Posted:

FIN319: Money and Capital Market, Report on Portfolio Project,

Report on Portfolio Project

Name:

FIN319: Money and Capital Market
:

1. Introduction (3-4 pages)

You have to mention the followings:
 Purpose of this project.
 How this project make you understand the stock investment.
 Explain the high P/E stocks, the low P/E stocks, the growth stocks, and the value stocks.
 What was your initial pick and why you chose them for each of the four portfolios.
 How your four portfolios have performed for three weeks IN GENERAL.
 Based upon the results of your four portfolios, which factors you think are more important in the stock market investment, firm-specific factors, macroeconomic factors, and/or speculative expectation, etc.

2. Company information and Weekly Performance (5 – 7 pgs: do not include spread sheets)

A. Week 1 Companies for Four Portfolios
Provide basic information of the companies and explain why you selected those four companies for your four portfolios. Provide some financial ratios or news to justify your selection, with some table or plots, if any.

B. Week 1 Performance of Four Portfolios
Explain how those stocks performed during the first week. Was their performance consistent with what you expected from the beginning of the week? If it was not or it was, explain why. Try to find both macroeconomic factors or firm-specific factors (or news) to cause the results.

C. Week 2 Performance
Explain why you changed the stocks giving specific information. Then, describe and explain how your Week 2 portfolio performed during the first week. Was their performance consistent with what you expected from the beginning of the week? If it was not or it was, explain why. Try to find both macroeconomic factors or firm-specific factors (or news) to cause the results.

D. Week 3 Performance
Explain why you changed the stocks giving specific information. Then, describe and explain how your Week 3 portfolio performed during the first week. Was their performance consistent with what you expected from the beginning of the week? If it was not or it was, explain why. Try to find both macroeconomic factors or firm-specific factors (or news) to cause the results.

E. Overall Evaluation on the Three Weeks Performance of Four Portfolios
GO TO Sheet 5 of your excel file, get 14 observations of portfolio returns for each of your four portfolios. Also, get the S&P500 returns from the Blackboard. First, provide the table of mean, variance, STDV, and CV of your four portfolio returns and S&P500 returns. Also, provide the plot of the five return series. Then, compare them in terms of risk-return relation. Second, using the two measures of portfolio performance (Sharpe’s ratio and Jensen’s alpha), compare and explain overall performance of your four portfolios. For each portfolio, was your portfolio performance affected relatively more by economic factors or by firm-specific factors? Is there any significant difference in performance among the different portfolios? If any, which portfolio is the best and worst? Explain it.

3. Conclusion
You make a summary of your report with important facts that you have observed. Is there any important knowledge or lessons that you have learned from this project? Finally, make your own argument as the conclusion of your project.

4. Appendix
Here, you attach all Excel Spread Sheets

NOTE:
Two measures of portfolio performance:
A. Sharpe’s ratio =
B. Jensen’s alpha = ,

where is the average portfolio returns and is the average market returns (S&P500 returns).
Also, use

