Saint-Petersburg State Polytechnic University Faculty of Economics and Management Finance and Money Circulation Department Course Paper «Portfolio investment»

                                                                                     Student: O. A. Epishina                                                                                      Group № 3076/1                                                                                      Checked by: E.B. Volodarskaya                                                                                      Position: Associate professor                                                                                      Department: Foreign Languages                                                                                     

Saint-Petersburg 2008

Contents Key words ………………………………………………………….3 Introduction ………………………………………………………. 4 1. Notion of the portfolio investment …………………………….. 5 2. Types of investment portfolios ………………………………….6 3. Investment portfolio forming ……………………………………8 4. Investment portfolio management ……………………………….9 5. Portfolio investment in Russia ………………………………… 11 Conclusion ………………………………………………………...12 Bibliography ………………………………………………………14 Key words 1) blue chips – голубые фишки 2) efficient portfolio – эффективный портфель 3) financial instrument – финансовый инструмент 4) laid-down capital – вложенный капитал 5) management strategies – стратегии управления 6) market value – рыночная (курсовая) стоимость 7) portfolio creation – формирование портфеля 8) portfolio liquidity – ликвидность портфеля 9) portfolio of aggressive/conservative/moderate growth – портфель агрессивного/консервативного/умеренного роста 10) portfolio structure – структура портфеля 11) return enhancement – увеличение дохода 12) risk reduction – снижение риска 13) well diversified portfolio – хорошо диверсифицированный портфель

Introduction

The development of the market economy and the attachment of the private equity in different forms led to a fact that along with cash resources, securities got a wide spread occurrence as a mean of the investment.

Its variety often complicates a solution to the issue, which securities exactly are needed to be invested in to maximize the return. At the same time you should consider that the investment in stock is always attended by the risk. Remember that the most profitable securities are the most risky ones. Due to it there was the idea worked out, according to which money should be invested in different securities in order to gain the optimal result.

The sense of forming the portfolio is in giving the whole securities such investment features (risk and return) which are not achievable from a position of separately taken stock but reachable only by their combination.

Also it should be considered that the efficient portfolio is not a universal thing, because for every investor exists his own optimal combination of the capital safety, profitability and liquidity.

Thus the general aim of this term paper is to understand the foundations of the investment portfolio operation, which implies the following tasks: characterize functions it fulfils, portray types of portfolio for every kind of investor, discuss basic principles of its structuring and management and the last but not the least is to analyze the state of portfolio investments in Russia.

Although there are 8 sources in the bibliography, this research was carried out on the basis of the book “Investments”, which author is E. G. Julina, because there is the main essence of the portfolio investment. But for the more detailed familiarization with this theme it is desirable to address to Harry Markowitz (number one in bibliography) and his fundamental work about the portfolio selection, where mathematical methods of the optimal portfolio forming are presented, but it can’t be done within the bounds of this paper. That’s why we will content ourselves with only theoretical examination of the issue.

1. Notion of the portfolio investment

The investment portfolio contains large number of securities. We speak about “portfolio selection” rather than “security selection”, because a good portfolio is more than a long list of good stocks and bonds. It is a balanced whole, providing the investor with protections and opportunities with respect to a wide range of contingencies. The investor should build towards an integrated portfolio which best suits his needs. [1] The foundation of the modern portfolio theory (MPT) was introduced by Harry Markowitz in 1952. Thirty-eight years later, Harry Markowitz, Merton Miller and William Sharpe were awarded Nobel Prize for what has become a broad theory for portfolio selection. The core concept of the Portfolio Theory is based on the asset diversification and directly relies on a conventional wisdom, which advice to avoid putting all eggs in one basket. [4] This factor is essential, since different investment instruments rise and fall in their value independent of each other, thus reducing the risk of losing money while investing in similar instruments only. Objects of the portfolio investment might be different securities: shares, bonds, derivative securities and some part of the portfolio might be funds. Quantities of stock in the portfolio may be different. Depending on a composition it may bear interest or loss and possesses this or that risk level. A list and an amount of incoming securities are called a portfolio structure, which presents a number of characteristics managed by the investor. [3:103]

Actually the whole theory of the portfolio rests on the idea that the risk of the security is lower when it is the element of the portfolio, than when it is taken separately, but the return doesn’t depend on the form of the storage. So the investment portfolio is a set of different securities owned and managed by the investor as a single whole for achieving defined aims. [3:103] At that, the investor should stick to a principle of the diversification of the laid-down capital, which means dividing his investments among a variety of assets.