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Summary Chapter 7: Portfolio Management

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In depth notes on Portfolio management.

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  • March 23, 2023
  • 7
  • 2022/2023
  • Summary
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CHAPTER 7: PORTFOLIO MANAGEMENT
·As potential Investment
a Investor there are various Instruments to consider
investigating in.




Investment Instruments provide different levels of returns risk, and are prone to different


VISKS.


some Investments (provide an income on continuous basis (dividends, rent

Other Investments (provide capital growth (gain)

&RISKS differ from Investment to Investment


·Investor
combining certain Investments: have greater certainty over his Income? The risk of all



Investments together.




to success: diversification construction of
key over different asset classes
during portfolio




ASSETS CLASSES & INVESTMENT INSTRUMENTS
key success factor to create wealth: build a diversified portfolio of Investments


(l.e spread available funds across asset classes possible within the constraints of the
as
many as



Investment objectives (

Two groups asset classes of Investment Instruments:


I
Real


2. Financial




REAL INVESTMENT: FINANCIAL INVESTMENT: Monetary
non-monetary
& Real estate, luxury goods, commodities Bands, shares, cash


&
IllIquid, high return, riskle LIquid, low return, less risk


I I
properties: properties:


physical products Piece of paper

Lots of admin computer entry
Not
very liquid High 11
quidity

Difficult to safeguard Easy to
safeguard

Return: end of period Return: continuous


& C.G.
property, Krugerrands, artworks,
· E.G. shares, fixed interest securities, unit trusts,


coins, motors, silverware, wine, books participation bands, satrix products

, RETURN & RISK RISK:


possibility investment produce
w ill not



RETURNN desired return (incomel


Uncertainty associated with return
Investors wanta return either:
D
I Actual return expected return
continuous (dividends, interest)

Actual return (Expected return
Endof
period (capital growth)

Each investor must
decide on an


DETERMINING RETURN:
objective
investment


If there is
uncertainty f uture
about
satisfactory level of return


(amtof Income;apply probabilities to
specific risk profile risk



to acceptt o achieve desired return) calculate an expected future return.
willing
z
EXAMPLE:

↳ fixed
PORTFOLIO: Investi n depositw ith variable



int rates
Desiredportfolio:diversified


4 possible intrates:9;10%; 11%.
Negative performance in one


RETURN AND RISK 12.1
investmentcancelled out
by positive
ofrealisation:0.10,0.30
probability
I
performance in another Investment.



portfolio
0.40, 0.20
management philosophy: I




Am expected retur n:(9%) (0.10) t
compile combination of Investment

(10.1.0.3) (ICO)
realistic HI.CO.C
+




alternatives to achieve a



acceptable level ofr is k within the


investmentobjectives. CHARACTERISTICS OF
ASSET

CLASSES:

I Risks Increase as the return of
the

Be
MEASURES TO DETERMINE
RISK: Alter various c lasses
asset increase.



1. calculate the variance/standard deviation ofexpected returns ·Risk bills
attached to
treasury

The greater the variance STDEU, the greater the
uncertainty (money market of
i nstrument



thatthe expected return will be realised, thus the greater the risk
goul is
very low accompanying
B

problem:based on historical data. return is also low.


2. Determine ofretur ns with a higher risk,
the
range ·property, much



Larger range:greater uncertainty of expected
what return will have a much higher expected

will be ... the greater the risk return.



3. View
only the returns lower than the expected return
(than portfolio management:combination

:Implies the calculation s emi-variance.
of ofa
healthy balance ofi nvestment


Instruments thatsuite the investor's specific
profile r isk/return.
of

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