LEONARDO DA VINCI. Transfer of Innovation. Kristina Levišauskait÷. Investment Analysis and Portfolio Management. Leonardo da Vinci programme project. tion to portfolio management for students in mathematics and economics as well. For this, and certainly our focus is mainly on portfolio choice problems. Thus. Database Systems: Design, Implementation, and Management, Tenth Edition Carlos Coronel, Steven Database Systems D.
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Security Analysis and Portfolio Management by Donald E. Fischer Ronald J. Jordan, Publisher: Prentice-Hall of India. 2. Security Analysis And. Portfolio Management - the art and science of making decisions about investment mix and policy, matching investments to objectives, asset allocation for. Project portfolio management: a practical guide to selecting projects, managing portfolios, and maximizing benefits / by Harvey A. Levine; foreword by Max.
The portfolio is a collection of investment instruments like shares, mutual funds, bonds , FDs and other cash equivalents, etc. Portfolio management is the art of selecting the right investment tools in the right proportion to generate optimum returns with a balance of risk from the investment made.
In other words, a portfolio is a group of assets. The portfolio gives an opportunity to diversify risk.
Diversification of risk does not mean that there will be an elimination of risk. Even an optimum portfolio cannot eliminate market risk, but can only reduce or eliminate the diversifiable risk.
As soon as risk reduces, the variability of return reduces. Portfolio management is 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.
Portfolio management is all about determining strengths, weaknesses, opportunities and threats in the choice of debt vs. Portfolio management can by either passive or active, in the case of mutual and exchange-traded funds ETFs.
Passive management simply tracks a market index, commonly referred to as indexing or index investing. Active management involves a single manager, co-managers or a team of managers who attempt to beat the market return by actively managing a fund's portfolio through investment decisions based on research and decisions on individual holdings.
Closed-end funds are generally actively managed.
Asset Allocation: The key to effective portfolio management is the long-term mix of assets. Asset allocation is based on the understanding that different types of assets do not move in concert, and some are more volatile than others. Investors with a more aggressive profile can weight their portfolio toward more volatile investments. Investors with a more conservative profile can weight their portfolio toward more stable investments.
The only certainty in investing is it is impossible to consistently predict the winners and losers, so the prudent approach is to create a basket of investments that provide broad exposure within an asset class. Such portfolios require ongoing management decisions about what newproducts to develop to diversify investments and investment risk and what existingproducts to transform or retire i.
Project or initiative portfoliomanagement, an initiative, in the simplest sense, is a body of work with: Managers can group a number of initiatives into a portfolio that supports a businesssegment, product, or product line.
Managers mustcontinually choose among competing initiatives i. They must also manage their investments by providingcontinuing oversight and decision-making about which initiatives to undertake, which tocontinue, and which to reject or discontinue.
Indian Bank is enlarging its activities to deliver value-added services to its customers. The Bank is concentrating on optimizingthe 3 Ps, People, Process and Products to give maximum advantage to its customersand to face the market competition by exploiting the emerging opportunities. This partnership will also deliverrisk management solutions to Indian Bank customers through the Insurance advisoryroute. Pnb Principal Financial Planners willprovide support in the area of financial planning, investment advisory, research,systems and business development to Indian Bank.
The strategic alliance will enablecustomers of Indian Bank to access a wide range of superior investment solutions. We are pleased to associateourselves with Indian Bank.
This partnership with Indian Bank will make a range ofinvestment solutions more accessible to retail investors of Indian Bank. This team, which might be called the Product Committee,meets regularly to manage the product pipeline and make decisions about the productportfolio. Often, this is the same group that conducts the stage-gate reviews in theorganization. A logical starting point is to create a product strategy - markets, customers, products,strategy approach, competitive emphasis, etc.
The second step is to understand thebudget or resources available to balance the portfolio against. Third, each project mustbe assessed for profitability rewards , investment requirements resources , risks, andother appropriate factors. The weighting of the goals in making decisions about products varies from company.
But organizations must balance these goals: Several types of techniques have been used to support the portfolio managementprocess: However, this approach paidlittle attention to balance or aligning the portfolio to the organizations strategy.
Scoringtechniques weight and score criteria to take into account investment requirements,profitability, risk and strategic alignment. The shortcoming with this approach can be anover emphasis on financial measures and an inability to optimize the mix of projects.
