. Through technical analysis, they analyze the effects of those market moves on the price direction determination. [...]
[...] Retrieved july 1th from InvestorWords: http://www.investorwords.com/3083/modern_portfolio_theory.html InvestorWords.com. (s.d.). diversification. Consulté le July 1th sur InvestorWords.com: http://www.investorwords.com/1504/diversification.html Markovitz Differentiation. (s.d.). Consulté le July 1st sur ftsnet.com: http://www.ftsnet.com/Public/DiscusHTML/markowitz/markowitzindex.htm Wikipedia, t. f. (s.d.). Diversification. [...]
[...] ♦ 3 factor's Model (1993) : the market index, the market capitalization, the book to market To describe portfolio normal returns, Fama and French (1993) have highlighted important factors that characterize a company's risk in addition to market risk. These factors are the book-to-market ratio and the company's size as measured by its market capitalization. ♦ Carhart (1997) : the market index, the market capitalization, the book to market and the persistence of returns Carhart (1997) proposed to add momentum as a fourth factor to allow the persistence of the returns to be taken into account. Also of interest for performance measurement is Sharpe's (1992) style analysis model, in which factors are style indices. [...]
[...] Investment management and modern portfolio theory INVESTMENT MANAGEMENT AND MODERN PORTFOLIO THEORY I. Executive summary I. Executive summary II. Abstract III. Introduction IV. Investment styles : Passive management vs Active management Passive management Active management V. The importance of data analysis to optimize the results Technical vs. fundamental data analysis ♦ Technical Analysis ♦ The fundamental Analysis The rational analysis VI. Risk aversion management : Modern Portfolio Theory Creation and aim of the MPT ♦ The creation of the theory ♦ The aim The importance of the Markowitz's diversification ♦ Purpose ♦ Theory application ♦ Theory limitation VII. [...]
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