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What are Securities Analysis and Portfolio Management?

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  • Written By: Jim B.
  • Edited By: M. C. Hughes
  • Last Modified Date: 28 January 2020
  • Copyright Protected:
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    Conjecture Corporation
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Securities analysis and portfolio management are the two parts of the complete process used by people to choose how and where to invest their money. Some investors may choose to take this process on by themselves while others receive help from experienced investment professionals. Performing securities analysis requires doing research on financial reports and market trends that are relevant to potential investment opportunities. Portfolio management necessitates the analysis of the sum total of an investor's assets, which helps make decisions about whether the assets will help the investor meet his financial needs, if risk levels are acceptable, and if any changes need to be made.

Individuals who go into investing without much of a plan can find the sheer magnitude of the process a bit overwhelming. It can be daunting choosing between the seemingly endless investment possibilities, especially when the range of those possibilities extends beyond common securities like stocks and bonds to physical assets like real estate and commodities. For those reasons, it is imperative that novice investors take the time to carefully perform both securities analysis and portfolio management to ensure that result of their investments meets their goals and needs. If they can't do this themselves, they should consider hiring investment professionals to do it for them.

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The process begins with securities analysis, which requires the study of each potential security in which an individual might invest. There are many ways to begin this process, although studying financial reports is one common way to start. Stocks, for instance, are issued by an underlying company, and financial reports are available that measure the earnings, debt levels, cash flow, and other important financial numbers for each of these companies.

Some securities analysts may depend on more subjective factors related to the value of stocks or bonds, such as a company hiring new management or rumors of a possible merger involving a company. Other analysis is based on statistical analysis of overarching market trends. By knowing which way a particular market is trending, an investor can narrow down the list of potential opportunities.

Choosing securities is really just half of the investment process. Once an investor has assembled all of his financial assets to form a portfolio, analysis can be performed on whether or not that portfolio is well-suited to the investor's needs. Portfolio management is also concerned with minimizing risk, which can be accomplished by assembling assets so diverse that it becomes unlikely for the majority of them to struggle all at once. Taken in tandem, securities analysis and portfolio management, when performed properly, can assure an individual that his capital is protected and that it has the potential for significant growth.

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