Portfolio finance
Introduction
The purpose of the project is to help understand and learn about portfolio management and which stocks to include in a portfolio of investments. This is important in diversifying risks when investing in stocks and also preventing risks of losses to poor diversification. It helps an investor make an informed decision about the stock of a given company before making a decision on whether to buy it or not.
This project helps me understand stock investment in a number of ways. The analysis of each stock in terms of its current market price, returns, dividends yield and fluctuations in its daily prices helps me understand the correct value of the stock, to make an informed prediction on its possible future price and to know the true value of the stock, whether undervalued or overvalued. All these are important when making decision whether to invest in a stock. It also helps me evaluate different stocks, make comparisons on all important variables and choose on which stock is a viable project to invest in. The project also helps me know the risk associated with investing in each stock, mainly portrayed by changes in daily prices of stocks, since very risky assets have high daily fluctuations in prices while less risky stocks have low daily price fluctuations.
The high P/E stocks have high price to earnings ratio. These stocks have high market prices. Because of the high market prices, the investor buys a just a few stocks of each firm then sells to record a gain in the sales. This could mean that the prices of all the stocks are at their highest and are expected to drop in the future. On the number of shares bought in each company, the investor makes a profit only in the stock of NFLX where the selling price is higher than the buying price. The buying price per share of the stocks of AMZN, FB and DNKN are more than their respective selling prices. This results into loss, and it means that their prices have started reducing at the time of sales. The general result of trade in these stocks was a high weekly gain and a positive return.
The low P/E stocks have comparatively lower market prices, hence low price to earnings ratios. The investor takes advantage of the low prices to buy, expecting prices to increase in the future so as to make profits. The sale of all shares held in MUR could mean the share prices are expected to reduce further in future. This is meant to reduce any possible losses. The stocks prices of YHOO, CVX and VT are all expected to increase in future. These stocks recorded a general small weekly loss and a negative return.
Growth stock refers to those stocks which grow at an above average rate. Normally, these stocks do not pay dividends as the firm has a lot of projects in which it can re-invest its earnings. The investor records a gain from the sale of these stocks. These stocks however recorded a massive weekly loss and a negative return.
Value stocks on the other hand are those stocks that usually trade at prices below their fundamentals such as earnings, dividends and sales. Such stocks are deemed to be undervalued by investors. They have low book to book ratio, low prices to earnings ratio or high dividends yield. Existence of such stock is caused by inefficiency in the stock market. The value stocks here have all been sold by the investor, an indication that the share prices may reduce in the near future. The stocks recorded a weekly loss and a negative weekly return.
My initial pick was a portfolio of stocks of AAPL, INTC, MDR and BONT. I chose these stocks due to their varied nature, news about the companies, historical movement in prices and their financial statements. The portfolio consists of low price and high price stocks. The high price stocks include AAPL and INTC while the low price stocks are MDR and BONT. I used the information available for each of these stocks to predict that their prices would go up in the next few weeks. I picked on AAPL stock because it is a high return stock which promises positive returns, and has had a fairly stable market price over the past weeks. Its financial statements were impressive with high profits for the previous year, an indication that its stock prices would increase in the next weeks. INTC is also quite stable and promises high returns and gains on sale. The company announced a dividend payment of $0.24 per share in February 2015 – Research Paper Writing Help Service. The company also marked 30 years of operations in China in early April, revealing a number of collaborations and investments. Its historical prices have also shown stability ranging from $31 to $34. MDR is a low price stock which has high chances of increasing in value in the near future and that’s why I went for it.The company announced that it received an award related to a project it undertakes in Brazil, which would result into high revenues. This also made me consider it as a good buy. Finally, BONT has a low price which keeps increasing therefore yielding gain on sale. The general risk of the portfolio is very low. The company announced a cash dividend of $0.05 per share on 4th May 2015 – Research Paper Writing Help Service, after recording an operating income of $56,534. This was a good indication.
Generally, my portfolio performed well. The prices of almost all stocks kept increasing each week, an indication that my forecast and valuations were correct. The portfolio recorded the highest percentage return in week two at 7.9396% and had the lowest percentage return of 1.1146%. The three week rate of return was 9.1578% which was very high and acceptable. This high rate of return was due to increase in prices of stocks in the portfolio. The low rate of return recorded in week three was due to a marginal increase in price of stocks in that week. My portfolio also recorded capital gains in all the three weeks, with the gains growing to a high of $6382 in week 2. The growth in the capital gains in week two is attributed to plow price fluctuations within the week. The three week capital gain was at $11,342.40 which is very high. This is a symbol that the portfolio generally performed very well within the three week period.
Firm specific factors, macro-economic factors and speculative expectations all affect stock investment. The most important for me of them all is speculative expectations. Investors always try to predict the movement of stock prices in future using any information that may come up concerning the stock. The investors’ behaviors towards a piece of information will determine the movement in prices of that stock, and this was the same case with the stocks in my portfolio. Increase in share prices was mainly due to the fact that investors and speculators believed that the stocks were undervalued, and therefore bought them hoping to sell them in future at higher prices. For example, I bought the BONT shares at $6.98 per share and held them for the three weeks expecting an increase in the price. In week three when I speculate that prices may start falling, I sell all the shares at an increased price of $7.38. Therefore stock investment is largely run through market and stock speculation.
Company information and weekly performance
I selected the four companies AAPL, INTC, MDR and BONT based on their performances in the previous weeks. The performance in week one was good, except for AAPL due to fluctuations in stock prices. The other stocks had their prices increase to record a gain. On 27th April, AAPL announced an expansion of capital return to $200 billion. This is a signal that the prices will still increase in the near future. The company in its last financial statements release in September 2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay recorded a net income of $39,510,000. This leads to a high price earnings ratio. The stock of AAPL currently sells at $128.70 per share.
INTC had a beta of 0.93, which meant that volatility in its price is not too high. Its price to earnings ratio was 14.24 while it had a profit margin of 21.05% in its last quarter financial statements. Their diluted earnings per share were high at 2.35, an indication that it did well and that it would do well in the coming weeks. This coupled with the news of its increased investments and partnerships in China justify the buy.
MDR also promised higher returns in the future. In its fiscal year ended December 2014: 2024 – Essay Writing Service | Write My Essay For Me Without Delay, it recorded revenue per share of $9.70. DPS was however negative at -0.32. Its historical prices however have shown stability in prices and the news about the contract in Brazil also made it prove to be a worthy buy.
BONT had a price to earnings ratio of 23.26 for the financial year ended 31st January 2015 – Research Paper Writing Help Service. Revenue per share was at $145.38 while total cash per share was at $0.43. Earnings per share however were negative at -0.36.
The performance of the portfolio in week one was good. It was in line with my expectations, apart from AAPL which recorded a general negative price change during the week. This could have been due to macro-economic factors such as recession.I sold half the shares I bought in INTC in the same week as a precaution due to expectations that prices could have gone down. On 30th May there was a press release about MDR being awarded a contract to install Chevron subsea for St. Malo expansion. I expected this to impact positively on the share prices the shares increased during the week from $3.78 to close at $4.18. The overall return was negative in day one and two then became positive for the rest of the day. The overall capital gain was positive and an overall positive weekly rate of return.
In week two, the prices remained fairly stable from those in week one with positive weekly gains in all stocks except that of BONT. This weekly loss can be attributed to the dividends declared in late March which could just be taking effect. It could have been interpreted to mean lack of viable investment projects by the company. Generally, my portfolio performed well, with only negative rate of return on 7th April. I bought more shares of INTC and MDR to expectations of further increase in prices and also sold some shares of the same firms at a profit. The other two stocks remained fairly stable in prices, therefore no transactions undertaken on them. Generally, I recorded the highest weekly capital gain in three weeks. The percentage rate of return was also very high at 5.7801%. The two week rate of return and capital gains were also very high.
In week three, AAPL once again experienced a weekly loss, largely attributed to the macro-economic factors. Other stocks did well, with prices generally increasing. I more shares of INTC, MDR and BONT and sold all shares held during the same week to end the portfolio of stock held. The shares of AAPL were sold at a loss of $1.62 per share while all the other stock sold at profits compared to prices at which they were bought either in week one or in the other two weeks. The portfolio recorded negative returns for three days while earning positive returns for the rest of the days. Generally, the portfolio did averagely well in week three earning a capital gain and a low but positive percentage rate of return of 1.1146%.
Mean Variance Standard deviation Coefficient of variation
Low P/E stock 0.104 0.0000482 0.00694 0.067
High P/E stock 0.607 0.000252 0.0159 0.026
Growth stock -0.017 0.00008025 0.00896 -0.53
Value stock -0.003 0.0000445 0.00667 -2.22
Own portfolio 0.698 0.00023713 0.0154 0.022
S&P 500 0.078 0.0000286 0.00883 0.11

