What is Portfolio Analysis used for

At the moment portfolio analysis is reserved for the few

, the specialists. So much work goes into preparing the data that by the time other people get access to the results it is usually out of date, and because it has been prepared by specialists it is often incomprehensible anyway. This leads to the question "What is portfolio analysis used for in any case?" If it takes so long to generate and the output reads like Chinese what is the point?

Portfolio analysis is incredibly useful and important, but should be more open, simpler and up to date. Portfolio analysis reveals the quality of work of the person looking after your money. It shows whether they are being careful with it or just collecting a fee for neglect. It can help explain how a manager reacts to a crisis; with panic or intelligence. It can reveal whether the person entrusted with your hard earned cash has listened to you about your appetite for risk, great or small. Portfolio analysis is the means by which the manager communicates with his client and explains what he has done with the investment and why. A good manager has no fear of portfolio analysis because, whether the performance looks good or bad, he can demonstrate the intent and the strategy behind each decision. The poor manager will soon reveal himself with contradictions and has much to worry about with accurate portfolio analysis in place.

There is indeed a great demand for portfolio analysis solutions, and it is technology that helps to bring users and solutions together. Although the Dot Com era started back in the 90's it has taken 10 years for the infrastructure of the internet to really develop. These days, the telecoms connections and the computing power of the clouds mean that vast parallel processing "farms" of computers can now be brought to bear to help speed up portfolio analysis. Portfolio analysis requires an incredible number of calculations and there are millions of portfolios in the world. The way things are currently set up, each asset management company operates in splendid isolation, each duplicating the work of the others. This means that few have any economies of scale and those that do generally have higher priorities. Technology means that soon these companies (especially the smaller ones) will be able to leverage the power and potential of cloud based portfolio analysis like we leverage the electricity supply of our utility provider rather than putting more gas in our own generator.

This will bring down the cost of portfolio analysis massively and also make it far more immediate. Because it is all web based, anyone can access it if they have a browser, so there is no need for expensive deployment of software. This will mean that managers can make the portfolio analysis directly available to their clients. Such transparency will win them more business. With clients more engaged in the investment process, they will understand better what the "Chinese" of the portfolio analysis actually means, and that will create demand for more precision.

Cloud computing has changed social behaviour with sites like Facebook and Twitter, the same effects will happen in other walks of life, and portfolio analysis is no exception.

What is Portfolio Analysis used for

By: Megan Clayton

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