Case Study 2
Question (a)
As stated in the question, Lucy is investing in speculative stock. A speculative stock is a stock that has high level of risk on investment with unforeseeable results but provide high returns. As refer to the general rule that high risk gives high return, a speculative stock usually offers sufficient returns in order to remunerate for its riskier characteristic. In general, due to the higher risk, these stocks have a lower share price compare to others.
In fact, Lucy is eventually involves in speculative risk. The main risk that Lucy will be suffered for is that company may be unable to operate the business as a going concern and Lucy will probably loss entirety of her investment. Lucy could be receiving huge returns from the investment if “fortune event” falls on the company and driving the price up rapidly. However, Lucy has to be prepared for the risk that if the “fortune event” does not happened, and the company unable to operate anymore and fade out from the market. Therefore, before investing in this speculative stock, Lucy must have high tolerance for risk and must realize that she has chance for huge returns yet a possibility for huge loss.
Question (b)
Investment program of Lucy is currently invests in speculative stocks as shown in the question. As mentioned in the answer of Question (a), a speculative stock is a high risk investment that gives high profit in return.
By investing in this speculative investment, Lucy may find that investing is challenging. Just like how Jim Cramer illustrates speculative stocks, “High-risk, high-reward speculative stocks keep investing interesting,” he said (as cited in Sandholm, 2011). When the corporation is doing right, Lucy may earn a huge amount of for...
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...iminate the low performance in home country. This idea is simple, when the U.S market undergoes economic downturn, there are potential that opportunities of investment abroad are better. Through adding foreign stock to her investment, Lucy is able to earn revenue
same with an all-domestic portfolio yet lesser volatility. In other words, adding foreign stocks enable Lucy to earn higher return with lower risk. As globalization happens to tighten the links between global markets, it creates various opportunities for businesses as well as chances to invest in foreign stocks. Notwithstanding, light creates shadow, if Lucy is invest in foreign stock, she must also be cautious to the risks of it. The risks of foreign stocks include political risk, market risk and currency risk. These are the elements she have to look into before decide to jump into any foreign investments.
My conclusion is that the protagonist should buy more stock of Costco Wholesale Corporation as she concluded the company is growing at manageable rate without relying on debt or equity. They are with high sales or profit, low labor costs, and consistent growth. Costco seems to be a low risk stock that is performing well with long term stability for more
Before we invested, we decided to pick two types of companies to invest in. We would choose companies that had expensive stock but steady increasing prices and we would choose smaller companies that had cheaper stock but whom had a chance for potential huge price increases. If the smaller companies’ stock went down the bigger companies’ steadily increasing stock would even it out, but if the smaller companies’ stock price rose greatly, like we predict, we could sell and make a good profit. We found a big name company that had reliable stock prices pretty quick, but finding a small company whose stock price could rise was hard. We
The goal is to teach you to wear the glasses of a professional trader who sees the difference between low and high-probability trades. With these new glasses, your trading account gradually reflects the consequences of making high-probability trades. With more money in your trading account, you can buy more contracts. You experience the law of compounding, and your account grows exponentially.
Before playing the stock market game, I honestly had no idea about how the stock market work. I, however, have learned so much about the process of the stock market. It was an advantage to learn how to buy and sell stocks without losing any thing, that will indeed enable me to invest in the real stock market without any concern. I learned that there is no certainty about wining or losing; however, there are many factors that we should consider before buying or selling stocks. One of theses factors is follow the daily news about the firm that you are willing to buy its stocks. Following the history of the firm transactions is also a significant factor that must be considered. The level of stability
Hands down, Straith does a fine job of delivering a warning message. Identifying a byproduct in this article is tough- it’s designed to inform readers of many different classes, does it’s job, and leaves no apparent avenue of misunderstanding down which a reader might lose him or herself in a mess of unrelated or confusing facts. His use of informal tone, understandable language, and mild humor is enough from which readers can reap an understanding, business people and common-types alike. His writing style and method of delivery support his goal of informing potential investors of the common blind-sightedness that has been such a dominant factor towards dotcom investing in the past, while his apparent interest in the financial welfare of others is a credibility-adding factor that- the mind of the reader –can set him aside from other authors in his class.
Some investors are wary about the process of investing internationally, carrying the concept that it is always to precarious and complex. While there are risks involved with international investing, there are also very beneficial and profitable reasons for doing so. Ev...
Investing or venturing into the international market involves critical analysis of the internal and external environment in which the company operates. Usually, a company will decide to venture internationally due to a saturated market or fierce competition in the current country of operation. The demand for a company’s products may have diminished as a result of an economic crisis thus the company will target a foreign market to sustain its sales. In other words, the firms expand internationally to seek new customers for its products. For example, the current Euro zone crisis led to low demand in Europe and many companies extended their businesses to emerging markets where demand was high. A company may also venture in the international market to enhance the cost-effectiveness of its operations especially for manufacturing companies that will benefit from low costs of production in developing world. Global expansion is a long term project as it involves demanding logistics to be successful. Thorough research must be undertaken to ensure that the expansion will create value for share...
