Introduction
Participation in a trading process is not only an experience that opens one’s eyes to witness how at the time the market segment may be volatile, but it also offers an opportunity to make informed decisions on how the process would yield fruits because the process unfolds various risks and events that teaches on the same aspect of investments. In this aspect, taking part in the trading process unravels possible criteria of assigning financial decisions to a more productive investment portfolio.
In that, it would be much likely to deduce the best alternative to pursue because the risks become more revealed and possible to predict hence making informed decisions. This paper reports on the entire process of participating in an investment process for a whole week. It presents the various investment decisions used during buying and selling processes, the investment performance after investing a given amount in a specific business entity, the influence on the risk or performance on the portfolio, and the general statement on the aftermath of the entire investing activity for the portfolio.
Investment decision process
At this stage, it was a bit tricky to arrive efficiently at an investment criterion. However, a number of options were available to help make the entire process of investing a given amount from the total of $250, 000 successful. One of these benchmarks was the value in which the shares were traded in the previous week.
If a given company had its shares going down the times, from this time frame, other options taken into consideration include for instance the amount of dividend it paid its shareholders in the past two financial years. Other includes the mechanisms it has in place to ensure its shareholders get value for their investments irrespective of the ever-changing marketplace (Zvi, Kane & Marcus, 2010).
In addition to the shares pricing and its daily indicator, the turnover rate of the number of shares sold in the stock exchange also played a significant role in determining the choice of the firm for investments as well as the amount assigned for the process. The other pivotal aspects as indicators for determining the investment process included the number of clients the company or firm has. This shows how serious the firm is in the market as well as the mechanisms it has in place to enable it spread its services.
These factors are pivotal because they help one guarantee the amount invested in many ways. The security of finances will not only depend on the size of the firm but also its security mechanisms that ensures it lures as many clients as possible to invest in their stock. The most vital aspect in this is the ability to make the clients/customers aware of the security it has for their finances before making any investments (Zvi, Kane & Marcus, 2010). The best indicator occurs in financial reporting.
Investment performance
This procedure presents mixed signals and outputs from the various investment options. Even though they pose a significant dimension in the investment fragment, it is possible to make decisions and learn a few lessons from the different portfolios. The indices used to determine the portfolios were DJIA, SP500, NASDAQ, Russell 1000, and Russell 3000.
From these benchmarks the open and end period are paramount in elucidating a comparison within the indices to help determine the portfolio performance. From these, the returns gotten were as follows DJIA 9.267%, SP500 7.7353%, NASDAQ 11.4839%, Russell 1000 7.6494%, and Russell 3000 posted 7.3746%.
From the buying and selling perspective, only two firms’ offered commission of not more than 10.0, these are Apple 10.0 and Bank of America Corp. 9.99. The investment process took place within the month of February 2011 from dates two to 26.
The performance in various portfolios yielded positive returns within the investment period specified above. This could be true owing to the initial process of scrutinizing the firm before making investment based on the initial reasons stated in the investment decision process making (Stewart, 2007). Performance of any firm in the investments would most likely determine its ability to attract new investors who would have a feeling on the security of their funds (Nguyen, 2011).
This is the most important aspect of luring and retaining the existing investors in a given firm. According to Cooper and Ross (1994) the most important aspect before any investment procedure would involve ascertaining that any possibility in the market segment is under check, the need to determine any fragility is thus a pivotal factor before making any decision thereafter.
According to Nguyen (2011) choosing a better valuation method will not only ensure a reduction in the possibility of incurring the effects of major investment risks, but it also offers a better understanding on the future prospects of the finances invested in the stock. The performances of these investment options were therefore successful.
In comparison of the individual returns, the most appropriate benchmark would be the NASDAQ owing to its return index that recorded the highest value of 11.4839% followed closely by the DJIA benchmark. The other benchmarks almost gave a similar range, their differences is minimal. This elucidates that the benchmarks ended at a much higher value that it initially opened.
Impacts on the risk/performance on the portfolio
The impacts of the performance on the portfolio depend on the specific returns from the benchmarks. It is, however, apparent that they both played an integral role in helping out the entire investment process to attain a portfolio percentage of 16.4051%. There is several risk limits associated with this investment criterion, although entirely no investment process is safe from volatility in the market fragments.
For instance Ross (2010) asserts that most investment option would only present the possible risks at future date depending on several issues that comes with the ever-changing market environment. The impact of any serious investment risks would in most cases not come out instantly, although it would also depend on the response of the financial analysts of a given firm and how they respond to such situations to help investors retain value for their money.
From this perspective it is possible to conclude that even though these benchmarks did not offer any tangible risks within the time spent for investing the $250,000 it would be futile to dismiss the possibility of major risks associated with long-term investments. In this regard, the impact of various benchmarks were positive in making the portfolio realize a success within such a short period of investing and determine the return form the amount invested in the various stocks.
Statement on the experiences gotten from the process
The investment process will always present a number of lessons and challenges in making decisive decisions for the limited finances meant for investing. Some of the challenges would chip in when deciding to settle on the type of company to invest a given amount. One would require some basic knowledge and make backtrack of the firm’s financial reporting for the past few years or months.
Some of these options would involve determining the investor value and growth value to help elucidate on the firms’ pattern of growth and the way it institutes means and measures to protect its investors against volatility in the market segments. However, not most companies would be willing to offer this information to its prospective investors, especially if its financial analysts think the report may not sound well to its current investors.
Before making investments in a given firm, its financial background like the past amount of dividend paid to its investors, the amount it is currently trading at in the stock exchange, the changes the amount is experiencing for the past few weeks before making any investments are important. These are indicators in helping one decide the appropriateness of the firm to make investments (Shimizu, 2005).
Conclusion
The process of taking part in the investment process presents one to a number of decision-making processes. It also makes on identify key aspects and benchmarks to help determine the best stock to invest into prior to making decisions. These lessons are important because they provide a solid background to use in the future to make decisive and conclusive analysis of market fragility when planning to invest in a more returning stock.
References
Cooper, R., & Ross, T.W. (1994). Public and private guarantee funds with market fragility. The Journal of Risk and Insurance, 66(2), 163-184.
Nguyen, J. (2011). How to Choose the Best Stock Valuation Method. Web.
Ross, W.J. (2010) Fundamentals of Corporate Finance, Ninth Edition, Alternate. New York: The McGraw-Hill Companies.
Shimizu, N. (2005). Protection of Participants and the Pension Benefit Guarantee Program of Japan. Web.
Stewart, F. (2007). Benefit Security Pension Fund Guarantee Schemes. OECD Working Papers on Insurance and Private Pensions, No. 5. Paris: Organization for economic Cooperation and Development.
Zvi, B., Kane, A., & Marcus, A.J. (2010). Essential of Investments. New York: The McGraw-Hill Companies.