Model in the projection of equity portfolio - Essay Example

Company owners, executives, as well as all stakeholders assess various aspects in strategic planning and analysis of uncertainty using modeling techniques. Using financial modeling, various stakeholders can engage in calculated risks and as such minimize failure dangers while at the same time keeping client rewards at optimal levels. The aim of literally any investment analysis is being able to come up with appropriate investment decisions and even advice others on the best ways in making their investment decisions.

Consequently, there exists an inextricable link between equity analysis and management of equity portfolio. Nonetheless, even for those with sufficient comprehension of equity analysis, there are a number of mechanical portfolio management elements which need to be addressed prior to construction and running of the respective equity portfolios. As exercised with professionals, real-life application of hypothetical investment ideas involves looking beyond expertise and one’s training levels.

More often than not, managing a group of portfolios incorporates comprehensive detail attention, computerization of the information, as well as embracing the need for administrative effectiveness. Generally, the mechanics of portfolio management and more particularly projection of equity portfolios require a comprehensive and more object-oriented approach. In essence, managers who look after equity portfolios have to make a choice as to whether or not they adopt a given approach in management of the respective equity portfolios (Onyango, 2003, pp. 45). Investment firms often have strict defined parameters which they make use of in stock selection and general management of their investment.

Background information In the recent past, managers and many other stakeholders have taken to portfolio modeling. Portfolio modeling has come to occupy a central place in the business landscape. Whether one is running a single portfolio or lots of them in a single equity investment product, style construction and maintenance of a portfolio model is a common procedure in management of equity portfolio. More often, portfolio models acts as the standards upon which individual portfolios are equated.

In general, the managers of a portfolio assign a weighting percentage to each stock in the model of the portfolio after which individual portfolios are further modified to match against the assigned weighting mix. Usually, computerized portfolio models assisted by software such as Excel, SPSS, and matlab, among others. As an example, after running a mix of corporation analyses, departmental analyses, as well as macro-economic analyses, a manager make a decision as to whether or not to own a substantial weight of a specified stock.

In essence, models help in obtaining of portfolio efficiency with regard to portfolio analytics. With models, a portfolio manager may need to get an understanding of may be 30 or 50 stocks owned in similar ratios in the entire portfolio, instead of 100 or 250 stocks owned in different ratios in over a thousand varying portfolio accounts. Analyzing 30 or 50 stocks can be easily applied to the entire portfolio by altering weights in the model of portfolio over a specified time. What makes portfolio models outstanding is that as the individual stocks vary with time, a portfolio mana