Influencing Investment Decisions - Essay Example

Market analysis and Report Introduction Studying market changes, with main concern on stock prices and interest rates, require the need for tracking the existing key indicators in the given market. The key market indicators acquaint a company with adequate knowledge for familiarity with the stock and portfolio returns. The most probable causes of stock changes include market forces and the expected future decisions by the investors. Demand and supply acts as major components of market forces, influencing the expected return on investment. Further, the investment decisions made by the investors are prone to change in or against the favor of the existing companies. The following factors help in obtaining the reason behind different arithmetic means exhibited by the given institutions: Factor influencing investment decisions Political and legal changes An appropriate investment decision will entail the consideration of the prevailing political and legal changes. These changes, including tax changes, have direct influence on the decision made by an investor in the industry. The changes either can be against or in favor of profitability witnessed depending on the strategies taken by the industry to reduce the influence. For instance, reduction of tax in a certain industry will attract investor. Tax decrease normally associates to high profitability in that given industry consequently attracting more investors. Historical performance Before making investment decision, investors always consider the historical performance of the company in the market. The historical performance gives appropriate information for determining the probability of a company to achieve profitability in its operation. Since profit acts as the main objective any investor, their decision will depend on the profitability in the recent years. Expected future events The ability of a company to sustain the interest of the investors for a long time will depend on the associate expected future trends. In future, a company may decide to adopt mergers, acquisition or dividend declaration leading to the change in the image it upholds to the investors. Declaration of dividend by a company accentuates the certainty of the company to increase the share dividend to the investors. Further, action by a company to merge will also insinuate profitability to the investors. Acquiring part of a company also increases the share dividend that a company gives to its investors. The occurrence of these three changes shows that expected future events may affect the investor’s decisions. These factors, as indicated, influence the choice made by the investors making them be of significance to the manager when making business decisions. Intuitively, the plasticity associated with sustaining the investors triggers the managers in a given industry to determine proper strategies of incorporating these factors during the decision-making. Procedure This report tracks key market indicators affecting the stock prices between two companies. The two companies are Starbucks and Chubb given their nature in performance helps in determining the significance of change in stock prices. Further, the paper also presents analysis based on 3-month Treasury note, 10-year Treasury note, NYSE, NADAQ, Dow and Jones and S&P 500. The analysis occurs on weekly basis beginning Tuesday, September 17, through Thursday, November 14. The reports presents a record of the following: 1. Tuesday and Thursday closing prices of the Dow Jones Industrial Averages; 2. Tuesday and Thursday closing prices of the S & P 500; 3. Tuesday and Thursday closing prices of the Nasdaq; 4. Tuesday and Thursday closing prices of an index of your choice; 5. The yield on the 3-month Treasury bill (Tuesday and Thursday); 6. The yield on the 10-year Treasury note (Tuesday and Thursday) Arithmetic mean The determination of arithmetic mean for a given data helps in finding the average value registered in the given range. This involves finding the sum of the range of numbers then dividing the total count of the various data. Geometric mean This represent the average resulting from a certain set of data. It deals with percentage of the involved figures besides making use of only positive numbers. The result from this apparameter helps in determining the performance associated with an investment of a portfolio. Results Down and Jones Finding the industrial average for Down and Jones, one of the oldest world indices, involved determining the weighted average for 30 stocks as presented by NYSEL. Given the negative arithmetic mean registered (-4.64%) nature registered by DJIA, it is justifiable to conclude that the stocks were not doing good amidst the market forces. The exhibited good performance is a representation of the influence from the anticipated Twitter IPO. This twitter IPO triggers some stock analyst to believe that the stock market will be favorable. However, some stock analysts still strongly believe on the high probability of stock to flop basing their argument anticipated IPO. 3-month treasury note As exhibited in the market, the treasure note has reflected a recommendable performance in the last two months. It registers a positive arithmetic mean of 8175.82% indicating the good performance. The good performance is good evidence that assurance of security should form part of the management strategies. The Treasury note provides, the investors, an assurance of getting a return from their investment. Further, there are less risk, if any, associated with investing in the treasury note. The 3-month treasury notes assures the investors of getting an excellent return within shorter period, which they can use in reinvestment. Consequently, this implies that investing in Treasury note presents a good chance for the most risk adverse investors who usually seek for the guaranteed security. In addition, the treasury note has been able to attract