CHAPTER 1
Overview of Investment Management
Frank J. Fabozzi, Ph.D., CFA, CPA Professor in the Practice of Finance Yale School of Management
The purpose of this book is to describe the activities and investment vehicles associated with investment management. Investment management—also referred to as portfolio management and money management—requires an understanding of:
• How investment objectives are determined.
• The investment vehicles in which an investor can allocate funds.
• The way investment products are valued so that an investor can assess whether or not a particular investment is fairly priced, underpriced, or overpriced.
• The investment strategies that can be employed by an investor to realize a specified investment objective.
• The best way to construct a portfolio, given an investment strategy.
• The techniques for evaluating performance.
In this book, the contributors explain each of these activities. In this introductory chapter, we set forth in general terms the investment management process. This process involves the following five tasks:
1. Setting investment objectives.
2. Establishing an investment policy.
3. Selecting an investment strategy.
4. Constructing the portfolio.
5. Measuring and evaluating investment performance.
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