Philosophy and the Future of Investment Portfolio - Essay Example

Affiliation: Investment Project Personal Background Personal Risk Tolerance Personal risk tolerance is a very important component when it comes to investing. Any individual requires having a realistic understanding upon the ability and the willingness of stomaching the large swings that occurs in the value of investments made. An investor that is prone to taking too much of the risk may end up panicking and thus sell as the wrong time (Bodie et al. 23). Well, having this in mind, there is no actual investment without a risk. Even if one may feel safe by doing all that the financial advisers do consider being the rightful thing, investment remains to be a broad stock market index fund that has a long-term view, but accompanied by risks as well. On the unfortunate end, for anyone willing to build wealth over time, an investor will require to accept on a significant amount of risk. Therefore, I consider myself to a risk taker, with an average rate of risk tolerance. Personal Experience Coming to personal experience, I consider myself new to this form of investment. It is because I have never done it before and being my first time, I am glad to be taking this class. With the adequate insights about investment that I will gain from this class, it will help in enhancing my investment knowledge base and eventually be able to make informed and sound investment decisions. Significantly, learning from the real time experiences will be my foundation to the future success in investments. Goals and objectives Generally, goals do vary from one individual to another. At personal level, my goals in undertaking this project entail learning the financial basics, be able to make long-term financial solutions, and be able to achieve successful financial returns. Relying on these goals, the objectives will all be in line of making these goals become realistic. In this case, my main objective will be to achieve financial success in investments, and my strategy will be through asset allocation and diversification through all platforms of investment. Another objective is to have the ability of showing people on the simple method to follow when doing trade so that they may achieve a high probability of success. One does not require having a complicated day or having an end of day trading system to aid in making good money in the investment market. 2. Philosophy Generally, the decision to engage in any investment is with an effort of having more money so that one may be able to accomplish the life goals and be able to realize on personal dreams. By having an understanding that money will be available for future use has the high probability of offering a sense of peace through the present situation. However, the unexpected normally happens. Instead of bring peace to the mind, the investment decision end up becoming complex and very confusing, which also leads to the overwhelming feelings that may entails distress, worry, and anxiety. Investment Philosophy - my investment philosophy is all about Growth and Trust. At the beginning, my philosophy was about engaging in daily trade on a company that I deem to be trustworthy, but have just changed this philosophy to be growth value on the companies that I have trust on, such as Apple. Trading on companies that I have trust on helps in reducing financial risks while I anticipate making more returns in both short- and long-term trading process. Trading Philosophy – the trading philosophy needs to capture on the enduring and explainable market patterns. In this regard, there is need of having belief through risk diversification in any available opportunity that may include the type of strategy. In this regard, the trading philosophy that I plan to employ is about buying stocks and be able to hold on them until when they continue rising. The moment these stocks stop rising and begin going sideways, or begins falling, the next decision will be selling these stocks and thus re-employ the money obtained from the sale into another stock that might be rising. Sector Evaluation Conducting sector evaluation is necessary for any given stock market. The first step in sector evaluation is conducting economic analysis. The process entails studying on the general economic conditions that is useful when doing valuation of common stock. In the trading sector, stock prices receive high influence through the state of the economy and through the economic events that entail the global and domestic basis. The behavior of the economy is subject to capture through the business cycle, which provides a reflection on the changes occurring through total economic activity over time (Bodie et al., 57). The second step in doing sector evaluation is conducting industry analysis. The process entails doing evaluation on the competitive position of the specific industry while relating it to the other industry. The idea behind this strategy of evaluation is to be able to identify the new opportunities and the potential for growth. It is also significant to identify on companies within the same trading industry that looks more promising. Industry analysis also looks for the strong market positions, the pricing leadership, and the economies of scale. The third aspect to consider in sector evaluation is doing fundamental analysis. The process entails doing evaluation on the financial conditions and the operating results obtained from the specific company. Performing this analysis aims at figuring out the competitive position, figuring out composition and growth of sales, determining profit margins and dynamics of earnings, finding the asset mix, and determining the financial mix. The value of any specific stock is subject to influence by the financial performance of the specific company responsible for issuing the stock. Looking at each stock one by one, there are some reasons as to why I sold or bought them. The first in line is CLR. The reason for buying CLR stock is that it reported a higher rise in its share by 6.91%, which resulted from the energy sector gaining its boost from the Spanish energy company by the name of Repsol. The next area of my investment is RIGL, where I made the decision to buy its stock due to some positive comments by analysts while it also looks worthy of making a small speculative investment. The AMZN stock for long time has been a solid winner through the pro-social portfolio, but the decision to sell AMZN stock was based on the fact that there was some degree of neglect of the important stakeholder group and presence of some weaknesses in the company’s strategic armor. Another area of my investment is AAPL. I made the decision to invest on this stock since the financial reports and predictions indicate AAPL shares to be gaining more value in the market. Another reason for buying AAPL stock is that Apple has not been able to mature well in terms of growth, but there is still a lot of room available for it to increase on its share. Another area of my investments is in Facebook. I made the decision to sell on FB shares due to the possibility of challenge in user growth, in that growth in this company could soon be replaced by the concept of market saturation and the lack of new users. Another area of my investments is MSFT. I bought its stock based on the