From the above table, the portfolio with the highest average return is my own portfolio with a mean of 0.698% rate of return. The portfolio with the lowest mean return is the growth stock with -0.017%. Value stock also gives a negative mean rate of return, while all the other portfolio mean returns are positive. My own portfolio also has comparatively the highest standard deviation, and indication that it is also the riskiest portfolio to invest in. Growth stock with its lowest return also has the least level of risk as shown by its low standard deviation of 0.00896. This generally means that low risk portfolios give yield to very low returns while high risk portfolios yield highest returns. Moderate risk gives moderate returns as shown by the low price to earnings ratio stock.
There are significant differences in performance among the different portfolios, with the lowest return portfolio giving a negative figure while the highest return portfolio which is my own portfolio giving a positive return. There are also significant differences in the levels of risk shown by the standard deviation and the coefficient of variation.
According to me, the best portfolio was my own portfolio. The worst was the value stock portfolio. This is based on the returns. The choice of the best and worst portfolios however depends on the risk profiles of different investors. Risk averse investors would prefer low risk portfolios while risk seekers would go for high risk high return portfolio.
Conclusion
Generally, the project helped me learn a lot about stock investment and portfolio management. I learnt how to choose the stocks to include in a portfolio, and how to speculate movements in stock prices using firm factors, any news affecting the company and macro-economic factors. I observed that any positive news about a firm led to increase in its share prices. Dividends declaration led to movements in either ways depending on how investors perceived it. The firm profile and its management and board also determined the performance of a stock. Poor governance led to reduction in prices while stability in governance was important in ensuring stability in stock prices. Finally, macro-economic factors like level of competition, laws and regulations and market factors also led to price fluctuations.
My argument is that my portfolio did well and I also did well in forecasting the price movements. Stock prices largely depend on speculation and investors’ perception of all information both private and public. The performance of my portfolio largely depended on my ability to use the available information and press releases about the companies to make a decision on whether or not to buy or sell.

Works cited;
Reilly, Frank, and Keith Brown. Investment analysis and portfolio management. Cengage Learning, 2011.

Model, Asset Pricing. “Investment Analysis & Portfolio Get research paper samples and course-specific study resources under   homework for you course hero writing service – Manage ment.” (1987).

Nicholson, Nigel, et al. “Personality and domain‐specific risk taking.” Journal of Risk Research 8.2 (2005): 157-176.

Barber, Brad M., and Terrance Odean. “Trading is hazardous to your wealth: The common stock investment performance of individual investors.” The journal of Finance 55.2 (2000): 773-806.

.

Order | Check Discount