Investment Portfolio Management

The dictionary meaning of banking defined portfolio as a collection of investments. Wilkinson, C. Writers on investment pp(2007:2347). While the dictionary of accounting defined portfolio as the collection of different securities or other assets held by an individual or an institution which can be evaluated in terms of their combined risks and return (Parker).

The risk of a portfolio depends not on the riskiness of each security but also on the relationship among the securities. For a proper understanding of the framework upon which this study is based, it is important to highlight the contributions made by earlier writers on investment portfolio management (Markowitz).

According to professor Markowitz (2005) defined portfolio as the group of assets an investor owns. His assertions were that the process of portfolio selection would be of two folds:

1. Starting with observation and experience that end with the belief about the future performance of available securities and
2. Starting with the relevant beliefs about performances that end with the choice of portfolio

In general (Markowitz) identified three factors that determine the efficiency of a portfolio in his portfolio selection theory. These include the following:

1. The expected future return of each candidate security
2. The expected risk of each candidate security
3. And the extent to which each security’s risk correlates with every other security

From these, (Adesota, 1988) coined two criteria for the evaluation of the entire portfolio as the return one expects form the portfolio and the association risk of the portfolio. He believed that portfolio are created to diversity holdings of wealth to achieve low risk and high returns; from these it is obvious that the ultimate aim of an investor is to minimise risk without necessarily reducing the returns from the investment.

The following assumptions are made for our study:

1. If two portfolio of investment have the same risk but different expected returns the portfolio with the higher expected returns will be selected
2. If two portfolio of investment have the same expected returns but different degree of risk the portfolio with the lower risk will be selected
3. A portfolio with larger expected returns with a lower expected returns and higher degree of risk will be selected

Several contributions to the theory of portfolio have agreed that the risk of any portfolio can be reduced when investment is made in unrelated industries such risk that can potentially be eliminated by diversification called unique risk (unsystematic risk, residual risk, specific risk) by Breaky and Myera (1988) who believed that unique risk stems from the fact that many of the perils that surround an individual company are peculiar to that company, perhaps its immediate competitors. But there are some risks that you cannot avoid however much you diversify. This they called market risk (set risk, systematic risk, undiversifiable risk).