Portfolio Management Strategy
3. The Active Strategy
Most of the techniques discussed in this text involve an active approach to investing. In the area of common stocks, the use of valuation models to value and select stocks indicates that investors are analyzing and valuing stocks in an attempt to improve their performance relative to some benchmark such as a market index. They assume or expect the benefits to be greater than the costs.
Pursuit of an active strategy assumes that investors possess some advantage relative to other market participants. Such advantages could include superior analytical or judgment skills, superior information, or the ability or willingness to do what other investors, particularly institutions, are unable to do. For example, many large institutional investors cannot lake positions in very small companies, leaving this field for individual Furthermore, individuals' are not required to own diversified portfolios and are not prohibited from short sales or margin trading as are some institutions.
Most investors still favor an active approach to common stock selection and management despite the accumulating evidence from efficient market studies and the published performance results of institutional investors. The reason for this is obvious that the potential rewards are very large, and many investors feel confident that they can achieve such awards even if other investors cannot.
3. The Active Strategy
Most of the techniques discussed in this text involve an active approach to investing. In the area of common stocks, the use of valuation models to value and select stocks indicates that investors are analyzing and valuing stocks in an attempt to improve their performance relative to some benchmark such as a market index. They assume or expect the benefits to be greater than the costs.
Pursuit of an active strategy assumes that investors possess some advantage relative to other market participants. Such advantages could include superior analytical or judgment skills, superior information, or the ability or willingness to do what other investors, particularly institutions, are unable to do. For example, many large institutional investors cannot lake positions in very small companies, leaving this field for individual Furthermore, individuals' are not required to own diversified portfolios and are not prohibited from short sales or margin trading as are some institutions.
Most investors still favor an active approach to common stock selection and management despite the accumulating evidence from efficient market studies and the published performance results of institutional investors. The reason for this is obvious that the potential rewards are very large, and many investors feel confident that they can achieve such awards even if other investors cannot.
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