OTIS Final Report, Term Paper Example

Despite the general lack of predictability in experimental financial investments, the portfolio reveals that these diverse selections lessen the risk of each individual stock. While it is easy for the investor to see the largest gains, such as the thirty percent gain among this portfolio, as a missed opportunity, plenty of disappointed investors have taken such a gamble and lost all of the capital or cash which they had to invest. My portfolio- while diverse- was designed to be conservative. With less risk comes less loss—either that or the risk of total loss. As the analysis will reveal, there were many surprises and lessons learned between thinking practically and thinking strategically.

Portfolio Strategy

In this investment portfolio, I chose to spread my investments primarily across governmental and social networking equities- with the remaining chosen with the intent of diversifying the portfolio. The long-term investments include: Coca-Cola, Dade County, Daimler (automotive group), Facebook, Intuitive Surgical, Telefonica Brasil, and the United States Treasury. Cash and future cash generally provide the short-term principal for further investment, as well as the reinvestment of realized gain in the event that profit is realized. Earlier in this year, there was a surge of interest in medical companies- from medical supplies to new technologies. After considering the riskier but potentially-more-profitable investments of pharmaceutical development or stem cell technologies, I selected a low-risk investment which seemed even more appropriate because ‘intuitive’ was actually part of its name. As social networking increasingly moves from personal to public, the selection of social investments, as in the selected long-term equity of Facebook and Telefonica Brasil, is trendy and likely to become more integrated into financial decisions. This does not necessarily mean that these markets are consistent or stable. For this reason, I chose the mainstream stock of Facebook and the relatively obscure foreign investment of Telefonica Brasil. Finally, I believe in the direct involvement of citizens in government, and providing capital for investment is a way of showing confidence in the government and in national companies.

I selected these stocks for diversity and conservative appeal. No research was conducted prior to tracking this equity, but general knowledge of market and industry trends and perceptions of business finances ultimately affected the choices which were made, especially in the early phases of the project. Many of the advantages which were considered could also be disadvantages in other circumstances. For several of these investments, the decision to purchase was made according to emotional attachments to preconceptions which had no modern basis in reality.

Analysis

Proportionately, Daimler auto group returned the greatest loss. With the slight rise of stocks before the beginning of the summer, I thought that car sales would pick up again, showing more confidence in American business. Although the Daimler stock closed at a loss of just over 8 percent of the book value, other automotive stocks experienced much greater losses. Ford stock is worth eight cents less per share than in the first quarter of 2011, and General Motors stock closed at $19.72, as opposed to its year high of $31.80 (“Guru Stocks”, 2012). Associated with the higher-grade lifestyle of the Chrysler customer very closely associated with Daimler, I was not aware at the time of purchase that the Daimler stock had already distanced itself from Chrysler (which went bankrupt) and to build loose stock interdependency with Fiat and Cerberus Capital Management. Perhaps this is why Daimler remained relatively stable as compared to other automotive investments; it could also be related to the European markets which I avoided in this stock investment, mainly because those markets require a different kind of thinking which I have not researched enough to fully understand. Financial investment is always a matter of knowing, predicting, and timing. With the gross profit margin being just shy of just over percent, there is little leeway for financial hardship, and, according to advfn.com, they have been very generous with employees, who make an average of over $400,000 per employee. Additionally, less cashflow has come through Daimler AG, and the debt ratio has been exceeded by the amount of capital invested in the past two years. Still, Daimler auto group’s share prices stay fairly steady as they alternate between peaks and low-points, making a long-term investment for a likely capital gain. Margins reacted quickly, so daily monitoring of the stock is necessary, as a small shift can begin a long upward or downward trend.

Facebook (FB) was an interesting surprise. I expected to take a greater loss on that investment but still considered it worth the low risk. After all, FB stock has over investors and is subject to few large-scale hits unrelated to bad press or technological malfunction. Although this social networking site has beaten the odds so far, with everyone from preteens to great-aunts in foreign countries taking notice and companies increasingly exploiting the free advertisement space, the company’s edge has been in repackaging their image and incorporating new audiovisual software. With all the bells and whistles already in place, it seems that at some point the company must fall behind the cutting edge or lose the mass popularity which has raised the company and its founders to affluence and stardom- so much so that FB has been compared to Apple in its integration of multiple technologies into new products and services.

