Introduction
The stock market is dynamic, driven by four main factors: perceived risk, discount rate, earnings base, and expected growth. Stock prices change depending on the market forces of demand and supply. Limited stocks attract a large number of investors, and the companies are less willing to sell. For this reason, investors must bid high prices to purchase their preferred stocks. The market dynamics influence profit and losses from stocks. An investor must assess the riskiness and profitability of available stocks before settling on a preferred purchase. This is defined as the investment decision and involves detailed market analysis. Investors purchase stocks at low prices and resell them when demand goes up to generate high profits.
The project finance assignment was tailored to help students comprehend the factors influencing changes in stock prices. In this task, the students were expected to act as real investors in the market and learn through their personal experiences in the stock market. Having learned about stock market dynamics, this was a chance to develop practical skills while testing the classroom concepts. A series of activities were outlined with students required to work in groups of two or three.
The website www.wallstreetsurvivor.com was the starting point for the assignment. Each group was required to create an account on the Wall Street survivor website. Each group was allocated $100,000 to invest in stocks in the New York Stock Exchange (NYSE) or the NASDAQ stock market. In this step, we had to look up the stock prices, market trends, and opinions from various sites, including Google Finance and Yahoo finance. This step was crucial because it influenced the choices of stocks purchased.
Having the necessary information on prices and market trends, every group was expected to purchase any amount of stocks totaling $100,000. Although there was no limitation placed on the number of stocks purchased, they were not to exceed the amount allocated. With the stocks purchased, each group was expected to have a minimum of 40 transactions. A transaction was interpreted as either a sale or a purchase. In this step, we selected 23 stocks and carried out the required transactions. Each group was expected to have sold everything by April 15, which we did. All transactions were expected to happen during the open market hours, that is, 4 pm UAE. And lastly, every purchase or sale was to be recorded and justified. The next section highlights the investment decisions followed for all the stocks with details that made the specific stocks attractive.
Investment Decision
Following the stock and market details obtained from stock markets and finance newsletters indicated in the resources section below, we settled on stocks from 23 companies. The favorable features and sale/purchase decisions are included in the section below. For each stock, we recorded the purchase and the sale and assessed the profitability. The aim of this part was to practically realize how investors’ decisions influence their profits and losses following the stock market price changes.
Microsoft (MSFT)
Microsoft is recognized as a tech giant with its stocks ranked the top in terms of timeliness, financial strength, and security by the value line investment survey. According to the survey, Microsoft stock earnings were predicted to grow by 15 % in five years’ time (Ebiefung, 2021). The decision to invest in Microsoft stocks was fueled by its high yield in terms of dividends estimated at 1%. On March 4, we bought 15 MSFT stocks at $226.52 and sold them on April 13 at $257.14 with a $10 commission.
Apple (AAPL)
Apple has been termed as an American success story being among the first companies to reach $I trillion market value. AAPL stocks were predicted to gain more value in the coming months and were an attractive stock to invest in (Larkin, 2021). Its shares are some of the highly coveted stocks in the NYSE and NASDAQ. We bought 40 AAPL stocks at a price of $122.50 on March 11 and sold them on April 13 at $132.31.
Amazon (AMZN)
Amazon is one of the rapidly expanding e-commerce companies, with a 44.4% revenue surge in its fourth quarter. With the increasing demand for digital advertising, Amazon’s market share is expected to grow by over $15 billion by 2023. From its price to earnings ratio estimated at 60, Amazon stocks present an attractive investment opportunity since they have premium value. We purchased 5 AMZN stocks at $3,006.00 on March 4. The lifetime return was estimated at 4.37%, which is considerably higher than most company stocks. We later sold the AMZN stocks on April 13 at $3,397.98.
The Boeing Company (BA)
Boeing BA) stock presented an attractive investment following its high rate of growth and relative strength. The company is recovering from recent losses and is expected to grow with an EPS of $5.42 in 2022. Its shares have grown by an average of 18% in 2021, and the growth is expected to increase in the coming months. After considering the attractiveness and riskiness of BA stocks, we purchased 10 stocks at $244.66 on March 24 and later sold them on April 13, at 248.55.
Alibaba Group (BABA)
Alibaba group has received global recognition as an e-commerce giant. Its financial analysis shows that Revenues have tripled over the last three years, indicating that Alibaba stocks are in high demand and have a high potential for growth. From this data, we bought 10 stocks at $230.86 on March 24 and sold them on April 11 at $237.70. the high demand and stability were the main driving forces behind our purchase.
BAM, C, and DFS
The Brookfield asset market (BAM) shares were expected to earn more in the future. The Citigroup shares were also an attractive stock to buy with a lifetime return of 2.02. The Discover Financial stocks had a high lifetime return of 3.87. From the data given, we settled for 10 units of BAM at $45.34, 10 units of C stock at $71.69, and 20 units of DFS at $93.58. All the purchased units were sold by April 15, generating profits from our investment.
DIS, ENB, and F
Other stocks considered include Walt Disney (DIS), from which were purchased 30 stocks at $187.56, Enbridge Inc (ENB), which we bought 50 stocks at $36.86, and Ford Motor Company (F), where we purchased 60 stocks at $12.48. The high number of stocks purchased was guided by the estimated profitability ratio, which was higher than most companies. Selling the stocks at a later date proved quite profitable, as indicated in the profit and loss account in the next section.
