My Investment Portfolio - Coursework Example

Name: Tutor: Title: Investment portfolio & report Course: Date: Investment portfolio & report Introduction Investment as a subject is defined in two different meanings. It can be defined either in reference to finance or in reference to business for future purpose. In regard to our investment, it is a finance related investment. Hence we shall define it in terms of finance where we can say that it is the use of the money one currently owns so as to make more money in the future. Currently, there are so many opportunities of making an investment. They include buying of long-standing government bonds, depositing money in an account or making inputs to a finance account, investing in a company’s equity shares or maybe buying an acre of land that has the potential to appreciate (Lomax 2009). Investment has several main features. One is time and the other is risk. Time affects different investments such as government bonds. Risk affects other investment like stocks. However, some investments such as equity shares are affected by both time and risks. An individual, company or a group of people may own a grouping of investments. This is termed as a portfolio. The portfolio may include different investments and may be the result of careful decisions or out of the blue decisions. These decisions are taken by the investor who may be described according to various characteristics such as his or her foundation for decisions, risk outlook, the planning time, the expectations of his return in a certain period and where his funds are from, are they his or are they hers (Chandra 2008). My investment The investment choice was in any shares quoted in the FTSE 500 on the London stock market. The buying of shares of a company means that I am an equity shareholder of that company, that is, I own a part of that company. Equity shares may be characterized into different categories such as, blue chip shares, growth shares, speculative shares, cyclical shares and income shares. There are different kinds of people who invest in equity shares. They include speculators, traders and investors. The difference between them is that speculators are base their investment on calculations and have a time span of up to six months. Traders however have a short time span of several weeks to a month. They rely on analysis that is technical and thus they buy or sell shares on the market options. Investors have the longest time span of investment that includes at minimum two years and longer. They take minimal risks and their decisions in the buying or selling of shares is dependent on essential analysis (Chandra 2008). My investment is that of a trader because my time span is six weeks that is based on the market options. I choose three companies for my investment. They include Vodafone group, Rolls-Royce PLC and Unilever PLC. My means for evaluation that led to the choice of these three companies includes their marketability, tax shelter, their rate of return, the risks involved and their convenience. Looking at the marketability of my choice of shares, I considered their cost of transactions, the speed of their transactions, and the negligibility of the changes in price between two consecutive transactions. My choice of companies enjoys high marketability due to their reputation hence large trade volumes. I choose them in this regard due to their depth, flexibility and size. Looking at their depth, they had buy and sell orders all over their present market prices. Taking my three share choices, their depth was so great that I was faced with an array of choices which I chose wisely by buying 397 shares for Vodafone group, 217 shares for Rolls-Royce PLC and 248 shares for Unilever PLC. Their size implied that they had such choices in quite a voluminous amount. Due to the company brands, their resilience was that new orders seemed to emerge every time there was a change of price in their share prices (Chandra 2008). The convenience of shares is such that they have simplicity in the way their investment can be done and taken care of. Thus I asked myself, would the buying of these companies’ shares be done easily and readily? Thus, from my analysis of their level of convenience, they lacked any deep procedure or legal bother. They were thus a good choice of company share to invest in. The risk of shares may be defined as the diversification of its return rate (Lomax 2009). Once I buy that share how low or high can it go at the time I decide to sell it? How much would the selling cost deviate from the buying cost? This deviation brings about variance of the shares. The risk gauge also includes how unpredictable a share price is due to the market changes. My group of bought shares showed relative unpredictability with Vodafone group shares been the most volatile in trend changes. Tax shelter of my share choices applied to all of them. They all had a stamp duty of 0.5% on the total share value regardless of whether I was buying or selling them. It is important to note that tax benefits are of different types that include initial, continuing and terminal tax benefits. Initial tax benefit is the tax reprieve at the period of making my investment. Continuing tax benefit is the tax protection that comes with timed returns from my investment. Terminal tax benefit is the reprieve from being taxed when my investment is achieved (Chandra 2008). The investment in the three companies formed my investment portfolio as earlier explained. These three investments required a portfolio management scheme. How? When? Do I do the selling of my acquired shares or buying later on? My investment portfolio management steps included specifying the aims and restrictions of my investment choices. The objectives to be considered were the money at hand and the appreciation of my share prices after my purchase. I considered the restrictions to include those as a result of marketability, time span, taxations and fees. My second step was the option of share mix. This is a very fundamental decision as it defined my ratio of share to share amount among my three choice companies. It was very much dependant on the time span and their risk perseverance. I then formed a portfolio strategy. From my mix of shares, I had two options, an active or a passive strategy. Through my two strategies I took to gain greater returns that were risk regulated by timing the market for two of the companies, Vodafone group and Unilever PLC. I also diversified my