Sikkim Manipal University - MBA - MF0010 –
Security Analysis and Portfolio Management
Semester: 3 - Assignment Set: 1=======================================================
PANKAJ CHOUREY Reg. No. 521036344 Page 1 of 21
Question-01: Frame the investment process for a person of your age group.
As investors, we would all like to beat the market handily, and we would all like topick "great" investments on instinct. However, while intuition is undoubtedly a part ofthe process of investing, it is just part of the process. As investors, it is not surprisingthat we focus so much of our energy and efforts on investment philosophies andstrategies, and so little on the investment process. It is far more interesting to readabout how Peter Lynch picks stocks and what makes Warren Buffett a valuableinvestor, than it is to talk about the steps involved in creating a portfolio or inexecuting trades. Though it does not get sufficient attention, understanding theinvestment process is critical for every investor for several reasons:1.
The investment process outlines the steps in creating a portfolio, and emphasizesthe sequence of actions involved from understanding the investors risk preferencesto asset allocation and selection to performance evaluation. By emphasizing thesequence, it provides for an orderly way in which an investor can create his or herown portfolio or a portfolio for someone else.2.
The investment process provides a structure that allows investors to see the sourceof different investment strategies and philosophies. By so doing, it allows investorsto take the hundreds of strategies that they see described in the common press andin investment newsletters and to trace them to their common roots.3.
The investment process emphasizes the different components that are needed foran investment strategy to by successful, and by so doing explain why so manystrategies that look good on paper never work for those who use them.The best way of describing this book is by noting what it does not do. It does notemphasize individual investors or push an investment philosophy. It does not focusheavily on coming up with strategies that beat the market, though there is reference tosome of them in the course of the book. Instead, it talks about the process of investingand how this process is the same no matter what investment philosophy one mighthave.The book is built around the investment process. The process always starts with theinvestor and understanding his or her needs and preferences. For a portfolio manager,the investor is a client, and the first and often most significant part of the investmentprocess is understanding the clients needs, the clients tax status and mostimportantly, his or her risk preferences. For an individual investor constructing his orher own portfolio, this may seem simpler, but understanding ones own needs andpreferences is just as important a first step as it is for the portfolio manager.