Stock Market Competition - Assignment Example

STOCK MARKET COMPETITION Introduction The Standard and Poor’s Toronto Stocks Exchange (S&P/TSX) Composite Index is the broadest measure of the Canadian equity market (Atkinson & Green, 2013). Included in this index are the S&P/TSX 60, S&P/TSX SmallCap indices, and the S&P/TSX MidCap. To be included in the S&P/TSX index, companies must have been listed on the Toronto Stocks Exchange for at least twelve months and must meet certain size and liquidity requirements. The value, volume, and number of transactions taken together must be at least 0.025% of the same sum done for all the companies trading on the Toronto Stocks Exchange to be considered for the index. Only common stocks of operating companies are included in the index. This means limited partnerships, preferred shares, and exchangeable shares are excluded (Martin, 2009). From early February 2015, the S&P/TSX Composite Index has been experiencing a decline in growth. This is an indication that the market activities of securities listed on the Toronto Stocks Exchange have not been performing satisfactorily (Adu & Tsiyon, 1982). On Tuesday, 10th Match 2015, the Toronto Stocks market dropped further by an S&P/TSX composite index of 130.2 points to a value of 15,133.85 nearly across every major sector. Despite the decline in Toronto Stock Market activity, the Canadian economy has been experiencing growth at a yearly trend of 2.4 percent as revealed in the fourth quarter report for the year 2014. This was a higher figure than that forecasted by Thomson Reuters of 2 percent growth (Jeddi, 2005). This paper is a report of the six weeks’ simulation trading activities of the group. The trading activities started on 2nd February 2015 and ended on 13th March 2015. In order to give a detailed report, this paper considers the securities selected for trading, brief company synopsis, charts and technical analysis. The paper presents the investment strategy employed by the group and how the plan evolved and changed over the six weeks trading period. A critique of the employed strategy is also explained, and the lessons learned about speculative stock trading. The paper also gives a valuation of the portfolio’s performance indicating the dollar gain/loss and the percentage gain/loss. Securities Selected for Trading The group’s portfolio mainly focused on three primary sectors of the economy. The sectors include manufacturing, Information technology, and the financial sector. During the six weeks trading period, the group invested in ten publicly listed companies in the Toronto Stocks Exchange and New York Stocks Exchange. The ten companies were selected from the three sectors of the economy. The limited companies considered in the six weeks trade activity include Citigroup Inc, Yahoo Inc, Tesla Motors Inc, Google inc, Groupon Inc, Apple Inc, Royal Bank of Canada, Facebook Inc, Baidu Inc, and Wuba Inc. Citigroup is one of the companies in the financial sector considered in the six weeks trade simulation. The Citygroup Inc is an American international bank headquartered in New York. It is ranked as the largest bank holding company in the United States by assets with largest shareholders coming from Singapore and the Middle East. Before, the Global recession of the year 2008, Citigroup was the largest company and bank worldwide by total asset. Royal Bank of Canada is another company selected for the six-week trade simulation. The Royal Bank of Canada, also known as RBC Bank, is the largest financial institution in Canada serving approximately 18 million clients. The company is headquartered in Montreal while its operational head offices are in Toronto. The bank was ranked at 50 by Forbes Global 2000 in the year 2013 and as the biggest Canadian company by capitalization and revenue by The Global and Mail. The portfolio mostly focused on the Information Technology sector. The cause for this is the Information Technology industry is marked with bubble-like rapid growth. This being a six weeks trade simulation, the group decided to focus on the Information Technology sector in order to benefit from the rapid growth. Stock market analysts have continuously stated that Information Technology stocks are experiencing and economic boom but will have a great depression in the future. Yahoo is one of the securities that the group traded in the six weeks business simulation. In regards to Yahoo Inc., it is an American multinational Internet company with headquarters in Sunnyvale, California. The company is mainly known for its search engine services, email services, news, online mapping, online news and most recently, its social media services. Incorporated in the year 1995, the company grew rapidly throughout the 1990s. The company’s stocks skyrocketed throughout the dot-com bubble reaching an all-time high of 118.75 US Dollars per share in January 2000. After the dot-com bubble burst, Yahoo stocks reached a minimum of 8.11 US Dollars in September 2001. The greatest rival and competitor of Yahoo is