Concepts of Portfolio ManagementThe concept of portfolio management is a lucrative sword because not only does it not only offer returns but the investor also has to face the risks associated with it . If the investor wants to earn a higher return, he must combine higher return with higher risk. For an investor to diversify risk, he can follow the rule of diversification. As part of diversification, the investor can include those assets which are not correlated with each other and thus by including these asset classes he can diversify the risk. However, in terms of risk, there are two types of risk, namely unsystematic risk and systematic risk, and an investor can only diversify unsystematic risk by following a diversification rule including asset classes that do not are not correlated with the others and the remaining risk will be the systematic risk. which is not possible to diversify even if the investor includes all the securities available in the investment universe. Systematic RiskFor KMK Holdings, diversification is an important part of portfolio construction. Considering the market conditions which have become very risky due to low interest rates and high volatility, the company, in order to diversify the risk, will use the asset allocation strategy by investing in stocks, ADRs and ETFs in a rational and proportional manner. The portfolio consists of 15 stocks, 3 ADRs and 1 ETF, the net worth of the portfolio at the time of writing was $103,892.97 while the total borrowing power is $108,931. The portfolio achieved an overall return of 3.89% while on a daily basis the return is 1.35%. However, the portfolio did not outperform the benchmark S&P 500 index as the benchmark return of 7.67% is not achieved by the portfolio.De...... middle of paper ..... .t could call into question the investment decision. This can also be extended to prior beliefs. For example, an investor may believe that Dell is a good company and that including Dell stock in the portfolio is a good decision even if Dell is not performing well when the portfolio is constructed. Escalation Bias: The tendency of the investor to lead the investment through psychological feelings can also be linked to escalation bias. This refers to the investor's tendency to commit more funds to a position that has declined, often called averaging (the purchase price) down. To the extent that investors undervalue information about the initial buying decision and overestimate the importance of information indicating that the initial decision was correct, they will tend to lower the average too often, thereby increasing the size of their position..