Stock Market: All Trades - Essay Example

?Summary Report of All Trades: During the of the trading project, my portfolio returned a -4.74% return on equity investments over the contest duration. During that time period, I made a total of six trades – 5 buys and one sale. The stocks that I purchased for my trading assignment were: OMX - OfficeMax Incorporated YONG - Yongye International Inc AAPL – Apple, Inc. GOLD - Randgold Resources Ltd. These companies represent a diversified trading strategy with stocks in the consumer retail sector focusing on small business and home enterprise growth in a recovery economy, Chinese biotechnology for rapid growth potential, the NASDAQ giant and tech-sector leader Apple with the dynamic iPhone, iPad, and iOS lines internationally, and one of the largest miners in the world in Randgold. I chose these stocks as a foundation for a diversified portfolio and would like to build positions in each company for long-term holdings targeting 5-10 years. With the exception of Yongye, these stocks are all industry leaders and corporate entities with large asset bases and established business/consumer products. I chose these stocks because I believe that they should not only outperform the market but also limit downside risk to preserve capital. Due to the requirements of the assignment, I chose my entry points for the stock purchases late in order to capitalize on building my position through purchasing at a lower initial price. Over the course of the investment cycle, from 5/27/2011 to 6/2/2011, the rate of return of each of these stocks can be seen charted in comparison to the S&P 500 Index, the Dow Jones Industrial Average, and the TSX Index. As can be seen in the chart above (from Yahoo Finance), YONG outperformed all stocks including the index over this period by a wide margin, up over 30% on the period. Unfortunately, due to the weight of YONG in my portfolio vs. the other equities, this gain was not enough to offset losses, particularly in OMX which underperformed the Indexes by around 10% in this same period. AAPL outperformed the Indexes by a small margin, around 2% during this period. GOLD tracked the DJIA with very little deviation from the Indexes during this timeframe. I attempted a second purchase of OMX during this period to average down my entry price per share after the decline. Table 1: Buy and Sell Orders executed over the course of the project. Table 2: Buy and Sell Orders executed over the course of the project. Table 3: Portfolio – trading performance over the course of the project. Investment Analysis: In building my portfolio for the trading project, I wanted to implement the basics of a balanced portfolio by building positions in different sectors for the purpose of diversification. My interest in YONG was for rapid growth and in expectation of press release activity favorable to the company, and the stock was able to produce 30% gains over the course of trading which I locked in by selling a portion of my initial investment. The GOLD position can be considered as a hedge and also as a long-term investment in the future of the mining industry. My analysis of Randgold indicated that by owning the actual real estate in which the gold and other precious mineral reserves were located, this was a significant and appreciable asset of the company that indicated an undervalued state in the appreciating precious metals market. Furthermore, the company has the facilities for R&D in the precious metals mining sector which few other companies possess. In similar motivation, I chose Apple (AAPL) because of the leading effect of the iPhone, iPad, and other products in reflecting consumer lifestyle innovation through technology. I am impressed with Apple’s minimal debt load as a company, their international expansion prospects for product sales, and the financial position of the company as reflected in cash on the books, growing sales, expanding markets, etc. This company is the largest in the world by market capitalization and the benchmark of the NASDAQ index, outperforming on the ability to grow markets through innovative products like the iPad, iPhone, and iPod. OfficeMax I feel should benefit from the recovery in the economy as people use the resources to build back their businesses and personal lives through expansionary and entrepreneurial activity. Unfortunately, I now believe that the combination of Apple, OfficeMax, and the retail aspects of gold sales (jewelry, rings, etc.) give me too much exposure in the commercial retail and luxury goods market in the U.S. and less diversification in other sectors. Because of this I see these investments as the beginning of a portfolio and not the end result. The success of trading in the Chinese bio-technology sector has encouraged me to pursue more research and due diligence on companies in this sector, seeking higher gains. Yet, I also recognize that the high Beta in the biotechnology sector makes it particularly a risky or possibly even dangerous sector to invest in, and therefore plan to use stop-loss orders in my future trades to preserve gains. Of the following stocks: 1. OMX - OfficeMax Incorporated 2. YONG - Yongye International Inc 3. AAPL – Apple, Inc. 4. GOLD - Randgold Resources Ltd. I see OfficeMax, Apple, and Randgold as industry standards with little risk of bankruptcy or debt related problems. Since these factors often lead companies to decline on the stock market in trading, I seek to avoid high risk investments in fiscally unsound or mismanaged companies with high debt loads. Within this balance, YONG is a higher risk investment which is limited to a portion of the portfolio to seek higher returns. Ideally, I would be able to build the longer term positions in the other three stocks by trading profits in the biotechnology sector. As I build my portfolio in this manner, I will also seek out more dividend paying stocks for my longer term investments and use the dividends to reinvest in the biotechnology sector for higher short term returns. Through this process, I hope to build a portfolio that will outperform over the long term but also preserve capital through investment in strong, market leading companies to weather any downturns. Nevertheless, I find stop-loss orders would have possibly saved me from a greater loss during the course project time had I implemented them in my portfolio. In longer term investments, stop-loss orders may have to be implemented only in particularly volatile times, otherwise a “flash crash” type event can be used to trigger the stops and the position is ended at a loss. This type of protection of a position needs to be determined according to the long and short term goals of trading and portfolio management. I see gold rising steadily due to the increasing inflationary and currency debasing activities of central banks around the world, but the miners have not been performing as a sector in accordance with the price of gold. The opportunity may then exist for the accumulation of gold mining stocks on a longer term timeline, however this sector is also high beta and prone to volatility. Therefore, a global industry leader like Randgold is preferred over the junior gold and silver miners, though further due diligence and research in this sector may lead to other investment choices with a higher upside for investment. In the case of mining stocks, this is an area of specialization that I would like to continue to conduct investment research and financial analysis in, as well as the Chinese emerging market and biotechnology sectors. Read More