Asset management refers to the management of investments on behalf of clients. The goal is to grow a client's portfolio over time while mitigating risk.
An asset manager determines what investments to make, that will grow a client's portfolio by mitigating risk before investing for profit. They mitigate risk by diversification, which is the process of allocating capital in a way that reduces the exposure to any one particular asset.
"Asset class diversification is good but vast asset class diversification is not" - Aghadi Ejike.
There are two types of diversification
Multiple positions on multi-asset classes at the same entry time using the same strategy(A) and system(B)
Multiple positions on only one asset class at different entry times using the same strategy(A) and system(B)
"Diversification is the only free lunch" - Harry Markowitz
An investor is an individual who commits capital with the expectation of receiving financial returns from an asset manager or directly from a financial asset.
A trader is an individual who engages in the buying and selling of financial assets in any financial market.
Investing in the market is long term while trading the market is short term. Most investing strategies (and expectations) operate in higher time frames while most trading strategies operate in lower time frames. Relative to a previous price, if the price drops lower, investing strategies tend to buy low to sell high. While trading strategies tend to sell low (sell into the momentum of the dip) to cover (buy back) lower.
There are two types of trading;
Quantitative trading
Discretionary trading
Discretionary trading is decision-based trading. The trader decides which trades to make based on current market conditions.
Quantitative trading is a type of market strategy that relies on mathematical and statistical models to identify opportunities.
The key difference between the two is the level of diversification of the trading opportunities in order of the trade conviction.
Discretion trading has fewer trades on, with a high conviction on the possibility of a positive outcome on any one trade.
Quantitative trading has more trades on, with less conviction on the possibility of a positive outcome on any one trade.
"As an asset manager, you must avoid situations where your investors will be hoping and praying as you trade, by reducing the magnitude and time duration of your drawdowns" - Aghadi Ejike.
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