INTRODUCTION TO PORTFOLIO MANAGEMENT
We all dream of beating the market and being super investors and spend an inordinate amount of time and resources in this endeavor. Consequently, we are easy prey for the magic bullets and the secret formulae offered by eager salespeople pushing their stuff. In spite of our best efforts, most of us fail in our attempts to be more than average investors. Nonetheless, we keep trying, hoping that we can be more like the investing legends – another Warren Buffett or Peter Lynch. We read the words written by and about successful investors, hoping to find in them the key to their stock-picking abilities, so that we can replicate them and become wealthy quickly.
Investing in shares and debentures is profitable as well as exiting. It is indeed rewarding, but involves a great deal of risk and calls for scientific knowledge and forecasting skill. In such investments, both rational as well as emotional responses are involved. Investing in securities is considered as one of the best avenues to invest ones savings while it is acknowledged to be one of the most risky avenues of investment.
It is unusual to find investors investing their entire money in one single security. Instead, they tend to invest in a group of securities. Such a group of securities is called a portfolio. Creation of a portfolio helps to reduce risks without sacrificing returns. Portfolio management deals with the analysis of individual securities as well as with the theory and practice of optimally combining securities into portfolios. An investor who understands the fundamental principals and analytical aspects of portfolio m ...