Company Portfolio Essay

3116 words - 13 pages

What is Corporate Portfolio
All of the assets included on the firm's balance sheet. For example, a real estate trust holds a portfolio of office rental properties. Also called investment portfolio. See also diversification

Corporate Philosophy
Markets are efficient
The design of the portfolio as a whole should be more important than the selection of any particular security within the portfolio.

The general rule is that Investors are risk averse.

For a given risk level, an optimal combination of asset classes will maximize returns.

Investment Style
Passive Vehicle Style of investment
Active Vehicle Investment Style
Horizon (Long term Investment )
Life-cycle (often used in ...view middle of the document...

Generally, a "balanced fund" implies a fixed mixed of stocks and bonds, such as 60% stocks and 40% bonds. "Life-cycle" or "target-date" funds, which are often used in retirement plans, usually have a mix of stocks, bonds and cash equivalent securities that starts out with a higher risk-return position and gradually become less risky as the investor ages and/or nears retirement. So-called "life-style," or actively-managed asset-allocation funds provide the active management of a fund's asset classes in response to market conditions ( small cap bullish condition)
Active Asset Selection deliver superior returns
This asset selection decision, like the asset allocation decision, can be an active one, where the we attempts to buy undervalued assets in each asset class (or sell overvalued ones) or a passive one, where we invests across assets in an asset class, without attempting to make judgments on under or over valuation.

Active Asset Selection
Active asset selection strategies can be classified fairly broadly into four classes –
Intrinsic valuation model
relative valuation model
technical analysis models
Portfolio Optimization model

Diversification
A portfolio spread out over many securities in such a way that the weight in any security is close to zero. The quickest and easiest step to managing portfolio risk is to have a true portfolio. You accomplish this by investing in a number of different issues. Ideally, your portfolio should Include international companies, as well as small-cap and large-cap companies.
Concentric
Horizontal
Conglomerate

Concentric diversification
This means that there is a technological similarity between the industries, which means that the firm is able to leverage its technical know-how to gain some advantage. For example, a company that manufactures industrial adhesives might decide to diversify into adhesives to be sold via retailers. The technology would be the same but the marketing effort would need to change.
Horizontal diversification
The company adds new products or services that are often technologically or commercially unrelated to current products but that may appeal to current customers. This strategy tends to increase the firm's dependence on certain market segments. For example, a company that was making notebooks earlier may also enter the pen market with its new product.
Conglomerate diversification
The company markets new products or services that have no technological or commercial synergies with current products but that may appeal to new groups of customers. The conglomerate diversification has very little relationship with the firm's current business. Therefore, the main reasons for adopting such a strategy are first to improve the profitability and the flexibility of the company, and second to get a better reception in capital markets as the company gets bigger. Though this strategy is very risky, it could also, if successful, provide increased growth and profitability.
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