13352056-Portfolio-Management

13352056-Portfolio-Management - INTRODUCTION From The...

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INTRODUCTION From The Rational Edge: The first in a new series of articles on portfolio management, this introduction expresses IBM’s viewpoint about the foundations and essentials of portfolio management, and discusses ideas and assets that support and enable effective portfolio management practices. A good way to begin understanding what portfolio management is (and is not) may be to define the term portfolio. In a business context, we can look to the mutual fund industry to explain the term's origins. Morgan Stanley's Dictionary of Financial Terms offers the following explanation: If you own more than one security, you have an investment portfolio. You build the portfolio by buying additional stocks, bonds, mutual funds, or other investments. Your goal is to increase the portfolio's value by selecting investments that you believe will go up in price. According to modern portfolio theory, you can reduce your investment risk by creating a diversified portfolio that includes enough different types, or classes, of securities so that at least some of them may produce strong returns in any economic climate.
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Note that this explanation contains a number of important ideas: A portfolio contains many investment vehicles. Owning a portfolio involves making choices -- that is, deciding what additional stocks, bonds, or other financial instruments to buy; when to buy; what and when to sell; and so forth. Making such decisions is a form of management. The management of a portfolio is goal-driven. For an investment portfolio, the specific goal is to increase the value. Managing a portfolio involves inherent risks. Over time, other industry sectors have adapted and applied these ideas to other types of "investments," including the following: Application portfolio management : This refers to the practice of managing an entire group or major subset of software applications within a portfolio. Organizations regard these applications as investments because they require development (or acquisition) costs and incur continuing maintenance costs. Also, organizations must constantly make financial decisions about new and existing software applications, including whether to invest in modifying them, whether to buy additional applications, and when to "sell" -- that is, retire -- an obsolete software application.
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Product portfolio management : Businesses group major products that they develop and sell into (logical) portfolios, organized by major line-of-business or business segment. Such portfolios require ongoing management decisions about what new products to develop (to diversify investments and investment risk) and what existing products to transform or retire (i.e., spin off or divest). Project or initiative portfolio management, an initiative, in the simplest sense, is a body of work with: A specific (and limited) collection of needed results or work products. A group of people who are responsible for executing the
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This note was uploaded on 05/20/2011 for the course ECON 5128 taught by Professor Ram during the Spring '11 term at Cambridge College.

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13352056-Portfolio-Management - INTRODUCTION From The...

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