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The Process of Portfolio Management

Successful portfolio management at Kansas City's Mader & Shannon is defined as achieving yield and growth objectives with as little risk as possible.  In addition to risk/reward considerations, successful portfolio management also must minimize transaction costs and taxes. The goal of portfolio management is to protect clients from major downtrends, and still allow the investor the opportunity to participate fully in the growth in value and income that the equity markets have historically provided.

The Process of Portfolio Management includes:

1.    Security Analysis: It is the first stage of the portfolio creation process, which involves assessing the risk and return factors of individual securities, along with asset class correlations.
2.    Portfolio Analysis: After determining the universe of potential securities, a portfolio manager will assemble an asset mix that conforms to the portfolios desired risk/reward characteristics.  It is likely that many different combinations of securities can achieve a desired outcome.  These various combinations are back tested and studied to provide an optimal allocation.
3.    Portfolio Selection: Out of all the feasible portfolios, the optimal portfolio that matches the risk appetite and required reward is selected.
4.    Portfolio Revision: Once the optimal portfolio is selected, the portfolio manager closely monitors the portfolio to make sure that it remains optimal over time.  Adjustments are made as necessary to keep the portfolio aligned with the client’s goals.
5.    Portfolio Evaluation: In this phase, the performance of the portfolio is assessed over a specific period relative to a benchmark.  A successful portfolio return will provide the necessary return characteristics with fewer units of risk as compared to the benchmark.

Active portfolio management does not conflict with the concepts of long-term investing. Most of our clients are in fact long term investors dependent on income and growth from their portfolios.

For more information about portfolio management with Mader Shannon, call (816) 751-0585.