Portfolio Management Fundamentals

The rate of return is the percentage change in an investment's value over a period of time.

Risk is the possibility of losing money on an investment.

Active management involves actively buying and selling securities in an attempt to outperform the market.

Passive management involves buying and holding a diversified portfolio of securities in an attempt to match the market's performance

The portfolio management process involves defining investment objectives, designing an investment policy statement, developing an asset mix, selecting securities, monitoring the client, market, and economy, evaluating portfolio performance, and rebalancing the portfolio.

Mutual funds are investment vehicles that allow investors to diversify their portfolios by pooling money together to buy a variety of securities.

Exchange-traded funds (ETFs) are similar to mutual funds, but they are traded on stock exchanges like individual stocks.

A technical indicator suggesting a potential reversal of an upward trend in stock prices. It occurs when the price breaks through the moving average line from above on heavy volume, with the moving average line itself starting to fall.

A line on a chart representing the average price of a security over a specific period, helping to smoothen out price fluctuations and identify trends.

Investors who analyze market sentiment to make investment decisions, going against the prevailing majority opinion. They believe that when most investors are bullish (optimistic), market prices are likely overvalued, and vice versa.

Indicators that gauge the overall market feeling or sentiment among investors, often based on surveys and polls. They can indicate whether market participants are bullish or bearish.

A technical analysis method that seeks to predict future market movements based on repeating cycles or patterns in price movements.

Industries experiencing reduced demand due to factors like technological advancements, price competitiveness issues, or shifting consumer preferences.

A situation where a company has significant cash flow but relatively low profits. This can occur in declining industries where there's less need for investment.

A framework developed by Michael Porter that analyzes five forces determining an industry's attractiveness and potential for profitability.

The ease with which new competitors can enter an industry. Factors like capital requirements, economies of scale, distribution channels, regulations, and product differentiation play a role.

The intensity of competition among existing firms in an industry. Factors like the number of competitors, their relative strength, industry growth rate, and product uniqueness influence this.

The potential threat posed by substitute products from other industries. These products can compete with an industry's offerings.

The power of buyers (customers) to influence the pricing and terms of products or services. Factors like price sensitivity play a key role.

The ability of suppliers to influence pricing and terms of products or services they provide. Factors like the availability of alternative suppliers and the importance of the product impact this.

The Global Industry Classification Standard (GICS) is a comprehensive system for classifying companies into industries and sectors. It's used by major index providers like Standard & Poor's (S&P) and Morgan Stanley Capital International (MSCI).

GICS divides companies into 11 sectors, each with multiple industry groups. These groups are further subdivided into 74 industries and then into 163 sub-industries.

Sectors are the broadest level of classification in GICS, representing major economic activities. Examples include Energy, Financials, and Health Care.

Industry groups are a more granular level of classification within a sector. They represent subcategories of companies within that sector. For example, the Financials sector includes industry groups like Banks, Financial Services, and Insurance.

Industries are the most specific level of classification in GICS. They group companies that are closely related in terms of their products or services. For example, the Energy sector might include industries like Oil and Gas Exploration and Production, and Oil Refining.

Sub-industries are the most detailed level of classification. They group companies that are very narrowly related within an industry. For example, the Oil and Gas Exploration and Production industry might include sub-industries like Upstream Oil and Gas, and Integrated Oil and Gas .

The primary problem with classifying companies based on the product or service they sell is that some companies operate in multiple industries. Classifying them into one category might not fully capture their activities.

The GICS system helps investors and analysts to better understand the composition of different industries and sectors, assisting them in their financial analysis.

The GICS is a dynamic system that is regularly reviewed and updated by S&P and MSCI to reflect changes in global economies and industries.

A chart pattern that signals a potential change in the trend of a stock's price, suggesting it may move higher or lower after a period of consolidation.

A chart pattern that suggests a pause or continuation of the existing trend, indicating that the price may continue moving in the same direction.

A common reversal pattern that indicates a potential upward trend reversal in the market, usually formed at the bottom of a downtrend. It is characterized by three peaks (left shoulder, head, and right shoulder) with a neckline connecting the lows of the left and right shoulders.

The first peak in a head and shoulders bottom formation. Usually a lower high than the head.

The highest peak in a head and shoulders bottom formation. Usually significantly higher than the left shoulder.

The second peak on a head and shoulders bottom formation. Usually a lower high than the head, resembling the left shoulder.

A line drawn connecting the lows of the left and right shoulders in a Head and Shoulders pattern.

A period of price decline with potentially increasing volume, forming the left shoulder in a head and shoulders bottom formation.

A brief period of price recovery, usually with minimal volume, forming the left shoulder.

The break above the neckline in a head and shoulders bottom formation, confirming the pattern and indicating a potential upward trend change.