outlook of the market and maintained a resolved exposure to risking. My security’s selection was technically and fundamentally analysed in selecting my companies and number of shares in each company (Chandra 2008). After the selection of shares, I had to implement the plan by first buying the shares with the money at hand, 100,000pounds. This was in amounts of 397 shares for Vodafone group, 217 shares for Rolls-Royce PLC and 248 shares for Unilever PLC. This in my mind I knew would have an outcome in my investment returns. I then executed selling of the shares, buying and later on selling of the shares over a six week period. Over this period, I had to revise my portfolio execution plan due to market changes that resulted in prices of my shares altering. This called for reconsidering of the shares I sold and bought over this period. Finally, I had to assess my performance. The means of evaluation was through the risks, cost incurred like stamp duty and broker’s fee and my return in spite of risks and so on. This enabled me to better my portfolio management skills (Chandra 2008). My investment approach According to Chandra (2008), stock markets are filled with people who invest different approaches. They include psychological, eclectic, fundamental and academic approach. The academic approach has taken a route that study different views of money markets. This study has been led by the developed countries. However, these studies have all led to different conclusions though there are some agreed on findings. Money markets especially in regard to shares react very fast to information. Thus, share prices show intrinsic value quite well. It is also agreed on that past prices cannot be able to predict on prices of future shares. They have also found that the relationship between risk and return is quite a positive one. Looking at the fundamental approach, it has some essential views that describe it. The economic dynamics define the security’s intrinsic value. Also, for some shares, their prices on the market may be different from the intrinsic value at all given periods. Huge gains can also be made by buying shares that are valued below par and selling shares that are highly valued (Dayan 2006). The psychological approach is rooted on the thought that emotions not reason guide share prices. This means that if greed and a negative attitude are filled in investors, share prices are likely to go up. At the same time if investors are filled with fear and a sense of giving up, the share prices are likely to fall (Patel 2006). Thus, according to this approach, it is of greater benefit to evaluate the behaviour of investors when negativity or positivity goes through the market. It means that the intrinsic values here are less important than the psychic values. The eclectic approach combines the three former approaches and brings out certain aspects. To establish targets and measures, it states that the fundamental approach is the best to apply. The psychological approach is the best to measure the mood of investors. It also seems to contradict the academic’s approach conclusion that the market is quite organised. It supports that the market’s reaction to information stream (Chandra 2008). Lessons learnt In the management of my shares, I learnt several lessons through making mistakes and also gained experience on dealing with shares plus the gaining the qualities of a good investor. In regard to mistakes, I made several mistakes that affected the outcome of my results after six weeks. The money earned would maybe have been more than two thousand four hundred and fifty pounds. I did not adequately understand the risks and returns. I learnt that I had to make my assessment as to what returns I want and what are the risks involved in making investments. Also the lack of a clearly stipulated policy of investing my shares may have affected me. Thus, it leads to poor decision making by the uncertainty created by lack of an investment policy. Maybe the worries of losing money when share prices are falling and the want for more money when the prices are increasing without a well defined policy obviously leads to mistakes. The entry point of my investing may also have been crucial in determining my results. The period also may be pivotal as in my case it was six weeks within a given fixed time in which was not considerate of the market pressure on the share prices (Chandra 2008). In addition, the number of shares that I managed proved fundamental in making my decisions. The risks and results of been diverse should be well understood when having a portfolio to manage. My decision making on what shares to sell and what shares to buy then may have been vague and not well understood or thought. It is something that maybe many investors do that leads them to assumptions which lead to mistakes that result in loss of capital. The attitude towards whatever gains or losses made is important. This helps in admitting mistakes and accepting that the market is bound to change maybe to give one the chance to correct the mistake. It also averts remorseful feelings and gives the investor the morale to recover from a loss and make better investment decisions (Chandra 2008). In conclusion, I discovered that investing in shares is a game. A game that requires profound qualities that include, precise thinking, patience, being composed at all times, absolute decision making and being flexible and open. With precise thinking, it enables one to avoid following the masses but making decisions that are individual and unique. Patience involves disappointments. That is an investor can patiently deal with disappointments hence avoiding rush decisions (Patel 2006). Composure helps an investor avoid greedy decisions and panic when shares are falling. Being flexible is very important in regard to market changes. The aspect of openness aids in accepting this changes. Decision making is the capacity to weigh different options, form the necessary analysis and then act. This trait is very vital for an investor who is good at investing. He or she must make bold decisions and must always be consistent (Chandra 2008). Bibliography Chandra, P. (2008). Investment Analysis 3/E. 3rd edn, Tata McGraw-Hill Education. Dayan, P. (2006). Business Management Strategies. New York: Sage. Lomax, T. (2009). Investment Report. Texas: Texas Business Institute. Patel, M. (2006). An Intelligent Decision-Making in Business Investments. Business Investment. Vol. 50/ 816-829. Read More