Managing a Diversified Portfolio

Abstract

Stock picking rests on distinguishing the undervalued "good deals" in the market from the overvalued securities. This can be challenging because when you come up with a valuation that is significantly different from the current market rate, you are making the assumption that thousands of investors, most with more experience and resources that you, are wrong and that you found something fundamental about the company that they missed. Every investor has his or her own system for picking stocks. In my opinion, the most effective one is to focus on in depth research of the company, because this allows you to come create an accurate discounted cash flow valuation model. The paper talks about this investment process in detail. It is a series of short papers about a variety of investment topic, ranging from a discussion of the merits of active vs. passive management, asset allocation, and behavioral finance, all the way to accounting issues that investors should be aware of.