Page 337 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

Security Analysis and Portfolio Management Dilfraz Singh, Lovely Professional University

Notes Unit 14: Portfolio Revision

CONTENTS
Objectives
Introduction

14.1 Need for Portfolio Revision
14.2 Portfolio Revision Strategies
14.3 Formula Plans

14.4 Summary
14.5 Keywords
14.6 Self Assessment
14.7 Review Questions
14.8 Further Readings

Objectives

After studying this unit, you will be able to:
Discuss need for portfolio revision
Explain portfolio revision strategies

Describe portfolio revision practices
Discuss constraints in portfolio revision
Analyze formula plans

Introduction

In the entire process of portfolio management, portfolio revision is as important as portfolios
analysis and selection. Keeping in mind the risk-return objectives, an investor selects a mix of
securities from the given investment universe. In a dynamic world of investment, it is only
natural that the portfolio may not perform as desired or opportunities might arise turning the
desired into less that desired. In every such situation, a portfolio revision is warranted. Portfolio
revision involves changing the existing mix of securities. The objective of portfolio revision is
similar to the objective of portfolio selection i.e. maximizing the return for a given level of risk
or minimizing the risk for a given level of return. The process of portfolio revision may also be
similar to the process of portfolio selection. This is particularly true where active portfolio
revision strategy is followed. Where passive portfolio revision strategy is followed, use of
mechanical formula plans may be made. What are these formula plans? We shall discuss these
and other aspects of portfolio revision in this unit. Let us begin by highlighting the need for
portfolio revision.

14.1 Need for Portfolio Revision

No plan can be perfect to the extent that it would not need revision sooner or later. Investment
plans are certainly not. In the context of portfolio management, the need for revision is ever

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