As learning students, part of the class requirement for Security Analysis-FIN4502, is to conduct security analysis and determine asset allocation that will best suite the investor. The investor will ultimately choose between varies stocks for the most appropriate security selection. The selected securities will be comprised of stocks that will exhibit a simulated complete portfolio, through which the investor will learn how to purchase and sell stock in a market exchange.
The investor will also be able to analyze and interpret financial data that will impact the investor's security selection. Furthermore, the investor will be able to accomplish financial interpretation through financial ratios that value the stock's current, past, and future prospects. Mathematical ratios will be complimented with visual representation illustrating historical price movements through the earning period and any future forecasted graphical representation.
Reviewing the recent economic trends associated with the Dow Jones Industrial Average ranging from 2008 to June 2010, shows that the highest Dow closing price was 14,164 (also a historical high) on April 7th 2008, with a recent peak in April of 2010 at 11,153. Since the April high the Dow has experienced declining records, settling around the 10,000 mark.
The mark at which the Dow has adjusted to does exhibit progressive recovery. The extreme lows experienced through 2008-2009 shows that the extreme economic conditions are behind and that investors are more confident in investing again.
Furthermore, the recent collapse of many financial firms and other corporations has sparked many reformative trends that investors are now cognizant of, such as more accurate financial reporting, credit discipline, capital responsibility, and mortgage rate awareness. All of these fundamental principles were costly and hard lessons to learn. Ultimately, the reforms have led to a recovery process that was stimulated by the help of the Federal Reserve and Treasury Department. The reduction in interest rates, monetary expansion, and the weak dollar (assisted exports) helped investors continue through the debilitating financial crisis. Furthermore, recent data suggest that unemployment is declining, although slowly. More companies are hiring now, and are pulling themselves away from the bleak preceding years of yesterday. All of these indicators signaled investors to start investing again in the market and as the Dow is the United State's premier conduit for stock trading, it is clear that investing is moving in the right direction.
Asset Allocation
Investing is limited to one's risk aversion and as in this matter, the sought after financial commitment was to be concentrated in stocks. There are broad categories of financial assets and as the textbook points out "Investment assets can be categorized into broad asset classes, such as stocks, bonds, real estate, commodities, and so on" (Bodie, pg 9). After reviewing the various classes of financial assets the complete capital account proportion will be 100 percent used to purchase stocks. And the complete portfolio will be comprised of all socks. The remaining asset categories will be not explored and considered a poor investment opportunity.
Security Selection
With an extra sense of risk awareness, security selection seemed apparent. One of the safest investment moves that has traditional earnings, regular dividend payouts, and expected superiority are Blue Chip Stocks. There are arguments against purchasing Blue Chip Stocks as the sole portfolio asset. More keenly, Blue Chips have regular performance but in times of inflation the buy and hold method might not reap as much reward as measured with high growth stocks. Blue Chip Stocks when measured against the Consumer Price Index, at times, needs to grow at a substantial rate more to account for inflation. Also, the time horizon can extend risk due to rapid changing markets. This could also create a higher propensity for company bankruptcy depleting stock value, or the firm could lose its strong hold on its once dedicated investment base. Overall, the blue chip reference provides positive consistent financial performance.
Security Analysis
After individual security analysis, the complete portfolio was comprised from an eclectic review of internet market data sources, such as Yahoo-Finance, Google-Finance, and the Wall Street Journal. The portfolio stock contribution ranges from broad industry sectors. The below chart is the breakdown of the corresponding stocks for which industry-sector category each stock respectively is associated.
Technology
Consumer, Cycl.
Cons, Non-Cycl.
Industrial
Energy
Apple
Best Buy
Pepsi
UPS
Helmerich & Payne
IBM
Home Depot
Coca-Cola
Boeing
Microsoft
Starbucks
Ford
Raytheon
Intel
Southwest Airlines
Nike
Altria Group
Trading Activity
Throughout the trading time-period, a passive strategy was exercised. There were no immediate buy and sell orders. All trades were made on a specific day and sold on the last allowed trading day, in this case 11 Jun 2010. The first set of stock purchases took place on 27 May 2010, and then followed on 31 May 2010 a second brush of stock purchases. The long-term holding horizon was applied to see how the selected stocks performed over a given time period. The below chart depicts the respective trading information that correlates to each trade, such as bid/ask price, volume, profit/loss, dividends, and other relevant information.
