Playing in the securities market is like playing in a casino. The exact result is unknown, and it all depends on completely unpredictable factors. However, a high level of income makes people and corporate managers keep their funds in securities, and not in bank accounts, because the increase in wealth has never bothered anyone.
However, what should be done in order not to lose the most impressive state (in the pursuit of additional income) (usually with a small margin of money on the securities market)? Before you get involved in investing in certain securities, you need to draw up a cash investment strategy, as well as study the basic rules that allow you to manage your securities portfolio in the most efficient way.
First of all, it is necessary to focus on two main indicators: rate of return and degree of risk. If the first indicator should be as high as possible, then the second, respectively, as low as possible. It should be noted that the profitability of securities cannot be calculated with one hundred percent probability, therefore, approximate values are used to evaluate it.
All portfolio management is based on probability theory. You need to determine with what probability the security will bring one or another income, multiply the income level by the corresponding probability, and add up all the results. The result obtained will be your expected income.
As for the degree of risk, it is defined as the variance (or in other words, the spread) of the expected outcomes. For example, the shares of company A give a stable income, and the shares of company B can either bring a large sum of money to the investor, or even ruin it. Based on probability calculations, we get that the expected return on shares of the two companies is equal, but the degree of risk for company B is much higher. Thus, choosing between the purchase of shares of A and shares of B, it would be wise to choose the first option.
Portfolio management , on the other hand, involves a slightly different approach. The portfolio should include both those and other stocks. The portfolio is based on stable stocks with a fairly low rate of return and practically zero risk. However, in order for the portfolio to bring the expected return, it is diluted with risky stocks. Even if a “failure” occurs in several positions, the loss is offset by income from stable shares.
As for the selection of risky assets, in this case, the management of the securities portfolio of the enterprise should be carried out taking into account the maximum degree of diversification. That is, stocks should not be interconnected. Thus, if any unlikely risk event occurs, it should not pull down all risky stocks collected in the portfolio.
Effective portfolio management means identifying and analyzing all possible relationships between securities in order to reduce the dispersion of the return on the portfolio itself to almost zero. For these purposes, securities are often purchased that circulate in completely different markets and often even in different countries.
As well as the management of cash and liquidity of an enterprise, which requires accurate calculation of all possible probabilities, working with securities does not neglect the details. It is the scrupulous approach to detail that distinguishes a good financial analyst. He should not be a seer predicting the future, but he must create a portfolio that will provide the owner with the desired income, despite any disasters and economic upheavals.