FB, LDNXF, MAT, and MCD
Facebook is one of the highly profitable stocks, which prompted us to buy 20 stocks at $290.75. the Mattel company (MT)stocks were going at a low price of $20.20, thereby allowing us to buy 40 stocks. The London stock exchange stocks (LDNXF) were predicted to rise in demand over the next few months (Larkin, 2021). We decided to buy 10 stocks of the LDNXF at $97.85 and 20 STOCKS of McDonald’s Corporation at $217.82. the market price was higher than our purchase price, hinting that we would get high profits from these investments.
MTZ, NDAQ, NRG, and TSLA
Mastec Inc (MTZ), NRG Energy, Tesla (TSLA), and Nasdaq (NDAQ) were rated as some of the highly profitable ventures in invest in by Yahoo Finance. They were termed as highly stable stocks with a high lifetime return (Smith et al., 2021). We purchased 30 stocks of MTZ at $87.27, 20 NDAQ stocks at $146.16, 30 NRG stocks at $36.29, and 10 stocks of TSLA at $616.55. TSLA stocks were the most expensive of all the stocks we purchased. This explains why we chose to purchase only 10 stocks, although the value was expected to rise in the near future.
Pinterest Inc. (PINS) and Wal-Mart Stores (WMT)
From the stock data gathered from Yahoo Finance, PINS shares were expected to grow by 25% over the next four years. Its lifetime return was the highest at 16.1 %, prompting us to buy 20 PINS stocks at $66.95. Wal-Mart stores are another attractive stock that we considered from the fact that its stocks were expected to grow by 19% in 2021(Ebiefung, 2021). At the time of purchase, the lifetime return was 1.47%. We bought 10 WMT stocks at $133.66 on March 24 and sold them on April 13 at $139.86. For each of the stocks purchased, a record was kept for profit/loss analysis. The following section details the profit or loss obtained from each purchase.
Profit/loss
The table above is the excel calculation of profits and losses obtained from the transactions. The minus sign before the values in the profit/loss column indicates a loss.
Learning
This exercise was an opportunity to practice lessons learned and observe how the forces of demand and supply influence market prices for all stocks. One of the lessons from this exercise is that market value at the time of purchase and sale determines the profit/loss obtained. During purchase, an investor should strive to get more stocks below the market value (Smith et al., 2021). When selling, investors should wait until the market price is high and sell above it to generate high profits.
The second lesson learned is that market trends are subject to change. In some cases, we purchased stock with a low lifetime return because they were predicted to grow. However, at the time of sale, the stocks did not generate the expected profits. This information implies that investors should make wise investment decisions by focusing on the stocks’ history and lifetime returns. Some failing brands that are expected to recover may not realize the estimated growth rate, leading to significant losses.
Lastly, this exercise reflects the importance of relying on credible financial information rather than individual estimates and random choices. Stock information was available on Yahoo finance and Google finance on major stocks such as Amazon, Microsoft, Boeing, Apple, and Tesla. These investments generated high profits as expected as opposed to investments chosen without a lot of stock information available. The amount of information influences the accuracy of investment decisions and is directly proportional to profits.
Resources
We used three resources to complete this exercise.
Investor’s Business Daily. Web.
Kiplinger’s Investing Outlook. Web.
The Motley Fool. Web.
Conclusion
In conclusion, the stock market is dynamic and changes as demand and supply vary. Companies sell their stock at market price, and it is upon investors to analyze the trends and make wise decisions that will guarantee high returns. The two main stock markets are the NYSE and NASDAQ. This exercise was an excellent learning opportunity that allowed students to experience what real investors in the field do. Investing in company stocks is an attractive venture that requires a good capital investment. In this exercise, every group was given $100,000 to use in transactions within the stock market. The profit/losses generated depended entirely on the investment decisions made.
After going through Yahoo finance, Google finance, Kiplinger, The motley fool, and Investor’s business daily, we selected the attractive stocks to invest in. We relied on three main sources for our data: Kiplinger, The Motley Fool, and Investor’s Business Daily. Some of the decisions made depended on the amount of information available, while other decisions were made randomly. The transactions were done during the open market hours at the prevailing market price. While most stocks were bought at prices lower than the market price, some were sold at a loss due to market dynamics.
According to the requirements, we were to sell everything by March 15, which my group did. As part of the learning exercise, we were expected to prepare a profit/loss account detailing all the transactions done. From the profit/loss account, it turns out that most of the stocks that recorded losses were chosen randomly with insufficient information. The main lesson obtained from this exercise is that investors have to carefully analyze the stocks they seek to purchase to avoid losses. The data used includes stocks’ history, financial data obtained from the real-time stock exchange market. The lifetime return value also influences the returns obtained from an investment. Recording each transaction helps in calculating the profit/loss account and thereby evaluating the effectiveness of investment decisions. All the purchased stocks were sold as expected before April 15, and the selling cost was recorded. The transactions, order history, and balances are shown in the appendix section below.
References
Ebiefung, W. (2021). 2 Top growth stocks to buy right now.The Motley Fool. Web.
Larkin, M. (2021). These are the 5 best stocks to buy and watch now. Investor’s Business Daily. Web.
Smith, A. K., Sizemore, C. L., Glassman, J. K., & CFA. (2021). The 21 best stocks to buy for 2021. Kiplinger. Web.
Appendix
Order History
Balances
Transactions