Mapping techniques use graphical presentation to visualize a portfolios balance. Theseare typically presented in the form of a two-dimensional graph that shows the trade-offsor balance between two factors such as risks vs. With multiple business units, product lines or typesof development, we recommend a strategic allocation process based on the businessplan.
Once this is done, then a portfolio listing can be developed including the relevantportfolio data. We favor use of the development productivity index DPI or scores fromthe scoring method. The development productivity index is calculated as follows: It factors theNPV by the probability of both technical and commercial success. By dividing this resultby the development cost remaining, it places more weight on projects nearer completionand with lower uncommitted costs.
The scoring method uses a set of criteria potentiallydifferent for each stage of the project as a basis for scoring or evaluating each project. Weightingfactors can be set for each criterion. The evaluators on a Product Committee scoreprojects 1 to 10, where 10 are best. The worksheet computes the average scores andapplies the weighting factors to compute the overall score.
The maximum weightedscore for a project is This portfolio list can then be ranked by either thedevelopment priority index or the score.
An example of the portfolio list is shown belowand the second illustration shows the category summary for the scoring method. Once the organization has its prioritized list of projects, it then needs to determinewhere the cutoff is based on the business plan and the planned level of investment ofthe resources available.
This subset of the high priority projects then needs to be further 20 The first step is to check that the prioritized list reflects theplanned breakdown of projects based on the strategic allocation of the business plan. Pie charts such as the one below can be used for this purpose. Other factors can also be checked using bubble charts. For example, the risk-rewardbalance is commonly checked using the bubble chart shown earlier.
A final check is toanalyze product and technology roadmaps for project relationships. For example, if alower priority platform project was omitted from the protfolio priority list, the subsequenthigher priority projects that depend on that platform or platform technology would beimpossible to execute unless that platform project were included in the portfolio prioritylist.
In many companies, current year revenues are increasingly based on newproducts developed in the last one to three years. Markowitz - , who won a Nobel Prize in economics in Portfolio theory allows investors to estimate both the expected risks and returns, asmeasured statistically, for their investment portfolios.
Markowitz described how to combine assets into efficiently diversified portfolios. It washis position that a portfolios risk could be reduced and the expected rate of return couldbe improved if investments having dissimilar price movements were combined. In otherwords, Markowitz explained how to best assemble a diversified portfolio and proved thatsuch a portfolio would likely do well. There are two types of Portfolio Strategies: Passive Portfolio StrategyA strategy that involves minimal expectation input, and instead relies on diversificationto match the performance of some market index.
Active Portfolio StrategyA strategy that uses available information and forecasting techniques to seek a betterperformance than a portfolio that is simply diversified broadly 22 The PortfolioFirst, we can now introduce a definition of portfolio that relates more directly to thecontext of our preceding discussion.
In the IBM view, a portfolio is: One of a number ofmechanisms, constructed to actualize significant elements in the Enterprise BusinessStrategy. It contains a selected, approved, and continuously evolving, collection of Initiativeswhich are aligned with the organizing element of the Portfolio, and, which contribute tothe achievement of goals or goal components identified in the Enterprise BusinessStrategy. The basis for constructing a portfolio should reflect the enterprises particularneeds. For example, you might choose to build a portfolio around initiatives for aspecific product, business segment, or separate business unit within a multinationalorganization.
The Portfolio StructureAs we noted earlier, a portfolio structure identifies and contains a number of portfolios. This structure, like the portfolios within it, should align with significant planning and 23 If you have a product-orientedportfolio structure, for example, then you would have a separate portfolio for each majorproduct or product group.
Each portfolio would contain all the initiatives that help thatparticular product or product group contribute to the success of the enterprise business3. The Portfolio ManagerThis is a new role for organizations that embrace a portfolio management approach. Aportfolio manager is responsible for continuing oversight of the contents within aportfolio.
If you have several portfolios within your portfolio structure, then you will likelyneed a portfolio manager for each one. The exact range of responsibilities andauthority will vary from one organization to another, but the basics are as follows: Portfolio Reviews and Decision MakingAs initiatives are executed, the organization should conduct periodic reviews of actual versus planned performance and conformance to original expectations.
