The Available Information about the Current Finance Industry - Essay Example

Investment Report Investment Report Introduction The available information about current finance industry provides an opportunity for the readers in financial markets to understand and practice specifications in noise trading. For any investment decisions or practice, it is vital to apply different strategies while trading in different markets or with particular individuals. Many managers in the investment industry employ almost all the available strategies in finance to obtain practicality when analyzing investment markets. An individual should however, ensure that using hold or buy strategy are not forgotten since they are still applicable in trade market (Odean, 1998). Trading techniques, for example, the ‘momentum’ has enabled many traders to realize significant out performance in the investment markets. On the other hand, ‘contrarian’ technique/strategy is placed in the third place. To understand how investment strategies operate, traders need to review features of these strategies. However, in the process of applying the stated techniques, it is important to note that studies done on the foreign exchange markets indicate that their a corresponding reliance of data from various sources. When the information emerges from competing trade on investment, the most renowned is ‘market’ strategy which is closely followed by ‘momentum’ and finally ‘the contrarian’ technique. A different theory indicates that all the strategies listed above can work autonomously in investment activities. It means that there is possibility of relating an organization with a particular technique and another with a different strategy. For example, people who prefer using marketing strategies are known to understand stock market trends. In addition, they may also be perceived as better placed in the stock market activities than the competitors. Among the available strategies in the stock market, marketing strategy has existed for the longest time (Lintner, 2001). A number of researches conducted before indicate that marketing strategy has been producing excess returns in the stock market. In this project, the assumptions made on marketing strategy will only help in developing the strategy that will be applied. The difference between the three strategies is the contrarian and momentum strategies rely much on the information got after technically reviewing the nature and performance of the stock markets, while market strategy rely much on the stock market’s history. On a different scale, if an investor translates the results of his or her investment as the characteristics of investment results instead of the stock market behavior, the expectation is the users of marketing investment strategy will not realize the impacts of significant anomalies or any type of transformation in the nature of trade. The explanation to the above assumption is market strategies are generally resistant to these anomalies compared other types in the finance literature. Analysis of the selected Markets to Invest Currently, trends in investment markets in the selected companies show that Twitter has reported a significant growth in stocks by 9% while the other two-Facebook and Google Inc.- grew in stocks by 4% and -2% respectively. The strategy that I have chosen is closely related to momentum strategy. Its policy is to purchase the highly priced stock with the best trend in stock performance according to the available history. Therefore Twitter Inc. was our first choice. A few years ago, momentum strategy in investment analysis worked well for the company of my choice. Similar to other stocks in the market, this strategy has been applied. This refers to a situation where a person purchases a stock while focusing on selling it at a higher value than the buying price. By using the strategy I selected, there was a weekly percentage change of 15%. The strategy also indicated that stock performance tend to follow the direction of current market price. That is, a positive movement (rise) in stock is linked to the assumption that the market is performing well (Lori & Kimpton1998). The major belief is a stock that has been reporting good performance from the past will perform even better in future. Twitter’s Market Share Analysis This assumption is very different from the for Twitter’s market share. Twitter’s market share has defied this norm since by applying the momentum strategy model, there are signs of surprising changes in its position in the stock market. The current features of the application have been present in the market for a period of not more than 6 months. The new features have been received well by the new and old users of the service. Other stocks in the market have performed well in the financial market than Twitter, for example, Instagram (which was currently bought by Facebook Inc). Twitter’s response to the introduction of picture and video app affected the stock; a selloff of $720 realized in 2013 financial year. Reported earnings in the company’s share prices and stock performance indicate that the management has been using limited ideas and options on the feasible improvement of Twitter’s operating margins, a result of $41.34 fall in the stock price. The company’s use of momentum strategy need to be re-implemented to ensure that the price I related to the stock value in order to close the current gap. Twitter has a total of $254 billion in cash coupled with a net income of about $56 billion as of 2013. The company’s growth revenue is 8%, but with a decline in margins. The current stock is valued at $520, a figure close to the company’s stock price. The graph below shows the company’s stock value: From the graph above, there is a continuous decline in the company’s market share. The shares have reduced to $65.89, a reflection of 8%. The current price per share is 537.60. The main factor that has contributed to the company’s current stock performance is the emergence of social media platforms that provide their users with better applications that considers finer technological requirements of modern communications and interactions. Facebook’s Market Analysis Compared to the performance of Twitter, Facebook, for the past 2 years, has been performing well. In the past financial year, the company’s earnings were $365 million. This constituted price-per-share stock of $7.32; an increase of about $0.52 per share in 2014. After buying my stock by applying momentum strategy, Facebook reported a rise in revenue totaling to $2.5 billion up from $2.1 billion in 2013. The increase can be linked to sturdy pass business in 2014. It is therefore evident that my venture using the momentum technique was a success. Facebook also realized an increased growth in its revenue of approximately $50 million as of November 