Top Performers
The following three graphs list the top performing stocks, in regards to profits. Stocks Helmerich & Payne, Google, and Starbucks all had the highest performing returns. The corresponding charts also depict relevant data as to technical indicator performance. Each graph encompasses a 50 Day MA, 50 Day EMA, MACD, Money Flow Index, and Stochastic measure.
Helmerich & Payne
Last Trade:
41.97
Trade Time:
Jun 11
Change:
0.19 (0.45%)
Prev Close:
42.16
Open:
41.45
Bid:
41.53 x 100.00
Ask:
42.41 x 100.00
1y Target Est:
48.98
Day's Range:
41.19 - 42.41
52wk Range:
26.64 - 49.13
Volume:
2,109,371
Avg Vol (3m):
2,438,120
Market Cap:
4.44B
P/E (ttm):
20.95
EPS (ttm):
2.00
Div & Yield:
0.24 (0.60%)
Last Trade:
488.50
Trade Time:
Jun 11
Change:
1.49 (0.31%)
Prev Close:
487.01
Open:
482.50
Bid:
N/A
Ask:
594.89 x 100.00
1y Target Est:
660.97
Insider Transactions
NET SHARE PURCHASE ACTIVITY
Insider Purchases - Last 6 Months
Shares Trans
Purchases N/A 0
Sales 1,012,880 83
Net Shares Purchased
(Sold) (1,012,880) 83
Total Insider Shares Held 1.59M N/A
% Net Shares Purchased (Sold) (39.0%) N/A
Net Institutional Purchases - Prior Qtr to Latest Qtr
SharesNet Shares Purchased (Sold) (3,069,660) % Change in Institutional Shares Held (1.2%)
Day's Range:
481.62 - 488.71
52wk Range:
395.98 - 629.51
Volume:
1,784,318
Avg Vol (3m):
3,639,720
Market Cap:
155.58B
P/E (ttm):
22.23
EPS (ttm):
21.97
Div & Yield:
N/A (N/A)
Starbucks
Last Trade:
27.15
Trade Time:
Jun 11
Change:
0.17 (0.63%)
Prev Close:
26.98
Open:
26.77
Bid:
24.01 x 100.00
Ask:
N/A
1y Target Est:
29.88
Day's Range:
26.74 - 27.21
52wk Range:
12.76 - 27.93
Volume:
8,637,931
Avg Vol (3m):
10,411,100
Market Cap:
20.23B
P/E (ttm):
27.10
EPS (ttm):
1.00
Div & Yield:
0.40 (1.50%)
Insider Transactions
NET SHARE PURCHASE ACTIVITY
Insider Purchases - Last 6 Months
Shares Trans
Purchases 12,600 3
Sales 365,952 5
Net Shares Purchased
(Sold) (353,352) 8
Total Insider Shares Held 20.07M N/A
% Net Shares Purchased
(Sold) (1.7%) N/A
Net Institutional Purchases - Prior Qtr to Latest Qtr
Shares
Net Shares Purchased (Sold) (12,844,600)
% Change in Institutional Shares Held (2.4%)
Bottom Performers
The following three graphs list the bottom performing stocks, in regards to profits. Stocks Intel, UPS, and Southwest Airlines all had the lowest performing returns. The corresponding charts also depict relevant data as to technical indicator performance. Each graph encompasses a 50 Day MA, 50 Day EMA, MACD, Money Flow Index, and Stochastic measure.
