Question

what is the name of 4 most important things a portfolio manager should do to maximize the benefit of diversification?

Answer 1

4 things portfolio manager should do in order to maximize the gains from process of diversification of portfolio are as follows-

1. Selection of right entry and right exit-portfolio manager must know when he should be buying into different stocks and when should he be offloading onto stocks, because there is a very important concept of timing of entry and exit in the market.if a portfolio manager is able to time the market appropriately and he buys onto the dips and exit onto the rise, he will make the maximum of the gains.

2. Investment into a large array of diversified Companies-portfolio manager must be buying in a variety of stocks which are representative of different sectors in economy so his portfolio is diversified against any adverse movement.he should not be only adding onto a large number of companies because it would not be prudent to manage all of them.

3. He should know his strategy and approach of investment in order to maximize the rate of return from overall diversified portfolio because there are various kinds of fundamental approaches to portfolio diversification and investment .Many of the portfolio managers are value Investors, while many others are aggressive investors, and there are various other kind of portfolio managers who also look for a lot of Technical Analysis into stock management so in order to magnify the return, a portfolio manager must be aware of his strategy and he must be able to incorporate his strategies into the overall portfolio diversification.

4.Portfolio manager should be aware about the time frame of his investment and he must not be relocating his portfolio again and again until and unless the fundamentals upon which he has invested initially has completely changed. Portfolio manager must be aware about the duration of his investment and purposes of his investment, so he will be able to diversify his portfolio for a maximum amount of time. He should not be changing his strategies based upon the market fluctuations and he should always be ignoring the noise.