2.What are the main steps in the portfolio management process?

Answer 1

Two types of Portfolio Management plans are,
1)constant value plan
2)constant ratio plan.
In the first one you maintain value of the stock portfolio you create constant. If it goes up you sell a little bit and maintain the constant value.
In the second ratio plan you maintain a constant ratio of the stocks to bonds. When the ratio shifts you maintain the ratio constant by varying the denominator or numerator.
The theory is you choose a required risk for a required return. This is done using a covariance matrix derived from the covariance of returns of different entities in the portfolio. You create a quadratic equation from this which is solved which will give you the exact amount of each entity required in the portfolio for our chosen return and risk. To explain this is very elaborate and usually this is used to figure out how much stock you require, how much bond and how much cash.