The Investor Profile Mr$.$ Donothing is a real person. He is $50$ years old and single. He does not work. He survives based on an inheritance of $$10$ million. He is an amphibious person: he spends his time in cruise lines. He needs $$550$ per day throughout the year for cabin charges and food. He needs another $$25,000$ for secretarial services and incidental expenses. Mr$.$ Donothing wants to settle in Jeddah at $55,$ get married, have a child and buy a house. The type of house he wants to buy sells today for $$500,000.$ His cash needs would remain unchanged after he settles on land In investing his money, consider necessities of life, precautionary needs, need for lump$-$sum expenditure in the future, retirement needs, and insurance needs. After investing appropriate sums to meet some of these needs, if there is money left over, you can consider active investing: try to beat the market. Two approaches to beating the market are: asset allocation $($market timing$)$ and identifying mispriced securities$.$The Task: Portfolio Construction The objective is to construct a portfolio for Mr$.$ Donothing in Saudi Market in Saudi riyals $.$ He hires you to manage his money. you will construct a portfolio of securities appropriate to the needs and preferences of Mr$.$Donothing. This task will not only involve security selection, but also asset allocation via economic analysis, industry analysis, company analysis, etc. In this task you must cover the first two elements of managing portfolios $($planning$,$ execution, and feedback$).$ You will plan and execute. The first step will be to construct a policy statement. $1.$ POLICY STATEMENT Once the clients objectives and constraints have been established, you will develop an investment policy statement $($IPS$).$ the IPS investment policy statement may cover a variety of issues. For example, the IPS generally details investment goals, objectives, and constraints,rebalancing guidelines, client description, manager fees, investment strategy or style. This statement is periodically updated as an investor needs change. A policy statement should incorporate the investors objectives $($risk and return$)$ and constraints $($liquidity$,$ time horizon, tax factors, legal and regulatory constraints, and unique needs$).$Forecasts of risk and return characteristics for various asset classes together with the investment policy will form the basis for choosing portfolios that maximize expected return for given levels of risk, or minimize risk for given levels of expected return. The capital market expectations together with the investors needs, shown in the policy statement will jointly determine the strategic asset allocation. In the next step $($execution$),$ plans are turned into reality$2.$ ASSET ALLOCATION With the investors policy statement as input, the Portfolio manager implements the strategic asset allocation and allocates available funds across different countries, asset classes, and securities$.$ This involves constructing a portfolio that will minimize the investors risks while meeting the needs specified in the policy statement.After you have assessed the proportion you should invest in stocks, bonds, cash, etc., you might delve into the issue of security selection: selecting individual securities in each asset category $($stocks$,$ bonds, cash, etc.$).3.$ Industry$/$Sector AnalysisOnce you get an idea $($via economic analysis$)$ as to how much to invest instocks$/$bonds$/$cash$/$etc$.,$ you then have to select securities from these categories throughindustry$/$sector analysis. The objective is to identify promising sectors within the economyin which you might invest. Even in a bull market all sectors of the economy do notgrow$/$benefit to the same degree. During your economic analysis, note the industries$/$sectorswhich are considered by experts to be highly prospective.C$.$ Company$/$fund Analysis Within each sector, analyze the companies to identify the most promising$/$mispriced stocks and$/$or funds within the most promising industries$/$sectors$.($Pick specific companies$).$