Investment Essay Example | Topics and Well Written Essays - 1500 words

Investment - Essay Example Shareholders are the biggest players in any investment and their attitudes towards risks cannot be ruled out. Modern portfolio theory fails to incorporate the needs of all shareholders and uses a single set of shareholders resulting in an unrealistic indifference curve in the modern world. A period of 60 years calls for appropriate adjustments to the practical aspects of the theory. However, the modern portfolio is anchored in a single time period that is used to risks and returns scrutiny. Financial managers are assessed through a series of successive time periods as opposed to the proposition of a single period from modern portfolio theory. Additionally, a single period cannot be used for any meaningful predictions on returns. Therefore, Modern portfolio theory does not cover all the components required to come up with investment strategies for risk reduction. Investing in Apple and Microsoft shares on an equal basis is misguided because the companies have different financial prospects. Microsoft has a higher growth potential than Apple. The 50/50 basis would create a tolerance risk, but it would not realize much returns when compared to when clients invested more money in Microsoft than Apple. The valuation and expected growth for Microsoft will grow considerably because of the popularity of its operating systems and smartphones worldwide (Tilson and Heins, 2011). The clients should also track the stock prices of both companies to check earnings per stock in the last five years. EMH suggests that an investor should assess both historic and current patterns of share prices. Additionally, technical analysis would allow the clients to track share price movements for each company. An increase in the shares prices of either Apple or Microsoft should be reflected in the way they invest their lottery jackpot. Therefore, based on the potential o f growth for Microsoft and Apple’s share price performance, a 70/30 investment in favor of Microsoft would