At the conclusion of my Junior year in the Spring of 2010, I knew I would begin taking my core finance courses the following semester. After deciding to take classes in Summer A, I concluded that taking a course that would fully involve me in the fundamentals of analyzing the global financial marketplace and the stock market would be in my best interest and would give me a great introduction into the world of finance. As such, I enrolled in the Securities Analysis 4502 class. Giving me extensive insight into the process of investing, the tools used to invest, the numerous types of financial instruments, and the overall analysis of a diversified portfolio, I found the course a rewarding experience that gave me a great deal of knowledge to implement in my future career.
One of the major requirements for the investment course involved a project where students would create a simulated portfolio using market data and components of the Wall Street Journal. After registering for a 6-week account on the website, the assignment was to evaluate the stock market, build a portfolio using information from our class assignments, social media based on current global events, and using actual market data on the performances of companies and their corresponding stocks, and attempt to earn a return on our investments. With a beginning balance of $1 million, students were free to trade whatever stock or other financial instruments accessible on the market and develop a detailed evaluation of their results.
With no prior experience in the stock market but an extreme interest in investing, I felt the project and course would give me a great hands-on experience that would give valuable tools and knowledge that could be applied to my life. I never understood how market trends and conditions affected stock prices and the overall financial marketplace, and had no information on which stocks and companies to invest in. But, I looked forward to the challenge and in the end found this to be a worthwhile task.
After waiting a few weeks to begin the investment process, during which I did heavy research into the stock market, market trends and history, and different companies who were publicly traded in the marketplace, I began the project with the goal of creating a well diversified portfolio that would provide me with a suitable return on my investments in strong, stable firms. I sought to diversify my portfolio through buying stock in industry giants, while also taking risks and putting my faith in smaller, less known firms to attempt to increase my profits.
Through extensive research, I decided to purchase stock in the technology industry leader Apple Inc. (AAPL), took a risk in backing the firm behind the Gulf Coast oil spill catastrophe in Beyond Petroleum (BP) and another small firm in the oil industry in Basic Energy Services (BAS), short-selling shares in oil through utilizing the Barclays Bank Exchange (OIL), and bought an ETF in Direxion Funds (SOXS) tying its performance to the semiconductor industry via the PHLX Semiconductor Sector Index. I felt that the different perspectives and potential gains that could be obtained from these five distinctly different opportunities would give me a strong balance between large, stable firms, smaller risky companies, and allow me to tap into mutual funds. By utilizing different investment strategies, I also felt I would gain an extensive insight into how these processes worked together to achieve a diversified portfolio. At the end of the project, these different components helped me achieve my initial and ultimately resulted in a gain of $1,538, or a .15% increase in my assets.
Analysis
My investment process began on June 3, when I invested 100 shares in the globally-known company Apple Inc (AAPL). Makers of the famed iPod, iPhone, and Mac products, Apple is an industry giant that plays a large role in the financial market whenever a new product is released. Such was the case when the company announced its plans to unveil its brand new Apple iPhone 4 later this summer on June 24. Offering new applications that can be downloaded into the phone, new features such as FaceTime, which allows callers to see the individuals while they are calling them, and a new High-Definition screen, the iPhone 4 generated an enormous amount of buzz in the market. Combined with the release of the iPad, a thin, sleek, revolutionary new tablet PC, Apple was setting itself up for a peak in profits. Based on these factors, I felt that investing in Apple Inc. would be safe, sound investment that would generate immediate and plentiful returns.
I originally purchased 100 shares in the company at $262.35 a share, and another 900 shares a week later at a reduced price $250.50. I calculated that although the price significantly decreased over this span, the release of the iPhone 4 would catapult perices up. Fortunately, it did, and I closed the trade two days later at $253.51. Despite the initial loss in investment, I earned an overall profit of $1,825 due the large volume of stock I purchased in the end and returns generated from the release of Apple's newest technological innovation.
To diversify my portfolio and utilize the variety of investing techniques that I learned in this course, I decided to implement short selling stock in my portfolio. Due to the current ecological crises on behalf of Beyond Petroleum (BP) and the massive amounts of oil spilling into the world's oceans, I believed it was best to short sell the commodity of oil. After the oil spill and the traumatic effects it had on the worldwide environment and the impact on regional businesses such as fishing, the world felt anger and rage at not only BP, but the entire fuel and oil industry as a whole. As such, I relied on this public outrage to most drive down the stock price of oil, and felt it was a good opportunity to capitalize on this market trend. Due to this, my second investment option came in the fuel services industry when I short sold 100 shares of oil utilizing the Barclays Bank Exchange (OIL).
