The Performance of Beta Management Company - Case Study Example

The following paper under the title 'The Performance of Beta Management Company' is a wonderful example of a business case study. Every business should be aware of the Five Ws, which are regarded as basic in information gathering. This is thus a formula for getting the complete stories of the subject. The maxim of the Five WS is meant to provide a considerable complete report for answering a checklist, which comprises of the interrogative word. The Five Ws helps a business design and understands what its objective is when to start and accomplish it, where it will be based, who are the stakeholders and managerial, and finally which products and services it will be offering (Baird, 2011).

Beta Management Company is a small size investment, with approximately 25 million dollars as its capital. Its major goal is to increase returns while at the same time decrease its clients through a process of market timing approach. Nonetheless, the initial key of BMC was to invest its funds into the Vanguard 500, S&P 500, no-load, and low expense index funds. The remainder of the funds was to be invested in the money market instrument. The CEO and a founder of the company Sarah Wolfe have decided to adjust the level of market exposure from 50% to about 99% of the funds.

The reasons being she has had enough exposure with management and, for this case, to reduce the exposure to the market through reducing the percentage of available assets that were allocated to the Vanguard 500 index. The process was also made possible through investing further in the index funds when the market was almost going into an uprising (Chandra, 2008).In general, the performance of Beta Investment was brought into continuity by Ms. Sarah Wolfe's ability to predict and determine market performance.

In addition, in 1990, Wolfe used her authority to move positions of Beta's equity to about 50% in the month of June despite missing the previous two months' market decline. More so, between the months of August and September, Sarah was successful by moving money back into the index fund. These criteria also reflected in the beginning year of 1991, when she decided the period of being the year of investing heavily with individuals who had stocks of smaller companies. The new strategy of individual stock investments was aimed at spreading portfolios that were essential since this would greatly aid in reducing the overall risk of the company.

It was noted that the returns increased as opposed to the previous investment strategy (Levine, 2005).However, recommendations from Brown and California REIT group indicated that Ms. Wolfe's prediction that the market would remain stable for the rest of the year since the market was geared up to rebound. This being the case, then it is quite clear that Ms. Wolfe is a momentum investor since she was interested in investing in companies rather than buying shares in the market. In addition, she gave appropriate recommendations and advice of individual shares that should be bought in order to increase the company's investment return by reducing overall (Ellis, 1992).

California REIT is said to be one of the real estate investment trust company which was in a position to manage mortgages and equity investment within the income-producing properties. However, as a result of the earth quack in California in the year 1989, the company's investments were massively damaged. This lead to a drop in performance as compared to initially when it had better value, though, it was extremely volatile. It had a positive inter-correlation with Vanguard 500 index. Ms. Sarah Wolfe perceived it a good value company but later noticed that it had extremely volatile stock, which was valued at $2.

25 per share as at the commencement of the year 1991. The company's stock performance was thus much volatile, and it depends on the fluctuation of the market share prices. On the other hand, the Brown group being large manufacture as well as retail of varieties of branded footwear and is greatly structured. Its earrings had dropped drastically in the year 1989, though, it stayed steady and positive. The price of the stock had dropped late in the year 1989 as well as late 1990. As opposed to California REIT, its stock performance has a negative inter-correlation with Vanguard 500 index, and its performance did very well with the downmarket (Markowitz, 2004).

Despite the above drop, Ms. Wolfe noted that, though Brown group stock prices were quite variable i.e., very sensitive to stock market movement, she considered it as an attractive investment opportunity as evidence in January when the stock prices were $24. This is much higher as compared to California REIT (Moore, 2010). Based upon analysis conducted, it can clearly be stated that there exists a relationship between risk and return of portfolios.  However,  they affect investment decisions for different investors.

Some of the relationships that exist between the two are stated below:All investors are rational, and they always choose among alternative portfolios on the basis of each portfolio's expected to return as well as the standard deviation.Investors are risk-takers who are willing to invest despite the amount of risk encountered in a particular portfolio.Sometimes investors have a homogeneous prospect with regard to asset return. Thus all investors will perceive the same efficient set.There exist a risk-free asset, and investors can willingly borrow and lend at this rate.

All assets are marketable and perfectly divisible in the market.The capital market is always efficient and perfect.