idea that its stock value is set to recover from the shock of double-digit drubbing that it took back in January upon rattling shareholders on earnings cut. However, financial projection indicates that MSFT stocks will rise significantly in value due to its expanded areas of creating apps for the competing devices in market. I was also able to do investment with BBRY but later sold the stock as its shares sunk following Goldman Sachs downgrade on the stock sales. Another area of investment is MDCO. Being a pharmaceutical industry, the U.S. health sector is another area that is attracting more investors. The reason for buying MDCO stock is that the services offered by this company meet the needs of the standard healthcare requirements, while it is serving the commanding population of patients. Financial reports and predictions indicate the acute and intensive care hospitals to be gaining significant popularity, hence rising value on its stocks. Finally, I was able to buy stocks in the AMD based on the fact that it is advancing on its technologies and attracting more investors. For example, the company is experiencing growth in its PC business, there is gaming console growth, receives major support for the Arm-Based Servers, increase in its GPU sales, and promising opportunities in the Non-PC applications. Therefore, a combination of these reasons and a number of market conditions explain the reason for either buying or selling of the stocks in market through various products. Ranking of Sectors Conducting an analysis on the performance of each stock sector at an individual capacity plays a key role in the analysis of the trading solution. Having adequate knowledge on where there is strength and identifying areas of weaknesses in the entire market offers the possibility of selecting the best individual stock to make a trade on. The strongest performing stock in the sector becomes the best candidate to invest while the best stocks to reduce investments upon will be subject to locate in the weakest market sectors. The ranking of sectors is possible to achieve by looking at the relative performance evaluation with the aid of a line chart. The option is possible to achieve with the aid of good charting software that helps in setting up the relative performance line chart. The method makes it possible into defining two or more symbols charted together while using different lines on the single chart. The chart will be able to display the relative performance, which also aids in checking relative performance of various symbols (Bodie et al. 79). The Investment Strategy The first investment strategy is asset allocation. Through including assets of different classes to the investment portfolio, one increases on the probability of gaining satisfactory returns even at the occasion where other investments are flat or are losing value. In performing asset allocation, one is reducing the risk of encountering major loses that may result from over-emphasizing on a single asset class. There will thus be allocation of asset across sectors, such as 20% on financials, 30% on utility, among other preferences. Choose on each sector that is performing well in the market and allocate funds in proportion to their performance. The process is fundamental investing in that the investor seeks in identifying companies that have strong earnings prospects and prefer them to those that are creating weak earnings while making investment decisions. The second investment strategy is diversification. When making the decision to diversify, one is dividing the money that has been subject to allocate to the particular asset class among the various categories of investments belonging to the specific asset class. Engaging in diversification allows the investor room for spreading the assets around, hence avoiding the concept of putting all eggs in a single basket. The Financial Report & Projections The entire investment philosophy relies on value and growth. The financial report provides the records of the financial activities that the business engages upon. The relative financial report is subject to present through a structured manner that is easy to understand and comprehend, which will typically have the basic financial statements that is in the company of management discussions and analysis. For example, there will be a balance sheet that shows on the company’s assets and the level of ownership equity through a given time frame. There will also be an income statement that provides information on the revenue and expenses, and the profits raised through a given period. The profit and loss statement will provide information relating to the state of enterprise operation, which includes the sales and a number of expenses incurred at the entire process. There will also be a statement of cash flows that reports on the company’s flow of cash, particularly in areas like operation, investments, and financials. The next item to consider is conducting projections. The first thing to consider is determining on the number of stocks, such as 30 stocks, followed by setting the portfolio beta that is approximately 1.07. The Capital Asset Pricing Model (CAPM) for the required returns will be subject to calculate through the following formula; E(R)=Rf +β(Rm- Rf)=1%+1.07*(7% -1%)=7.42% In conducting projections, consider highlighting on the specific drivers of revenue growth through the model in order to help realize on the progress towards reaching the milestone of each growth initiative. Also, consider incorporating relative analysis at the time of building a model through doing comparisons on the company revenue growth rate on each trading day to that of the other company that has similar company rates. Summary and Conclusion By looking at the trading history, there are various key portfolio properties and outcomes present. The allocation of assets was based on the value market share, whereby those companies with highest value received more asset allocation while those that had low value received little assets allocation. The buying of stock in the market was subject to perform at the time when the company was starting o make good returns with promise of rise through projections. Similarly the sale of stocks was subject to perform at the time when the stocks started depreciating in value. In the trading history, there are indications that the investment adhered to the investment philosophy. For example, companies with highest value received more asset allocation, such as AMD and STEM. Similarly, companies that had the lowest value were the ones whose stocks were to sell immediately, such as BBRY, AMZN, and NKTR. In conclusion, the future of investment portfolio indicates that there will be a prospective growth through a number of investments sectors. In this case, the investor will require being prepared in monitoring the market trends and be able to make timely and feasible decisions. The key issues to consider while making investment decision should be determining on the reasons for trading, setting objectives and realistic goals, selecting the time frame for trading, adopting a system for evaluation, and determining on the size of trades. Works Cited Bodie, Zvi, Alex Kane, and Alan J. Marcus. Investments and Portfolio Management. New York: McGraw-Hill/Irwin, 2011. Print. Read More