There is a sense of complexity today that has led many to believe the individual investor has little chance of competing with professional brokers and investment firms. However, Malkiel states this is a major misconception as he explains in his book “A Random Walk Down Wall Street”. What does a random walk mean? The random walk means in terms of the stock market that, “short term changes in stock prices cannot be predicted”. So how does a rational investor determine which stocks to purchase to maximize returns? Chapter 1 begins by defining and determining the difference in investing and speculating. Investing defined by Malkiel is the method of “purchasing assets to gain profit in the form of reasonably predictable income or appreciation over the long term”. Speculating in a sense is predicting, but without sufficient data to support any kind of conclusion. What is investing? Investing in its simplest form is the expectation to receive greater value in the future than you have today by saving income rather than spending. For example a savings account will earn a particular interest rate as will a corporate bond. Investment returns therefore depend on the allocation of funds and future events. Traditionally there have been two approaches used by the investment community to determine asset valuation: “the firm-foundation theory” and the “castle in the air theory”. The firm foundation theory argues that each investment instrument has something called intrinsic value, which can be determined analyzing securities present conditions and future growth. The basis of this theory is to buy securities when they are temporarily undervalued and sell them when they are temporarily overvalued in comparison to there intrinsic value One of the main variables used in this theory is dividend income. A stocks intrinsic value is said to be “equal to the present value of all its future dividends”. This is done using a method called discounting. Another variable to consider is the growth rate of the dividends. The greater the growth rate the more valuable the stock. However it is difficult to determine how long growth rates will last. Other factors are risk and interest rates, which will be discussed later. Warren Buffet, the great investor of our time, used this technique in making his fortune.
One reason is that many successful investment ventures itself is the outcome of these ‘irrationality’. Risk-taking, which is inevitable in investment, may contribute to the investors’ better performance than others, while with the assistance of proper training, assessment accuracy can be increased(Palich and Ray Bagby, 1995). Also, if without precedent, most of the newly-invented value-maximising approaches or strategy of investment ought to be considered as crude and unthoughtful, but in reality, they are regarded as innovation(Busenitz and Barney, 1997). Furthermore, there are evidence shows that instead of being the hindrance of correct investment decision-making, those biases and heuristics are backed up by probabilistic information. Accurate statistical probability can be evaluated by our inductive reasoning mechanism with a relatively high possibility(Cosmides and Tooby,
I became an enthusiast of finance ever since I was at high school. At the political economy class, my teacher asked us: if you have a million RMB, how would you use it? She then introduced us the concept of investment, and I was intrigued specifically by the stock. For the latter two years of my high school, I have been reading books and articles regarding the stock market in the U.S. and in China. As one of the outstanding students ranked top 1% in College Entrance Exam in Hainan Province, China, I was accepted by the City University of Hong Kong with a full scholarship. With the strong interest in finance, I chose quantitative finance and risk management as my major.
After considering the market position I have decided to take a moderate risk approach. I will allocate 40% of my resources to Johnson and Johnson and 30% to Intuit, Inc. The remaining 30% I will hold in cash. Although the saying “Cash is trash,” applies to a bull market, I am still apprehensive as to when this turnaround will occur. For now I will benefit by holding cash, but if the market turns at the end of our two month period as many analysts believe, I will lose out.
Finally, the third phase is where we profited from our investments. Having performed poorly in the equity market, we developed a new strategy of investing. This strategy focused more on the commodity sector rather then the equity sector. Therefore, at the beginning of March we bought contracts in gold, corn, platinum, lumber, and the United States currency. As equities dropped, the prices of commodities increased allowing our lumber, corn, and platinum to make huge gains.
William Sharpe, Gordon J. Alexander, Jeffrey W Bailey. Investments. Prentice Hall; 6 edition, October 20, 1998
This case study is not about Ms. Stewart direct participation with illegal insider trading as the media had steered the public to believe. To begin, Ms. Stewart received a phone call from Ann Armstrong, her assistant, stating that Peter Bacanovic, her stockbroker, “thinks ImClone is going to start trading down.” (Arnold, Beauchamp, Bowie, 2013, p. 390) Although Ms. Stewart was not able to get a hold of Peter, she talked to his assistance, Douglas Faneuil,
Besides that, also important to consider there is the difference in shipping costs from different ports, as it will change the “landed cost” of the item, and the retail price and profit margin. Then, Problems encountered in international business larger and more complex than the problems faced in the domestic business. In example, the manager of an international organization decides to reduce costs and maximize the value-added. They must decide whether it is ethical to comply with all labor and environmental standards are found to be lower in less developed countries. In addition, they must decide which one foreign market to enter and should be avoided. The domestic business manager was not affected by this factor directly, but they will be affected by the economic downturn of international trade.