What is Portfolio Management?

PORTFOLIO MANAGEMENT : Portfolio management means selection of securities and
constant shifting of the portfolio in the light of varying attractiveness of the constituents of
the portfolio. It is a choice of selecting and revising spectrum of securities to it in with the
characteristics of an investor. Management means utilisation of resources in the best
possible manner. Portfolio management involves maintaining a proper combination of
securities which comprise the investor’s portfolio in such a manner that they give maximum
return with minimum risk. This requires forming of a proper investment policy which is a policy of
formation of guidelines for allocation of available funds among the various types of securities.
Markowitz analysed the implications of the fact that the investors, although seeking high
expected returns, generally wish to avoid risk. It is the basis of all scientific portfolio
management.
Although the expected return on a portfolio is directly related to the expected returns on
component securities, it is not possible to deduce a portfolio riskiness simply by knowing
the riskiness of individual securities. The riskiness of portfolio depends upon the attributes
of individual securities as well as the interrelationships among securities.
A professional, who manages other people’s or institution’s investment portfolio with the
object of profitability, growth and risk minimization is known as a portfolio manager. He is
expected to manage the investor’s assets prudently and choose particular investment
avenues appropriate for particular times aiming at maximization of profit. Portfolio
management includes portfolio planning, selection and construction, review and evaluation
of securities. The skill in portfolio management lies in achieving a sound balance between
the objectives of safety, liquidity and profitability.
Timing is an important aspect of portfolio revision. Ideally, investors should sell at market
tops and buy at market bottoms. They should be guarded against buying at high prices
and selling at low prices. Timing is a crucial factor while switching between shares and
bonds. Investors may switch from bonds to shares in a bullish market and vice-versa in a
bearish market.