Some believe that a CEO is defined by financial prowess and an astute awareness of the markets. However, this is sometimes not the case.
There are many examples of such individuals who have lost great deals of money due to bad portfolio decisions. In fact, the Stanford Graduate School of Business has found that hubris associated with top management positions often leads to poor judgement calls.
So, how can a CEO improve the performance of an existing portfolio in order to maximise profit margins and minimise risk? Let’s examine some methods recommended by professionals.
The Rule of Diversification
Most novice investors are aware of the fact that diversified portfolios are those which tend to perform the best over time. The reason for this is that positions spread out over multiple different sectors will serve to offset one another in terms of profit and loss. This is particularly important during times of volatility. However, the term “diversification” itself is often quite broad. Many feel that an example of a well-balanced portfolio can be seen as a breakdown similar to this:
- 40 per cent blue-chip holdings.
- 20 per cent small-cap (emerging) firms.
- 20 per cent commodities.
- 10 per cent long-term assets such as treasuries.
- 10 per cent short-term holdings including Forex positions.
In terms of a CEO, it is arguably more important to possess a fair amount of blue-chip assets. These are able to provide steady dividends in the event that more volatile positions turn bearish.
This method of investment is growing increasingly popular; particularly with those who are looking to accrue a relatively predictable profit within a short period of time. As the name hints, the investor will bet upon the “spread” associated with a position. This involves the present value and the value predicted in the future.
One distinct characteristic of this method is that profits can be made in both bullish and bearish market scenarios. The trader is simply required to correctly predict the direction of movement and the subsequent spread. It is also wise to point out that spread betting has some huge tax advantages. This is always a concern for CEOs and those associated with senior-level positions.
A well-managed portfolio should always include assets which are associated with emerging markets. These will naturally change from year to year, so it is important to stay ahead of the latest trends.
or example, many studies have concluded that technologies such as artificial intelligence and robotics are slated to perform quite well during the remainder of 2017. Either of these niche sectors could represent an excellent opportunity to become involved with a project on the “ground floor”. We only need to look to previous examples such as Apple and Microsoft to appreciate the power of this observation.
Outsourced Wealth Management
This last point involves psychology as much as it does investment strategy. CEOs are in a unique position arising from the fact that they tend to be much busier than middle-level employees. This can tend to cloud judgement and cause snap decisions that may prove costly in the future.
Many professionals are now choosing to outsource their portfolio management needs to third-party firms. As these individuals supervise multi-million pound portfolios on a daily basis, this could be a much better option when compared to juggling investment opportunities with day-to-day operations. However, it is still important to select a wealth manager who possesses a great deal of experience as well as a reputable track record.
By embracing the correct approaches and strategies, CEOs can enjoy all of the opportunities that a well-managed portfolio has to offer.