Introduction to Investment Analysis & Portfolio Management


Investment analysis covers more aspects than its name implies. Investment analysis is a broad term that encompasses many different aspects of investment. It can come in handy for predicting about future returns. 

Business executives can examine past returns to make predictions about future returns. The predictions open up to the type of investment vehicle that remains in the best interest of an investor’s needs or evaluating securities such as stocks and bonds for valuation and investor specificity.

BREAKING DOWN ‘Investment Analysis’

Investment analysis can facilitate how an investment is likely to be executed and how great the opportunity is for a given investor. Investment analysis is essential to any sound portfolio management strategy. 

Investors can seek expert advice from a financial advisor or other financial professionals who are not comfortable carrying out their own investment analysis. Investment analysis usually also involves taking past investment decisions into consideration.

The decisions encompass the thought process that went into making them. Besides the thought process, investment analysis is about how the decision affected a portfolio’s performance. And, it is considerable significant in how mistakes can be regarded and corrected. 

Key factors in investment analysis comprise expected time prospect, entry price, and reasons for making the decision once at a time.


An investor has a couple of factors to look at for determining the fund’s performance. The investor compares these factors to its benchmark In conducting an investment analysis of a mutual fund. The investor can also compare the fund’s performance, management stability, sector weighting, expense ratio, style, and asset allocation to similar funds. 

An investor should always consider investment goals when analyzing an investment; one size does not always fit all, and highest returns regardless of risk are not always the goal.


Making investment decisions requires thorough analysis and investigation into investment. Investors can use multiple analysis approach to find out the most effective method. The approach could be a bottom-up investment analysis approach or top-down approach. 

Needlessly to say, there are differences between the two approach systems. Bottom-up investment analysis encompasses analyzing individual stocks to find out their merits. The merits could include factors, such as valuation, pricing power, management competence, and other unique characteristics of the stock and company. 

Bottom-up investment analysis finds economic cycles or market cycles not too significant to discuss firsthand for capital allocation decisions. But, bottom-up investment instead aims to find the best companies and stocks regardless of economic, market or particular industry macro trends. 

In essence, bottom-up investing utilizes a microeconomic approach to investing most importantly rather than a macroeconomic one. The stark difference is a hallmark of top-down investment analysis.

Top-down investment analysis focuses on economic, market and industrial trends before making a more granular investment decision. The decision is likely to involve in allocation of capital to specific companies. 

An example of a top-down approach is an investor going through industries and finding that financials will likely perform better than industrials; as a result, the investor decides his investment portfolio will contain this mix: overweight financials and underweight industrials. 

Consequently, the investor then looks for the best stocks to fill up the each sector with. On the contrary, a bottom-up investor may have found what an industrial company stocks up for a compelling investment. As a result, the investor allocates a considerable amount of capital to it even though the stance for its broader industry was not favorable.

Other investment analyses take in fundamental analysis and technical analysis. Fundamental analysis emphasizes on evaluating the financial health of companies as well as economic outlooks.

Practitioners of fundamental analysis prefer companies they believe the market didn’t price appropriately, that is, assigned a lower price than their inherent value. Often encompassing bottom-up analysis, these investors will assess a company’s monetary soundness, future business forecast, bonus potential, and economic moat to settle on whether they will make acceptable investments.

Notable proponents of this style include Warren Buffett and Benjamin Graham.

What is ‘Portfolio Management’?

Portfolio management is about making decisions. It involves the art and science of coming to terms with investment mix and policy, directing investments to realizing objectives, asset allocation for individuals and institutions. 

And, project management makes balancing risk against performance. Portfolio management is all about finding out strengths, opportunities weaknesses, and threats in the debate of debt vs. equity, domestic vs. international, and growth vs. safety.

 Portfolio management includes many other trade-offs in the effort to make best use of return at a given appetite for risk.

BREAKING DOWN ‘Portfolio Management’

Portfolio management can either take the passive or active form. This form is prevalent in the case of mutual and exchange-traded funds (ETFs). Passive management is simply concerned with a market index, commonly referred to as indexing or index investing. 

Active management comprises a single manager, co-managers or a team of managers. This team attempts to beat the market return. Beating the market requires actively managing a fund’s portfolio. Portfolio becomes solid through investment decisions based on research. And, decisions are made on individual holdings.


The key to investment analysis is the long-term analysis of various investment factors. Investment analysis seeks to optimize the risk/return profile of an investor. Investors with a more aggressive profile have to make decisions with their portfolio toward more volatile investments. 

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