Typically,organization managers specify the frequency and contents for these periodic reviews,and individual portfolio managers oversee their planning and execution. The reviewsshould be multi-dimensional, including both tactical elements e. A significant aspect of oversight is setting multiple decision points for each initiative, sothat managers can periodically evaluate data and decide whether to continue the work.
GovernanceImplementing portfolio management practices in an organization is a transformationeffort that typically involves developing new capabilities to address new work efforts,defining and filling new roles to identify portfolios collections of work to be done , anddelineating boundaries among work efforts and collections. Implementing portfoliomanagement also requires creating a structure to provide planning, continuing direction,and oversight and control for all portfolios and the initiatives they encompass.
That iswhere the notion of governance comes into play. The IBM view of governance is: An abstract, collective term that defines and contains a framework for organization,exercise of control and oversight, and decision-making authority, and within whichactions and activities are legitimately and properly executed; together with the definitionof the functions, the roles, and the responsibilities of those who exercise this oversightand decision-making.
Portfolio management governance involves multiple dimensions, including: A good governance structure decomposes both the types of work and the authority toplan and oversee work. It defines individual and collective roles, and links them to anauthority scheme. Policies that are collectively developed and agreed upon provide aframework for the exercise of governance. The complexities of governance structuresextend well beyond the scope of this article.
Many organizations turn to experts for helpin this area because it is so critical to the success of any business transformation effortthat encompasses portfolio management. For now, suffice it to say that it is worthinvesting time and effort to create a sound and flexible governance structure before youattempt to implement portfolio management practices.
Portfolio management essentialsEvery practical discipline is based on a collection of fundamental concepts that peoplehave identified and proven and sometimes refined or discarded through continuousapplication. These concepts are useful until they become obsolete, supplanted bynewer and more effective ideas. For example, in Roman times, engineers discovered that if the upstream supports of abridge were shaped to offer little resistance to the current of a stream or river, theywould last longer.
They applied this principle all across the Roman Empire. Then, in themiddle Ages, engineers discovered that such supports would last even longer if theirdownstream side was also shaped to offer little resistance to the current. So thatbecame the new standard for bridge construction. Portfolio management, like bridge-building, is a discipline, and a number of authors andpractitioners have documented fundamental ideas about its exercise.
Recently, basedon our experiences with clients who have implemented portfolio management practicesand on our research into the discipline, we have started to shape an IBM view offundamental ideas around portfolio management. We are beginning to express this view 26 The other objectives are as follows: An investor considers stability of income from his investment. He also considers the stability of downloading power of income.
Capital appreciation has become an important investment principle. Investors seek growth stocks which provide a very large capital appreciation by way of rights, bonus and appreciation in the market price of a share.
An investment is a liquid asset.
It can be converted into cash with the help of a stock exchange. Investment should be liquid as well as marketable. The portfolio should contain a planned proportion of high-grade and readily salable investment. In order to provide safety, a careful review of economic and industry trends is necessary.
In other words, errors in portfolio are unavoidable and it requires extensive diversification. Investors try to minimize their tax liabilities from the investments.
The portfolio manager has to keep a list of such investment avenues along with the return risk, profile, tax implications, yields and other returns There are three goals of portfolio management: Maximize the value of the portfolio 2.
Seek balance in the portfolio 3. Keep portfolio projects strategically alignedIt provides a set of portfolio management tools to help achieve these goals. Withmultiple business units, product lines or types of development, we recommend astrategic allocation process based on the business plan.
A Product or Technology Roadmap 28 Thiswill allow management to develop a balanced approach to selecting andcontinuing with the appropriate mix of projects to satisfy the three goals.
Every investor is risk averse.
In order to diversify the risk by investing into varioussecurities following functions are required to be performed. The functions undertaken by the portfolio management are as follows: To frame the investment strategy and select an investment mix to achieve the desired investment objective; 2.
To provide a balanced portfolio which not only can hedge against the inflation but can also optimize returns with the associated degree of risk; 3. To make timely downloading and selling of securities; 4. To maximize the after-tax return by investing in various taxes saving investment instruments. Portfolio management is on-going process involving the following basictasks: Once the goal has been selected, the portfolio manager can select the common stocks.
If the statement of investment policy requires pure investment strategy, this is only thing, which is done in the execution stage.