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What is Stock Portfolio Management?

John Lister
John Lister

Stock portfolio management is the process of deciding which stocks an investor or group of investors should buy and sell. The process is usually carried out by a financial advisor or fund manager, but can be done by the investor himself. The exact decisions made in stock portfolio management will depend on the needs of the investor, but common tactics include targeting growth, diversification, and tracking a market.

There are several different set-ups of stock portfolio management. At its simplest, it can be an individual making decisions about how to invest her own money. More commonly, it is carried out by a financial adviser on behalf of a client, or by a fund manager investing the money of multiple clients at once. While some stock portfolio management is purely advisory, many services will buy and sell the stocks on behalf of the client.

Stock portfolio management takes into account the needs of a customer.
Stock portfolio management takes into account the needs of a customer.

The key to successful stock portfolio management is understanding the needs and wants of the customer. In most cases, the main element of this is the desired balance of risk and reward. With some clients, a portfolio manager may be asked to be more adventurous and target riskier stocks that may grow rapidly. With other clients, the goal may be to target more reliable stocks for slow but steady growth; this may involve looking for stocks that have a history of reliable dividend payments.

One of the most common techniques is diversification. This means picking a range of stocks with different characteristics to mitigate the risk of all the stocks performing badly at the same time. This could include picking some stocks that are direct competitors, the logic being that if one company struggles, its rivals will perform better as a result. Alternatively, a portfolio manager might avoid having too many stocks in the same type of business, as an industry scandal might affect all of them.

Some portfolio management is designed to closely track the performance of an entire market. The idea behind this is that, in the long run, markets have historically grown, albeit it at a slower pace than individual stocks. This tactic is only suitable for long-term investors as entire markets can, and do, go through significant short-term fluctuations.

Both individual investors and professional advisers can use stock portfolio management software. This aims to simplify the process of comparing a wide range of individual stocks. It's important to remember that while software works objectively, it is only as accurate as the instructions and settings that it follows.

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    • Stock portfolio management takes into account the needs of a customer.
      By: Anna
      Stock portfolio management takes into account the needs of a customer.