most investors because of the popular need for appropriate planning for the returns. It assures the investors of risk free operation thereby allowing them to assign into use the expected returns. S&P 500 The S&P also acts as a popular stock market index, which depends on 500 multinational corporations that possess common stock, for analysis. The use of a weighting methodology and its diverse constituents makes it to differ from the other known stock indices. S&P 500 gives a positive arithmetic mean of positive 29.77% because of the inclusion of stocks from variety of companies. Consequently, this leads to the diversity experienced in the returns registered by the different companies. The diversity in stock attracts the investors into buying the stocks. NASDAQ NASDAQ acts as the second biggest stock exchange as depicted by its market capitalization. Given the arithmetic mean registered by this stock index, 70.72%, it is true that the investors have put much confidence in the prevailing stock market. Further, this also shows that the stakeholders are much conscious about the policies and laws in the stock market. The adherence exhibited by the stockholder strengthens governance, which in turn increases the profitability of any venture. The strong governance attracts most the investors to buy stocks within the prevailing prices. The presence of more investors is a direct implication of much capital raised by the company. Further, it is also important to consider that most companies have much trust on funds accruing from the shareholders than the other capital sources. The preference of the shareholders arises because of the fact that shareholders do not always obligate the companies for paying dividends. For instance, acquiring loan from a bank subjects a business to the need of repaying with a given interest. Consequently, the ability of NASDAQ to attract more investors through appropriate management system has led to the exhibited good performance in the market. NYSE When considering market capitalization, the largest stock exchange is the NYSE even over NASDAQ.in the analysis, it registers an arithmetic mean of 84.80% showing that is the largest among the other stock exchange. The mean is a reflection of the confidence held by the investors on the performance o the stock exchange. This reflects this also shows that the stakeholders are much conscious about the policies and laws in the stock market. The adherence exhibited by the stockholder strengthens governance, which in turn increases the profitability of any venture. The strong governance attracts most the investors to buy stocks within the prevailing prices. Most companies have poured into the stock market to sell their stocks because of the existing willingness of the investors to buy the stocks. 10-year Treasury note This represents an investment whereby the investor expects to plough back returns on investment after 10 years. However, there is always a fixed return that the investors obtains from this type of investment on a yearly basis. It is the trait of long-term goal oriented investor to take up this option because it assures them of higher returns on their investment albeit after a long-term. As shown in the analysis, 10-year Treasury note registers a negative arithmetic mean attributable to the fact that most investors are after short-term returns. Even though it is much shun by the short-term goal oriented investors, it serves as a collateral for loans. It registers an arithmetic mean of positive 76.34%. Saga Communication Saga Communication Inc., deals in acquiring, developing and running broadcast properties. The company registers a positive arithmetic mean, which helps in deduce the company as well performer in the last two months. The good performance, among its competitors, can be attributable to the diversity witnessed in its operation. The firm has been able to maintain a profitable operation two sections, Radio and Television. The ability of the management to establish proper strategies, for serving 2 markets, possessing 5 radio information networks, 61 FM and 30 AM radio stations in 23 markets around the world have helped in attracting the investors (Yahoo Finance, 2013). This represents the ability of the company to take up big projects, which reflects on the expected profitability. The investors will always make a decision of investing in a company’s stock depending on the management strategies put up by the given company. Consequently, the good performance exhibited by the management assures the investors of the ability of achieving higher return on investment. C&F Corporation C&F Corporation acts as the holding company for the institutions providing various financial services to other institutions. The company achieved complete acquisition of Central Virginia Bancshares thereby adding up to its increase profitability in the markets. However, as shown in the analysis, C&F Corporation exhibits a negative arithmetic mean as recorded over the last two months. The most probable reason for the negative arithmetic mean is the tarnishing historical performance of the company. The company had always registered failure to achieve operations and results and inability to yield cost saving operations. This has served as detractor for investment in the company since most of the investors normally want to associate with companies registering good performance in the recent years. Conclusion According to this analysis, it is true that the existing change in the stock market is influential while making an investment decision. The stock exchange analysis ensures that the investors make proper decision in line to the established financial objective. The analysis shows that investors prefer Saga communication that C&F communication because of the positive prevailing factors in the former. Reference Yahoo Finance. Dow Jones Industrial Average. 2013, retrieved from: http://finance.yahoo.com/q?s=CFFI Read More