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Modern Portfolio Theory and Investment Analysis, 9th Edition by William N. Goetzmann, Stephen J. Brown, Martin J. Gruber, Edwin J. Elton

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28

Portfolio Management Revisited

Throughout this book we have presented analyses and models that have major implications for the way money should be managed. Some of the analyses involved forecasts of economic or market characteristics for securities and optimal techniques for portfolio construction based on these forecasts. Other chapters imply that securities prices are in equilibrium or almost in equilibrium, and the investor should hold some sort of aggregate portfolio. We have not resolved this issue, nor has the investment community resolved it.

It seems worthwhile to take a last look at how money management has evolved and how the financial community has dealt with these issues. In this chapter we will discuss the major investment strategies that modern portfolio managers follow. For each strategy, we will discuss the assumptions under which the strategy should be successful. In addition to supplying a review of current approaches to investment analysis, this chapter should help the reader integrate earlier chapters of this book. Let's start by briefly reviewing the basic approaches to investment management. In general terms the approaches are labeled as passive management and active management. We present more of their overall characteristics in Figure 28.1. In earlier editions of this book we briefly described each approach. In recent years, however, because the investment process has evolved and resulted in the structuring of so many new investment management styles ...

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