Essay Preview: Stocks
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Continually analyzing the stocks go up and down with the market was very interesting to watch. We happened to pick three stocks that actually had a relatively high scouting report which tended to spike and drop week to week. If you look at the attached map of the percent return on each investment, it is obvious to see that the stocks started out relatively quite and then all of a sudden dropped in value along with the S&P500 index level. However, they quickly recovered and began earning positive points. The graph does a great job showing the up and down trends in the week to week analysis and also makes it easier to understand the relation of the beta to the investments.
When choosing three particular stocks to invest, we decided that it would be the best to try to get a smaller return with a relatively stable investment then risking all the money on some unstable and streaky company. When choosing CAT, NUE, and QCOM, we knew that they would not necessarily double or triple our money in the two months we had to invest. However, we knew that they are all very stable companies based on the recorded betas advertised on the internet. This relatively stable number represents how much the stock would go up or down with the market. So if the market next week does badly, then CAT with a beta of 1.09, would hardly fluctuate with the market. However, if the beta had been a 2 or 3, similar to Nucor, the companys stock price would heavily fluctuate as the market goes up or down. Looking at the prices of the shares over the two months, we find that if we had chosen a company with high beta then we would have most likely posted negative earnings in the stock portfolio because the S&P500 index level went down in price over that period. This would result in high fluctuations with the index levels because of the high beta value.
When preparing to purchase the stocks in late September, we researched numerous online stock trading companies. We did not find large fluctuations in the commissions between companies showing a $9.95+$1.25/trade as the going rate around the online brokerage companies. We chose TD Waterhouse because they have a great reputation among the online traders.
Posting a 3.17 average weekly return is not bad considering the index fund that we were using continued to drop dramatically. But as we stated earlier, it is a good thing that we chose very stable companies to invest in because this kept