Advanced Portfolio Management

Chapter 1For Whom? Why? And How?

I wrote this book for equity fundamental analysts and portfolio managers, present and future. I am addressing the reader directly: I am talking to you, the investor who is deeply in the weeds of the industry and the companies you cover, investigating possible mispricings or unjustified divergences in valuation between two companies. You, the reader, are obsessed with your work and want to be better at it. If you are reading this, and think, that's me!, rest assured: yes, it's probably you. You were the undergraduate in Chemical Engineering from Toronto who went from a summer job at a liquor store to founding an $8B hedge fund. The deeply thoughtful Norwegian pension fund manager who kept extending our meeting asking questions. The successful energy portfolio manager who interviewed me for my first hedge fund job, and the new college graduate from a large state university in Pennsylvania taking a job as an associate in a financials team.

I imagine that these readers are at different stages in their careers. Since the companies they cover are fundamentally different, they do think in different ways. But they all share a feature: they all have valuable trading ideas but realize that having good ideas is useless without the knowledge of how to turn them into money. This is the objective of portfolio construction and risk management: how to put together a portfolio of holdings that will be profitable over time and will survive adversities. This book ...