STOCK MARKET PROJECT
1. Building portfolio
Select five companies for the purpose of tracking the stock market, preparing research on the companies, and preparing company reports. You will be investing in common stocks only, but you have to select from two national stock exchanges, the New York Stock Exchange (NYSE), the American Stock Exchange (AMEX) and the NASDAQ.
Make a simulated $50,000 purchase in the common stock of your five selected companies (Approximately $10,000 each; you have to buy whole shares and not a fraction of a share). To evaluate purchase price, check one of the business websites suggested.
Please give the subsequent information in your stock market update:
1. Name of company.
2. Stock/Trading symbol.
3. Date and last price on the date of purchase.
4. Number of shares purchased.
5. Total purchase (in dollars)
6. A brief description of the company including its size, products and services.
7. Reasons for your selection
Make your purchases according to the following rules:
a. Your brokerage fees will be $10 every time you buy or sell one company's stock.
b. You will ignore all taxes (do not forget about dividends you collect, if any, add them to your cash balance (you are not re-investing the dividends)).
c. From Week 4 to Week 12, you can change your mind and sell shares in one or two companies at most. In this case, you have to sell all shares and reinvest your proceeds in one or two new companies. In other words, you will always have five companies in your portfolio.
Part 2: Index purchase: Evaluate a $50,000 purchase of SPIDERS (Trading symbol SPY). SPIDERS stands for shares of an Exchange Traded Fund traded in the AMEX. SPIDERS mimics the Standard and Poor 500 Index, a broad market index. This strategy will work well during the "bull" market. When the stock market goes up, you gain the average of the market return. This strategy worked well during the long bull market from 1983 to around March 2000.
Selling short an Index Fund (NASDAQ 100). Short-sellers are investors who borrow stock from a broker and sell it in the market, betting that the stock price will fall so they can buy it back at a lower price. This strategy works well during the bear market. The bear market started in March 2000. For a period of slightly more than 2+ years, all major market indexes lost considerable ground. The Dow Jones Industrial Average dropped from 11,500 to around 7,800, the S&P 500 dropped from more than 1,500 to around 800, and the NASDAQ Composite Index dropped from more than 5,000 to around 1,200.
Deposit a simulated $50,000 in a broker's account. Borrow stock from the broker and short-sell "QQQ", the trading symbol of shares of an Exchange Traded Fund traded in the AMEX. QQQ mimics shares in the NASDAQ 100 Index. On the 9th week from your starting date, buy back all shares of QQQ. If the price of QQQ goes down, you make a profit by selling high and buying low. During less than 10 months in the year 2002, some ultra short mutual funds employed this strategy successfully. For example, ProFunds: Ultra Short OTC investment fund gained 136%. However, shorting can be a risky investing strategy because unlike buying stock, where you cannot lose more money than you put in, short-selling losses can be unlimited if the borrowed stock keeps rising. Leo Guzman, president of Guzman & Company, a brokerage firm, warns shorting should be left for the professional investors.
Record the dates of buying and selling, number of shares, price per share, total purchases and sales. For the purpose of computing gain or loss, use $100 total for the broker's commissions and the fund's management fee.
Stock Market Report include background information for all investments. It includes: company name, trading symbol, location, mission, product/service line, competitors, earnings information, revenues, and stock exchange traded on, any current activities that you think may make your selected companies a good or bad investment in the future.
Report also includes share price, number of shares purchased, value of investment on date sold, and profit or loss on the investment.
Answer these questions:
1) Is it a good place for short-term investment?
2) Long-term investment?
3)Back up your opinion with financial facts and historical data. Some people say that "The stock market is the biggest casino in the world." Do you agree?
4) Why and why not?
5) For the three investing strategies, which one(s) do you prefer for the short-term investment?
6) Long-term investment?
7) How do you modify strategy #1 to make it less risky?
8) Should you increase or decrease the number of stocks in strategy #1?
9) Should you invest in a variety of companies offering different products and services?