Investment management Style/Strategies

a) Active style- An investment strategy involving ongoing buying and selling actions
by the investor. Active investors believe in their ability to outperform the overall
market by picking stocks they believe may perform well. Active investors purchase
investments and continuously monitor their activity in order to exploit profitable
conditions. Typically, active investors are seeking short-term profits.
b) Passive style- Passive investors feel that simply investing in a market index fund may
produce potentially higher long-term results.
Also known as a buy-and-hold or couch potato strategy, passive investing requires
good initial research, patience and a well diversified portfolio. Unlike active investors,
passive investors buy a security and typically don't actively attempt to profit from
short-term price fluctuations. Passive investors instead long term the investment will be profitable.



1- WHAT IS INVESTMENT?
An asset or item that is purchased with the hope that it will generate income or appreciate in the
future. In an economic sense, an investment is the purchase of goods that are not consumed today
but are used in the future to create wealth. In finance, investment is the purchase of an asset or
item with the hope that it will generate income or appreciate in the future and be sold at the
higher price. It generally does not include deposits with a bank or similar institution. The term
investment is usually used when referring to a long-term outlook. This is the opposite of trading
or speculation, which are short-term practices involving a much higher degree of risk. Financial
assets take many forms and can range from the ultra safe low return government bonds to
much higher risk higher reward international stocks. A good investment strategy will diversify
the portfolio according to the specified needs.

2- RATE OF INTEREST
An interest rate is the rate at which interest is paid by a borrower (debtor) for the
use of money that they borrow from a lender. Specifically, the interest rate (I/m) is
a percentage of principal (P) paid a certain number of times (m) per period (usually quoted
per year). For example, a small company borrows capital from a bank to buy new assets for its
business, and in return the lender receives interest at a predetermined interest rate for deferring
the use of funds and instead lending it to the borrower. Interest rates are normally expressed as a
percentage of the principal for a period of one year.


19.Capital Allocation Line & Capital Market Line
Investors will often want to allocate their money between the risk free asset and the risky portfolio. In theory this allocation could go
from 0% in the risky asset to 100% in the risky asset. This would result in a range of risk vs returns which we can plot. The result of
this is what is known as a Capital Allocation Line.
Now imagine that you dont have one risky portfolio but multiple risky portfolios. This will result in a series of lines with the same
origin but potentially different slopes as the different portfolios will have different risk profiles. The higest of these capital allocation
lines is a special case and is known as the capital market line.

22. Diversification & Portfolio Risk
Portfolio risk refers to the possibility that an investment portfolio will not earn the expected or desired rate of return.
Investors attempt to reduce this risk through diversification or hedging (taking an offsetting position in a related
security).

Diversification
A risk management technique that mixes a wide variety of investments within a portfolio. The
rationale behind this technique contends that a portfolio of different kinds of investments will, on
average, yield higher returns and pose a lower risk than any individual investment found within
the portfolio.






23. Minimum Variance Portfolio
Portfolio of stocks with the lowest volatilities (betas) and, therefore, lowest sensitivities to risk.
It makes maximum use of diversification to achieve the resultant risk level that is lower than the individual risk
level of each of the stock it contains.

A portfolio of individually risky assets that, when taken together, result in the lowest possible risk level for the rate ofexpected return.
Such a portfolio hedges each investment with an offsetting investment; the individual investor's choice onhow much to offset invest
ments depends on the level of risk and expected return he/she is willing to accept. Theinvestments in a minimum variance portfolio
are individually riskier than the portfolio as a whole.




25.Markowitz Portfolio Selection Model
A theory of investing stating that every rational investor, at a given level of risk, will accept only the largest expectedreturn. More spe
cifically, modern portfolio theory attempts to account for risk and expected
return mathematically to helpthe investor find a portfolio with the maximum return for the minimum about of risk. A Markowitz
efficient portfoliorepresents just that: the most expected return at a given amount of risk (sometimes excluding zero risk).