31st 2013. This indicates a rise of over 24% from the values reported in 2013. Analysis of Google’s Market Share Google has been, and still is one of the major competitors in social networking and search engine platforms in the globe. By using Contrarian model of stock market analysis, Google’s stock market performance has been good from the time I purchased my stock. The available data from Market Watch indicate that the stocks have increased by over 30%. In addition to this position, the company has built a strong base in the stock market by reporting a buying price of $6 and $7.8 selling price for the stocks. In a bid to purchase a share from Google, one is required to choose a separate company that has the same range of annual sales volumes of up to $786 million because when analyzing Google’s sales history, transactions in terms of purchases have increased from 181 (1,455 sales) to 365 (2,725 sales) within six months-a reflection of 101.66%. Earnings per share are also higher than Twitter’s. The advice from P/E experts indicates that in the process of selecting where to buy a good stock, the ration need not be above 1.36 (as indicated in ration price book). Looking at this rule, Google is a good candidate. Discussion After a proper analysis of and data collection from the three selected companies using three strategies, it is has been found that Twitter’s performance is below the others in terms of stock performance, share price, and market share. The explanation to this finding is that there are factors that have contributed to the poor performance of the stock I purchased. These factors include, but are not limited to management decisions, environmental factors, and emergence of better social media applications (Lori & Kimpton1998). The chart below shows the stock performance: Looking at the data available in Market Watch list analysis, the average stock market analyst will recommend a ‘buy’ step to the potential investor. The repercussion to this move is that it will result in the lowest end of market rankings; leading to 23 out of 34 recommendations (a sign that will encourage people to buy the stocks). Generally, my choice of Twitter in this experiment confirms the principles employed by traders in the stock market. The second rule of investment states that a business’ trailing income trend should lead to the realization of profits and arising performance pattern in the previous periods. The data source (market Watch) has provided this information, and Twitter has tried to follow this rule since its current performance shows a growth of $43.87 million. Therefore, the company conforms to the stated market principle. The third principle involves looking at the company’s institutions and insiders’ actions. In this category, Google has an ambiguous character. From the data taken from Market Watch, insider businesses in the last 6 months show 269,412 sales in shares-this reflects to 0.6% of the overall net shares. The interpretation that results from this analysis indicate that a negative performance in net sales. On the other hand, institutions have reported an increase of about 0.92% in net sales (5 million shares. While the two information sources indicate a contradictory conclusion, the stock bought from the company seems a viable investment. Stock market analysts may indicate a promising outlook on the favorable P/E and stock ratio comparisons with the market and Google’s performance. Generally, our decision to invest in Google shares fulfills the model used by traders and investors in determining the stock that will perform better. Using all the listed examples above, the best solution to be used in making investment decisions often depend on the interpretation of share values (Odean, 1998). Supposing that the share value is dependent on the mean element, the three strategies will apply. However, if the target area is specified (single), the correct deduction involves using momentum strategy. It will provide the best choice for stock selection for the investors and traders. Looking at the strategies we applied in choosing the best stock to invest in, we noticed that that are constantly under review, and that they are widely applied by several investors. Of all the decisions, market strategy emerges the best option because it relies on the fact that trading veterans who depend more on the principles of ‘buy-and hold’ rule behave similarly like arbitrageurs in designs with assorted agents. These traders and investors tend to be less affected by and fundamentally accustomed to behavioral anomalies in the stock market. Odean (1998) for the all the analysis made for share market and their subgroups, the stock managers steer outcomes and bond manages follow tentatively. Considering the superiority of finance managers, the immediate approximation is indicated by professional experience and age. This is explained by the fact that experience and age aid in building and developing human labor in terms of capital, which in turn gives improved career opportunities and increased professionalism in executing management decisions. Consequently, the suited personnel will replace those who cannot successfully accomplish the company or job objectives-a situation that is better described by the phrase, ‘survival of the fittest’. Conclusion In conclusion, it is possible to note that during the trade, supposing that I selected contrarian-investing model, my investment will be at a higher risk in all the phases of the stock market. This reasoning is much more particular in the manner that the stock will be risk averse considering that the fact that loses is on the rise. At this point, it is necessary to hold the loses that may occur while keeping it in mind that this is a sign of disposition. For the investor, it is an implicit requirement to strongly believe that the purchased or available stock in the market will perform better than others after a series of exchanges. Overconfidence and disposition effect are two factors that motivates investors to avoid the current position of the stock market. This is the key feature of contrarian trading strategy. From the collected evidence in the performance of the stock I purchased, it right to conclude that a trader’s own assumption should not be used to determine the performance of the stock market. Therefore, the empirical finding from this experiment illustrate that the major cause of stock performance in the market is the disposition effect. References Odean, T. (1998). Are Investors Reluctant to Realize Their Losses?l. Journaof Finance, 1775-1798. Lintner, J. (2001). The valuation of risk assets and the selection of risky investments in stock portfolios and capital budgets. The review of economics and statistics, 13-37. Lorie, J. H., Dodd, P., & Kimpton, M. H. (1998). The stock market. Irwin. Read More