Page 344 - DCOM504_SECURITY_ANALYSIS_AND_PORTFOLIO_MANAGEMENT

(5)
(8)
(3)
(4)
(1)
(6)
(2)
(7)
Value of
Stock Value of
Total
Value of
Price
Action
of Constant (4): (3)
No. of
Index Buy-and- Conservative Aggressive Total Value Ratio Revaluation Shares
Hold
Portfolio
Portfolio
Ratio
Strategy (Col.5-Col.4) (Col.8xCol.1) Portfolio in
(800 shares (Col.3+Col.4) Aggressive
xCol.1) Portfolio
(Rs.) (Rs.) (Rs.) (Rs.)
Unit 14: Portfolio Revision
25 20,000 10,000 10,000 20,000 1.00 400
23 18,400 10,000 9,200 19,200 0.92 400
22.5 18,000 10,000 9,000 19,000 0.90 400
Notes
22.5 18,000 9,500 9,500 19,000 1.00 Buy 22.2 422.2
Shares
at 22.5 *
20.25 16,200 9,500 8,540 18,040 0.90 Buy 23.7 422.2
20.25 16,200 9,020 9,020 18,040 1.00 445.9
Shares
at 20.25
20 16,000 9,020 8,910 17,930 0.99 445.9
22.4 17,920 9,020 9,920 18,940 1.10 445.9
22.4 17,920 9,470 9,470 18,940 1.00 Sell 20.1 445.9
Shares
at 22.4
24.6 19,920 9,470 10,430 19,900 1.10 425.8

(1) (2) (3) (4) (5) (6) (7) (8)
Stock Value Value of Value of Total Value Ratio Revaluation Total
Price of Conservative Aggressive of Constant (4): Action No. of
Index Buy- Portfolio Portfolio Ratio (3) Shares
and-
(Col.5-Col.4) (Col.8xCol.1) Portfolio in
Hold (Col.3+Col.4) Aggressive
Strategy Portfolio
(800
shares
xCol.1)
( ) ( ) ( ) ( )
24.6 19,920 9,950 9,950 19,900 1.00 Sell 19.5 406.3
Shares
at 24.6
27.0 21,600 9,950 10,950 20,900 1.10 406.3
27.0 21,600 10,450 10,450 20,900 1.00 Sell 18.5 387.8
Shares
at 27.0
28.8 23,040 10,450 11,170 21,620 1.07 387.8
27.0 21,600 10,450 10,450 20,900 1.00 387.8
25 20,000 10,450 9,670 20,120 0.93 387.8

* To restore the ratio from .90 to 1.00, total value of the fund, 19,000, is simply split in two equal
segments of 9,500; and 9500/9,500 = 1.00. The 500 transferred from the conservative portfolio will
buy 22.2 Shares at the prevailing price of 22.50.

You may notice that the constant-ratio plan calls for more transactions than the constant-
dollar-value plan did, but the actions triggered by this plan are less aggressive. This plan
yielded an increase in total value at the end of the cycle compared with the total value
yielded under constant-dollar-value plan. It did, however, outperform the buy-and-hold
strategy. Let us now explain and illustrate variable-ratio plan.
5. Variable-ratio Plan: Variable-ratio plan is a more flexible variation of constant ratio
plan. Under the variable ratio plan, it is provided that if the value of aggressive portfolio
changes by certain percentage or more, the initial ratio between the aggressive portfolio
and conservative portfolio will be allowed to change as per the pre-determined schedule.
Some variations of this plan provide for the ratios to vary according to economic or

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