Intel
Last Trade:
20.64
Trade Time:
Jun 11
Change:
0.09 (0.44%)
Prev Close:
20.55
Open:
20.29
Bid:
N/A
Ask:
26.14 x 300.00
1y Target Est:
27.56
Day's Range:
20.28 - 20.75
52wk Range:
15.61 - 24.37
Volume:
49,496,398
Avg Vol (3m):
73,677,700
Market Cap:
114.84B
P/E (ttm):
18.88
EPS (ttm):
1.09
Div & Yield:
0.63 (3.10%)
UPS
Last Trade:
61.20
Trade Time:
Jun 11
Change:
0.36 (0.59%)
Prev Close:
60.84
Open:
60.43
Bid:
60.29 x 800.00
Ask:
62.11 x 800.00
1y Target Est:
77.69
Day's Range:
60.14 - 61.35
52wk Range:
46.41 - 70.89
Volume:
4,417,893
Avg Vol (3m):
5,774,310
Market Cap:
60.62B
P/E (ttm):
26.91
EPS (ttm):
2.27
Div & Yield:
1.88 (3.10%)
Insider Transactions
NET SHARE PURCHASE ACTIVITY
Insider Purchases - Last 6 Months Shares Trans
Purchases 17,421 1
Sales 26,000 6
Net Shares Purchased
(Sold) (8,579) 7
Total Insider Shares Held 287.24K N/A
% Net Shares Purchased
(Sold) (2.9%) N/A
Net Institutional Purchases - Prior Qtr to Latest Qtr
Shares
Net Shares Purchased (Sold) 1,951,620
% Change in Institutional Shares Held 0.3%
Southwest Airlines
Last Trade:
12.07
Trade Time:
Jun 11
Change:
0.02 (0.17%)
Prev Close:
12.05
Open:
11.91
Bid:
11.01 x 100.00
Ask:
13.13 x 100.00
1y Target Est:
15.45
Day's Range:
11.84 - 12.12
52wk Range:
6.14 - 13.97
Volume:
7,337,015
Avg Vol (3m):
9,715,700
Market Cap:
8.99B
P/E (ttm):
44.54
EPS (ttm):
0.27
Div & Yield:
0.02 (0.10%)
Insider Transactions
NET SHARE PURCHASE ACTIVITY
Insider Purchases - Last 6 Months Shares Trans
Purchases 1,500 1
Sales 65,624 5
Net Shares Purchased
(Sold) (64,124) 6
Total Insider Shares Held 3.97M N/A
% Net Shares Purchased
(Sold) (1.6%) N/A
Net Institutional Purchases - Prior Qtr to Latest Qtr
Shares
Net Shares Purchased (Sold) (30,884,100)
% Change in Institutional Shares Held (5.2%)
Conclusions
The Wall Street Journal Simulation Project has taught the investor that investing in the stock market is not a mysterious fixture that only well trained and highly skilled individuals are able to perform. The relevantly new investor can learn how to understand the data that is offered through any of the various online sources. It was certainly a project that helped identify some of the vocabulary that is associated with market trading. If the trading was conducted after taking this class, the investor would diversify the portfolio with a mix of more risky assets and try other methods of earning profits, such as short selling, or exchange traded funds. Risk aversion was a relatively important aspect of this portfolio, but with simulated money, the portfolio can and should extend beyond general expected returns of well established firms. Furthermore, the tools that are available to traders seem quite accurate, intuitive, and reliable once familiarity sets over individual uncertainty.
Journal
- 15 May 10, Reviewed company stock performance amongst largest economic firms.
- 20 May 10, Subscribed to Wall Street Journal.
- 25May10, Selected securities that were going to be in the portfolio.
- 27 May 10, Purchased securities, APPL, BA, CCE, F, GOOG, HD, HP, IBM, MO, MSFT, NKE, and RTN.
- 31 May 10, Purchased securities, BBY, INTC, LUV, PEP, SBUX, and UPS.
- 1 Jun 10, Received Dividend from INTC for $790.00.
- 2 Jun 10, Received Dividend from UPS for $940.00.
- 4 Jun 10, Received Dividend from BA for $210.00.
- 11 Jun 10, Sold all outstanding positions for a total profit of $7673.00
- 13 Jun 10, Submitted project for grading.