By contrast, the stability of Telefonica Brasil (VIV) seems suspect to some investors. As a foreign company, legal restrictions are not the same as in America and are held less accountable to fraud or embezzlement. Operating costs have remained low, which has many investors guessing as to whether the shifting profit has been produced by lower wages, lay-offs, or less transparent and reputable means. In May of this year, it was revealed that the company had lay-offs and would likely need to cut back further. As an established company, the costs of continuing operation alone had been low. However, in the past year VIV has acquired the holdings of many of their smaller competitors, effectively producing a small-scale monopolization of the market. VIV representatives also fear that the process is not over; this is likely a truth involving adaptation and integration, as a diverse body of companies is folded into the current business holdings of Telefonica Brasil. Despite this re-investment, VIV gross profit is currently about fifteen percent lower than at this time last year. (Haynes and Spagnulo)

The purchase of Dade County and US Treasury investments was largely a matter of national pride and involvement. This also helps me get an idea of how the general market is doing throughout the local areas and the US as a whole. Only 12 of these securities were purchased, but the total loss for these two securities was only $67 – out of the investments in Dade County and the US Treasury of more than twelve thousand dollars and two thousand dollars, respectively. Yesterday the Wall Street Journal wrote that Treasury bonds rallied throughout the summer after the European Union bailed out Spanish markets, including profits from a bond sellout. Investors are optimistic that the sellout is a temporary solution- despite the fact that the Treasury bonds were already nearing its lowest historical price. (Zeng)

Coca-cola (KO) presented a greater loss than I expected. Mainstream trademarked companies like this often seem to struggle with balancing the respect of a classic brand with the changes which must be made to keep the company moving forward. Another challenge facing the company is the increasing number of competitions in the beverage industry in particular; this further complicates this balance. KO successfully managed to update their public image, doing everything from changing the font and presentation of the can and bottle packaging to shifting from the classic forties women holding Coca-Cola bottles to animated story shorts featuring a family of bears. This adaptability has pitted Coca-Cola, Dr. Pepper, and Pepsi against each other as the top three beverage sellers. With the increasing health-consciousness and information of the emerging generations and the strict federal monitoring and regulations, Coca-Cola has taken some hits for its high quantities of sugar and caffeine, especially as the schools and prominent public figures, such as Michelle Obama, have taken a particular interest in removing caffeinated and sugar-filled foods and beverages from ready available consumption in public places.

Conclusion

As a whole, the portfolio made profit, despite the fact that only one of these investments showed any gain during the simulation period. Intuitive Surgical showed enough of a profit to cancel out the losses of the other stocks. The recognizable names of the portfolio did poorly, perhaps because of the challenges of historical representation and advertising. Investing in little-known stock runs a greater risk of total loss but also represents a great potential. Whether these risky investments are made for short-term or long-term profit depends upon the industry, the stability and longevity of the company, the competition, available resources, etc. Reading the trends of the past three years and the current status of the investments, ISRG and Daimler AG (DAI) show the most promise. ISRG would most likely represent a long-term optimal gain, whereas DAI will likely reach a stock price peak again in the next year, as determined from the stable rises and falls of share price performance in the years of Chrysler’s downfall. A beginning investor does well to select options from various sources, learning as they build comfort with the process, predictions, and their own instinctive interpretation of the market and the best time to make a new move.

Works Cited

“Guru Stocks at 52-Week Lows: F, GM, EXC, CHU, WAG.” NASDAQ. 30 June 2012. Retrieved 30 June 2012 from <http://community.nasdaq.com/News/2012-06/guru-stocks-at-52week-lows-f-gm-exc-chu-wag.aspx?storyid=152445>. Web.

2011. ADVFN PLC. Retrieved 1 July 2012 from <http://www.advfn.com/p.php?pid=financials&symbol=NO%5EDDAIF>. Web.

Haynes, Brad and Sergio Spagnulo. “UPDATE 2- Telefonica Brasil says layoffs could continue”. 10 May 2012. Reuters. Retrieved 1 July 2012 from < http://www.reuters.com/article/2012/05/10/telefonica-idUSL1E8GA0Q820120510>. Web.

Zeng, Min. “U.S. Treasury Bonds Sell Off, but Still Best Quarter Since 3Q 2011”. 29 June 2012. The Wall Street Journal. Retrieved 30 June 2012 from < http://online.wsj.com/article/BT-CO-20120629-714797.html>. Web.