Investment and portfolio management
Finansų kursinis darbas. Introduction. Portfolio formation. Investment goals and strategy. Diversification of portfolio E-I-C analysis. Risk and expected rate of return calculations. Monitoring of the portfolio. Portfolio situation at the half of the project. Weekly monitoring of portfolio. End of portfolio and results calculations. Conclusions. List of references. Appendix.
Investment and portfolio management is a relatively new activity in Lithuania. This situation is based on the fact that our financial market are really young and don’t have a lot of vehicles to offer. Only after Independence restoration in Lithuania was created preconditions for the securities market. Evolving stock market has provided an excellent opportunity for all residents to get involved in the Lithuanian investment process with own funds into profitable, viable businesses. Investment portfolio and the management is quite a complex process, and therefore it is usually trust for professionals. But even professional opportunities occur in this area is quite limited for relatively small Lithuanian securities market, low stock diversity, and partly also on low experience and lack of knowledge. Although the investment portfolio and management practice and theory in foreign countries are well known and examined for several decades. For this reason project based on portfolio formation is an interesting research field.
Object of the work: securities portfolio formation;
In order to achieve the aim of research these steps will be made:
1. Analyze of securities and portfolio formation should be made;
2. Monitor of the portfolio and changes addressed to the stocks if needed;
3. Results calculation at the end of the project;
Securities Portfolio - the investor held securities set composed of two or more securities in order to be able to achieve the desired objectives of risk and profitability. Investment portfolio - a variety of securities, with a range of prices set able to reduce the investor's financial risk (Mackevičius, 1998). The main objective for the investor is to form a portfolio of securities that meet the needs of the investors risk and profitability. Shares or other securities kit, that an investor is planning to buy or already owns, called securities portfolio.
Investor can form its portfolio by choosing different tactics, strategies or theories. Also usually all the portfolio are well diversified. Obviously, the less the stock is in the portfolio, the more risky it is. If a portfolio consists of more securities, there is greater chance that the fluctuation of shares values by the time will be less volatile. When investing in a broader portfolio of securities, an investor diversification will be much higher, but he need to known the sectors very well. Since the expected profitability of the investment and risk are closely related, so the higher the risk of portfolio the higher expected rate of return should be. The wider investment portfolio, the less its market value is responsive to short-term market fluctuations. Each investor has a balance between risk and return, in order to obtain the maximum benefits. Efficient portfolio is defined as a portfolio, which has the lowest risk at a certain profitability and maximum return for a given level of risk.
First of all investor need to know what initial sum for investment he can work with. In this project I will start investing with 11.000 EUR. The investment should be made to stock exchange market. I will invest in Nasdaq OMX Baltic Stock Exchange market for few main reasons. The main factors why I chose Baltic market are:
1) Well known tax situation – I was writing my bachelor degree thesis about Baltics tax system and tax burden. Mainly these three markets have almost the same tax system so its easy to operate in it.
2) Close view to the companies, “pulse” of the economy, well known financial market – mainly because you can read news and see the market “through the window”.
3) Easy accessible information about government bonds, low investment costs, convenient time of decision taking. This market works in our time zone and in day time. So this means that I could monitor the market situation during the day time.