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1. Building your own portfolio

Choose five companies for the purpose of tracking the stock market, conducting research on the companies, and preparing company reports. You would be investing in common stocks only, but you would be able to choose from two national stock exchanges, the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the NASDAQ.

Make a simulated $50,000 purchase in the common stock of your five chosen companies (Approximately $10,000 each; you need to buy whole shares and not a fraction of a share). To verify purchase price, check one of the business websites suggested.

Please provide the following information in the stock market update:
1. Name of company.
2. Stock/Trading symbol.
3. Date and last price on the date of purchase.
4. Number of shares purchased.
5. Total purchase (in dollars)
6. Brief description of company including its size, products and services.
7. Reasons for your selection (Like, you could back up your personal opinions with financial facts like unique products or services, strong competitive advantage, high earning growth rate, strong buy rating from analysts etc.).

You would make your purchases according to following rules:

a. Your brokerage fees will be $10 every time you buy or sell one company's stock.
b. You would ignore all taxes (don’t forget about dividends you collect; if any, add them to your cash balance (you are not re-investing the dividends)).
c. From Week 4 to Week 12, you could change your mind and sell shares in one or two companies at most. In this case, you need to sell all shares and reinvest your proceeds in one or two new companies. Or we can say, you would always have five companies in your portfolio.

Part 2: Index purchase:

Simulate a $50,000 purchase of SPIDERS (Trading symbol SPY). SPIDERS which stands for shares of an Exchange Traded Fund traded in the AMEX. SPIDERS mimics Standard & Poor 500 Index, a broad market index. This strategy would work well during the "bull" market. When the stock market goes up, you gain the average of the market return. This strategy worked well during the long bull market from 1983 to around March 2000.

Selling short an Index Fund (NASDAQ 100). Short-sellers are investors who borrow stock from a broker and sell it in the market, betting that the stock price will fall so they could buy it back at a lower price. This strategy works well at the time the bear market. Bear market started in March 2000. For a duration of slightly more than 2+ years, all main market indexes lost considerable ground. Dow Jones Industrial Average dropped from 11,500 to around 7,800, the S&P 500 dropped from more than 1,500 to around 800, and the NASDAQ Composite Index dropped from more than 5,000 to around 1,200.

Deposit simulated $50,000 in a broker's account. Borrow stock from the broker and short-sell "QQQ", the trading symbol of shares of an Exchange Traded Fund traded in the AMEX. QQQ mimics shares in the NASDAQ 100 Index. On the 9th week from your starting date, buy back all shares of QQQ. If the price of QQQ goes down, you make a profit by selling high and buying low. During less than 10 months in the year 2002, some ultra short mutual funds employed this strategy successfully. Like, ProFunds: Ultra Short OTC investment fund gained 136%. Though, shorting could be a risky investing strategy as unlike buying stock, where you cannot lose more money than you put in, short-selling losses can be unlimited if the borrowed stock keeps rising. Leo Guzman, president of Guzman & Company, a brokerage firm, warns shorting must be left for the professional investors.

Record the dates of buying and selling, number of shares, price per share, total purchases and sales. For the aim of computing gain or loss, use $100 total for the broker's commissions and the fund's management fee.

Final Stock Market Report must include background information for all investments. It should include: company name, trading symbol, location, mission, product/service line, competitors, revenues, earnings information, and stock exchange traded on, any present activities that you think might make your selected companies a good or bad investment in the future. In your opinion, which of the seven are good investments for the short-term and for the long-term. Your report must also include share price when you start tracking the stock, number of shares purchased, value of investment on date sold, and profit or loss on the investment. Go to COURSE DOCUMENTS and retrieve the Stock Market template Part #3. In conclusion, express what you learned about the stock market.

Answer these problems:
1) Is it a good place for short-term investment? 
2) Long-term investment?
3) Back up your opinion with financial facts and historical data. Some people say that "The stock market is the biggest casino in the world." Do you agree?
4) Why and why not?
5) For the three investing strategies, which one(s) do you prefer for the short-term investment?
6) How do you modify strategy #1 to make it less risky?
7) Should you increase or decrease the number of stocks in strategy #1?
8) Should you invest in a variety of companies offering different products and services? Your final report must be two to three typed pages double spaced in size 12 font. This is a summary report so don't ever exceed three pages!

Corporate Finance, Finance

  • Category:- Corporate Finance
  • Reference No.:- M9751

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