Stock Market Investment Trading - Essay Example

I included the highly successful oil and gas exploration and production company, Denver-based Cimarex, for owning no less than 68% of national proven reserves and the lion’s share of 80% of production. All these were bought up or acquired in the Mid-Continent region, the Permian Basin, and just offshore: Oklahoma, the Texas Panhandle, west Texas, southwest Kansas, southeast New Mexico, and the Gulf Coast area offshore of southeast Texas.

Next, I opted for diversification by including the Exchange Traded Fund of the Standard and Poor’s S&P 500 Index (ticker symbol: SPDR S&P 500 ETF Trust and the technology-oriented offshoot, XLK = Technology SPDR ETF. This is consistent with the passive and defensive stance of an investor who lacks the time to do more investment research and is, therefore, content to earn returns at par with indexes like the Dow Jones Industrials 30 or the S & P 500. Such reliance on market sentiment is not always rational since the market mavens of the NYSE and NASDAQ kept pushing the market value higher absent fundamental value from 2008-2012. Individual stars like Apple and Monarch did very well indeed but macroeconomic fundamentals were sluggish.

Performance
During the gaming period in question, Apple and eBay did record the best capital gains of 1.6% and 1.3%, respectively. Apple was once again on a roll this week. Its stock price and market capitalization were reaching new highs, while not quite matching the per-share peak of $700.10 reached on Sept. 21 last year, when hopes for a new iPad generation were high.

Cimarex shrank in value from $98.65 per share on Monday to $95.95 by the week’s end. But if the investment game had commenced at the recent low of $64.99 on June 28, capital gain would have been a very satisfying +47.6% before transaction charges and taxes.

SPY (SPDR S&P 500 ETF Trust) was moribund that week as market sentiment held back the ETF to trade between $178.94 and $180.94. Hence, devoting the lion’s share of the training investment in SPY did little good at all as the stock closed the week a measly 0.2% up for the week. Nonetheless, its beta of 0.92 at the last count suggested that the ETF is not as volatile as the market as a whole.

Apple is a long-term hold, beloved by institutional buyers and pension fund managers. The closing price of $560.68 when the simulation game ended on Friday, Dec. 6, corresponded to a market cap of $503.871 billion. This is despite the founder Steve Jobs passing away in late 2011, two years now, and no serious breakthrough products in the same timespan (Thomson Reuters 1). Chairman/CEO Tim Cook is not the visionary that Steve Jobs was. Even as he languished on his deathbed, the latter had engineered a long-term run-up in the stock price with the cash cow iPod line, energized the world with the launch of the iPhone, and brought down the moribund desktop PC industry with the iPad tablet PC. Anyone holding the stock in late 2004 (the aforementioned pension funds that are loathed to sell AAPL) would have ridden the dizzying rise of the stock from $11.36 in February 2004 to $560.02 (a 48-fold gain) on the last trading day of this simulation. At last count, moreover, the stock was the least volatile of all with a beta of 0.84.

Conclusion
At the end of the week, load the portfolio with SPY (680 shares). GE (200), eBay (100 shares), and Cimarex (100 shares) turned out to be too conservative and defensive a strategy. In retrospect, SPY was too cautious in approximating the performance of the S&P 500. Though ETFs have much lower expense ratios, no investment minimums, are taxed less, and grant options and short-selling opportunities, the lesson learned is that minimizing risk with diversification works but rewards the patient investor over a long bull market. On the other hand, AAPL contributed tremendously to portfolio gains because management was bent on continuing its 18-month run of unleashing quarterly dividends as never before in the last ten years. Read More