At a price of $21.15, my calculated risk of short selling oil paid off, resulting in immediate profits when its price declined. But I was tempted to "ride out" this trend and remained firm with my investment decision. The price of oil continued to fluctuate rapidly, until I reversed my strategy and bought shares in the commodity at $22.10, a slight increase in price per share at $.95. Although this process resulted in a net loss for the short selling strategy, I sold the stock at a closing price of $22.28 per share, giving me a profit of $49. While this strategy fluctuated between small losses and profits, it was interesting to see how different investment strategies can be applied in the market and its impending results on your overall portfolio.
After a slight gain in the oil industry and the large return from Apple, I decided on the same day to further diversify my portfolio and look into exchange-traded funds, or ETFs. Although I did not have a complete understanding of ETFs, their components, and how they ultimately worked, using my resources from the course and the ETF Center located on the Yahoo! Finance website, I felt acquiring an ETF would be a sound move. Also, after reading an article regarding how the technology industry has played an integral role in the financial market over the past three years due to being less dependent on debt financing and therefore less impacted by the current economic conditions, I invested in the Direxion Daily Semiconductor Bear 3x Shares (SOXS) ETF. Issued by Direxion Funds, the SOXS ETF is linked to the performance of the semiconductor industry via the PHLX Semiconductor Sector Index.
While the SOXS stock fluctuated in price similarly that of oil, I ultimately closed out the trade at a price of $34.44 per share, resulting in a loss of $705 from the 1,000 shares I had purchased. Due to their differences from regular stock in trading instantaneously all day long, giving investors immediate price lock-ins, they are relatively easy to account for and manage, making them a sound investment in any well diversified portfolio.
After evaluating my performance thus far in the portfolio project, I found that a majority of my profits had been earned through investing in the large company Apple. Relying on this data, I decided to invest in another industry titan, although taking a bit of a risk due to current global events. While BP was entirely to blame for the catastrophic oil spill, it was in my best interest to buy 1,000 shares in the company once it started to contain the problem. After installing a containment cap on its leaking well in early June, resulting in significantly reducing the amount of oil spilling into the ocean, market experts predicted an increase in the company's stock performance as well. Taking the chance on this capitalization, trading after hours, I acquired Beyond Petroleum (BP) stock at a price of $32.78. Despite its negative perception in the eyes of the global public, the stock price continued to climb until I closed the trade at $33.97 per share, giving me a net profit of $236.
My final investment opportunity arose in the form of small-time oil industry company Basic Energy Services Inc (BAS). An aid to Gulf Coast oil spill cleanup, Basic Energy Services operates by offering services to oil and gas drilling within the United States. In correlation with my investment in BP once in began to account for its damages and make a significant impact in containing the oil issue, I felt it was an opportune time to put further funds in the oil industry. Also, due to the trend in global growth empowering investors to invest in risky assets, Basic Energy Services represented the small-time, risky stock that I was seeking to include in my diversified portfolio. In response, my strategy turned out to be a success, turning my original investment at $8.03 a share into a profit of $133 upon selling at $8.28 per share.
Conclusion
Upon a final evaluation of the performances of the five different stock that I purchased shares in, my investment strategies, and the returns or losses earned on each investment, I feel that I have successfully completed and achieved my initial target goals of creating a well diversified portfolio that would provide me with a suitable return on my investments in strong firms. Through investing in stocks of both large, global, industry-leaders (Apple and BP) and small-time firms (Basic Energy Services), utilizing a variety of investment techniques through buying stock, short-selling stock, and taking an interest into exchange-traded funds, and investing in two distinct investment instruments in stock and ETFs, I have found my overall portfolio to be a well diversified one. It has a strong balance between small and large firms, a mix of investment types, and provides me with a suitable return on my investments. Obtaining an overall profit of $1,538, or a .15% return on my overall investment of $1 million, the Wall Street Journal portfolio project was a knowledgeable, enjoyable experience that gave me a hands-on feel for investing.
After completing this project, I understand that world events play an enormous role in the global financial marketplace. As can be seen by the Gulf Cost oil spill and even Apple's release on its new iPhone, current events can leave a tremendous impact on the stock market and beyond. Also, by utilizing a variety of resources, investment tools and techniques, and a number of different investment options, I learned that the stock market has much more involved then simply buy and selling stock. If correctly analyzed, market data can be an instrumental source for making sound investment decision.
While I had an extreme interest in the investment process prior to taking Securities Analysis 4502, I never had the proper knowledge of the stock market as a whole, what impacted it, and how companies and other firms could utilize market data, economic conditions, and current events to earn returns for their investors. But, after conducting extensive research into marketplace trends and evaluating both industry and world events, I have a much better understanding of these concepts and look to begin investing my own money in the stock market in the near future.
