For creating a share portfolio, various investment analysis formulas are used. A number of financial advisers or fund managers are also offering consultation services to the individual investors. These services are known as portfolio management services. By purchasing different types of shares, specific risks might be brought down.
Diversification of share portfolios ensures reduced exposure of risk to the investor. If a particular share is not performing too well, then other shares, which are performing well, might make up for the loss.
Share portfolio management is implemented for making decisions regarding which shares should be included in the portfolio taking into consideration the variable economic scenarios and the objectives of the portfolio holder.
The process of selection includes the following decisions:
- Which share to buy
- How many shares to buy
- What is the appropriate time to buy those shares
- What are the shares that should be sold out
The decisions regarding share portfolio management is dependent on the measurement of performance or particularly the expected yield or return from the portfolio, as well as the risks accompanied with the yield (for example, the standard deviation of the yield). Usually, there is a comparison between the expected yields from portfolios made up of several groups of shares.
Share portfolios are created as a risk hedging method where the loss incurred by one share is compensated by the other shares. If an individual invests in only one share, it is highly risky because if the price of the share declines, he will make a straight-out loss. However, if he invests in a group of shares, which has strong technical and fundamental potentials, then he has limitation from both downside and upside because the other shares compensate the downside resulting from one share.