Google, another company that was considered in the group’s portfolio. Google Inc. is also an American incorporated company that specializes in internet related services such as search engine services, email services, news, online mapping, online news, and social media services. Incorporated in 1998, the company has grown to be the largest Information Technology company in the world. The rapid growth of the company has facilitated different acquisitions, partnerships, and development of new products beyond its core search engine business. Another internet based company that offers search engine services and considered in the group’s portfolio is Baidu. Baidu is a Chinese company offering web services such as Chinese language searches, audio and image file sharing, among other services. Headquartered in Haidian District Beijing, the company was incorporated in the year 2000. Facebook Inc. was also considered in the group’s investment portfolio. In brief, Facebook Inc. is a company offering social networking services. The company’s products include mobile applications and web services that ease people’s connection and communication. Headquartered in Menlo Park California, the corporation was first listed through an Initial Public Offer in the year 2012. Facebook Inc still holds the largest valuation for a newly public listed company to date. Groupon Inc and Wuba Inc are also companies offering online services, but mainly specializing in e-commerce services. Apple cannot be entirely be classified as an online service company though it provides a number of online services such as mapping, file sharing among other services. The company’s core business is developing, designing and manufacturing of consumer electronics. The company can, therefore, be classified in the manufacturing industry, but specifically in the Information Technology sector. The corporation was incorporated in the year 1977 under the name Apple Computer Inc., The company is the second largest producer of Information Technology electronics after Samsung Electronics. Apple was the first United States Company to be valued at over 700 billion US dollars. Recently, the company was announced to be included in the Dow Jones Industrial Average. Tesla Motors Inc is another American electronic manufacturing company but focuses on the manufacture of electric vehicles. The company posted its first profits since establishment in the first quarter of the year 2013. The company also manufactures and markets electric powertrain components. The company has been experiencing a steady growth in revenue and also value of its stocks. Market analysts predict that Tesla Stocks, unlike online service firms, will be more stable and will continue to experience a steady growth in a long period (Teweles & Bradley, 1998). Investment Strategy Employed The group’s strategy was to focus on large capitalization companies that have market leadership positions and a history of steady growth in earnings. The Standard and Poor’s Toronto Stocks Exchange (S&P/TSX) Composite Index was used as the performance benchmark for investing in the selected stocks. As stated above, the groups mainly focused on the Information Technology sector. Most of the stocks considered in the group’s portfolio were from Information Technology companies, more specifically, Internet-based service firms. These companies include Yahoo Inc, its close competitors Google and Baidu, Groupon Inc, Facebook Inc, and Wuba Inc. The simulation being a six weeks trade, the group decided to focus more on the Information Technology sector because analysts believe that it is a bubble like the dot-com bubble of the late 1990s. This being a short-term trade of six weeks, the group established that focusing more on the Information Technology sector could result in a greater capital growth than focusing on other sectors (Gillen, 2009). In order to spread the risk of investment, the group invested in other two sectors. The two include the financial sector and the manufacturing sector. Stocks considered in the financial sector include Citigroup and Royal Bank of Canada. This two stocks were selected because they have a high liquidity and stability. The two financial institutions also have a large capital base and worldwide presence. In the manufacturing sector, the group considered Tesla Motors and Apple stocks. The two stocks have experienced a steady growth over the years and demand for the stock is high, thus ensuring liquidity. In all the trades made during the six weeks simulation business, the sell decision was triggered by a five percent capital appreciation. Performance of the Securities As portrayed by the trading report, the group traded a volume of fifty Tesla Stocks on 9th February 2015. Tesla Stocks previously closed at a value of 188.68 and rose by 1.73 percent open at 192.00 on the group’s trading day. The group’s total cash value for the first trade was $10,754.49. Other transactions made by the group that day include a purchase of 100 Baidu stocks at $212.40 each. At the end of the 1st