Source :  Alex Lang Portfolio construction is the science (and art) of combining macro asset allocation strategy with the micro security selection tactics. Just like building a house or a boat, many times the "devil" is in the details. What may look simple and elegant from the outside may be fraught with challenges when we pull back the cover. Expected Returns Estimating security returns is the most important part of the portfolio construction process. While there are countless techniques and a maze of details, there are three main ways a fundamentalist can estimate an expected return for portfolio candidates. These are listed below in the ascending order of complexity. Capital Asset Pricing Model (CAPM) Relative Value Models Intrinsic Value Models As the name implies, relative value models attempt to compare individual securities to each other or to a market benchmark using one (or more) metrics. Comparing these metrics may provide insights into which securities are poised