day trading, the account value was $99,965.53, which was a decline from the initial investment of $100,000.00. Day 2 of trading, the group traded a volume of 100 Tesla stocks that had a total cash value of $21,703.01. The trade closed with an account value of $100,262.54, which was a $297.01 increase from the previous trade’s closing account value. Most of the trading day 3 trades was stocks of online-based service companies. The group the third trading day, the group traded stocks of companies such as Yahoo, Google, Facebook, Groupon, and Wuba. The group also tested the performance of the financial sector stocks and manufacturing sector stocks on the third trading day. The group traded a volume of 1,832 Yahoo stocks each costing $44.24. The trade closed with an account value of 100,252.55. The Apple stocks underperformed reducing the portfolio to an account value of $99,381.34. From the trading activities, it can be established that financial services company, Internet Company, and Information Technology company stocks did not perform as expected. This because throughout day three of trading, no stock traded that day was able to restore the account value of $100,000, which was the initial amount. However, this could be as a result of the buy orders placed during day three trading day. In trading day four, the group sold a volume of fifty Yahoo stocks at $43.61, which was a loss since the group had purchased each stock at $44.24. The group also sold an amount of 100 Citigroup stocks at $51.37, which were purchased at $51.32 each. In day four of trading, the group’s portfolio closed with a cash value of $98,855.17. Trading day five of the group started off with a 300 volume short that had a total cash value of $23,085.81. Each share was valued at $76.99 when selling, which was a higher value than the buying value that was 76.57. Citigroup stocks were also sold on the trading day five. Three stocks were sold on the trading day six. The stocks sold on day five include Wuba Stocks, Yahoo shares, and Royal Bank of Canada shares. Other sales and purchases were made, the grouped stopped trading on 6th March of 2015. The final account value was $100,887.19. Team Reflection The six-week trading period was highly involving and educative. The group’s strategy was not well refined since it kept changing as the trading continued day after day. By analyzing the stocks that generated more revenues, the group could have identified the stocks to concentrate on. For example, the group’s approach of focusing on the Information Technology sector did not work out well since stocks in this sector did not perform as expected. However, in the manufacturing sector, more specifically Tesla shares, performed better than other stocks. If the group could have strictly followed the S&P/TSX Composite Index and ignored its opinion, a better investment strategy could have been developed (Cleary, 2009). By also considering the history data of the securities in detail, the group’s performance could have been better (Griffiths, 2005). Conclusion The paper gives a report of the group’s six weeks trading activities of ten selected stocks. The group placed approximately 29 trades, some of which were long positions and others short. The group mainly traded Information Technology stocks with a hope more returns than in other sectors. However, it can be established that the Information Technology sector contributed the least returns to investing while the manufacturing sector provided the most returns. This is consistent with Dawn (2003) who states that Information Technology stocks’ composite index is approximately five percent. The group’s investment could have growth significantly if they could have employed a better and more detailed investment strategy. Also by identifying the stocks that had the highest contribution to investment and sticking to them could have been a better investment strategy than the one that was employed (Learn2suceed, 2012). References Atkinson, H., & Green, D. (2013). The New Investment Frontier III: A Guide to Exchange Traded Funds for Canadians. Toronto: Insomniac Press. Adu, B., & Tsiyon, U. (1982). Causes of risk of stocks traded on the Toronto Stock Exchange. Berlin: Wissenschaftszentrum Berlin. Cleary, S. (2009). Canadian Securities Exam Fast-Track Study Guide. Vancouver: Simon Fraser University. Dawn, A. (2003). Invest Now. New Jersey: iUniverse. Gillen, J. (2009). The Key to Speculation on the New York Stock Exchange. Philadelphia: Jessica Kingsley. Griffiths, A. (2005). Count Yourself. New York: Springer. Jeddi, M. (2005). The impact of the new issue of equity warrants on the Toronto Stock Exchange- listed stocks. Ottawa: Library and Archives Canada = Bibliothèque et Archives Canada. Learn2suceed, (2012). Stock Market Investing for Beginners: How to Grow your Wealth in Uncertain Times. Toronto: Productive Publications. Martin, T. (2009). Investing for Dummies. New York: Wiley. Teweles, J., & Bradley, E. (1998). The Stock Market. 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