Developing and Managing a Stock Portfolio on the Virtual Stock Exchange - Essay Sample

Introduction

Portfolio management is a critical function for any company and for the traders. The individuals who are involved in stock exchanges are keen on the way the shares are traded. One of the major targets of any investor is to increase the value of the investment and to diversify the portfolio. In the chosen portfolio on Market Watch, the stocks in the created game are used to show the performance of the companies and to predict future performance. The stock exchange market in the world is one of the most volatile and most profitable among other industries. One of the largest stock exchanges in the United States is the National Association of Securities Dealer Automated Quotation (NASDAQ) and the other one is the New York Stock Exchange (NYSE). The two are public stock companies and are located in New York City. NASDAQ usually has automated dealers and this makes it favorable to people who prefer online businesses. NYSE, on the other hand, uses specialized floor traders and uses an auction to place the available stocks available for the highest bidders. NASDAQ was launched in 1971 while NYSE was launched a year later, in 1972. They have been successful since then and only a few hiccups have been reported in their management and operations. They are ranked as among the most profitable companies in the world and they have a total of about 4700 companies listed in them. The use of the data from NASDAQ in Market Watch helps to manage the portfolio and to make the right decisions for the investment process.

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The value in the game can only increase if the stocks given are traded along the reliable lines of the market. Just like in NASDAQ and NYSE, the stocks rely on the market forces and the values of the companies as perceived in the market. The other target is to have a balance of the assets and to make sure that the values of the assets do not change. The free cash flow from the companies listed in the two stock exchanges can be used to determine the financial health of the companies. The investors' analysis is based on the strength of the company in its management of the available resources. The increased use of technology makes it necessary to adjust the analysis doe on companies to ensure that the up to date information is available for the stakeholders to use (Du, Deng & Qian, 2018). The inferences made from NYSE and NASDAQ data are used to make major decisions by the shareholders. In the analysis of the stock portfolio created on the platform, the investors can choose the stocks to trade in. The main intentions of the stock management project are to educate on the way the portfolios are managed and how they are affected by the factors in the market.

Goals for the Portfolio

Achieving the Desired Rate of Return

The portfolio has several specific goals that it aims at achieving and the first one is to get the desired rate of return. The desired rate of return is the one that matches up with the one for the main companies that are trading on Market Watch. For example, Apple, 3M, and Amazon are some of the companies that have the desired rate of return. The minimum market cap for the company that the investor targets are $5 billion and this required the planning of the investor to achieve this goal. It is important to note that most of the fund managers do not achieve their goals as per the analysis was done by the Market Watch. In this portfolio, the fund managers intend to achieve their goals by using a reliable set of data from the companies that are trading in the market. That explains why the companies included in this portfolio are the ones that have a history of good performance. According to Ramirez, Johnson, Duck, and Howell, (2018), investors use the information from the fund managers to make informed decisions about their investments. Therefore, a fund manager was used to access the necessary data before the final decisions were made.

Provide Reliable Advice Using Data and Not Emotions

The stock management portfolio is to be used by the investor to make insights into the market and to make decisions that involve huge amounts of money. The current portfolio has increased its worth over the short time it has been in operation and this makes it a reliable investment opportunity for the investors. Therefore, the second goal is to make sure that the information in the portfolio is based on the data in the market and not emotions. The goal involved analyzing the market to determine the traders and companies that can offer a good and profitable engagement. The other goal was to make a quantitative analysis of the investor behavior to determine the amount of money they plan to invest into the business and how this was to be distributed across the portfolio to increase its worth.

Keeping the Investor Sentiments on Check

The other goal of the portfolio is to ensure that the sentiments of the investors are in check and that they are correct based on the data on the portfolio. For example, the value of the Anthony Santiago portfolio is ranked second in the game leaderboard and this is based on the reliable data collected from the market and the historical performance of the portfolio. There are several things that can be done to maintain the sentiments in check; one of them is to deal with the fears of the investors. Most of the investors feared that the stock would lose its value and that they are likely to make losses from their investments. Investors are also guided by greed to make more money. For example, they respond to the changes in the market cycle by making transactions that best suits their interest. They buy on the margin and go for the riskier higher betas that are more volatile equities. The portfolio aims to increase the knowledge available for the investor to increase the accuracy of these decisions. They also sell their stocks when they fear that the prices could fall and that this would lead to losses. Therefore, the portfolio created a platform whereby the investor can view and predict the preference of the sticks in the market.

Maintain Investments During Market Downturns

The other goal of the portfolio is to ensure that the investor is in business even when the market is on its downturn. The market is volatile and it has its seasons of downturns. The target can be achieved through diversified investments plans to reduce the risks and to distribute the risk of making losses. Diversification in stock and financial markets helps to minimize the risks of making losses in one part of the market when the business fails (Matvos, Seru & Silva, 2018). The goal was achieved by keeping the value funds in the portfolio rather than the growth funds only. Value funds are more reliable and stable as compared to the growth funds (Cronqvist, Siegel & Yu, 2015). The Anthony Santiago portfolio relied on the data from the market and the analysis done by the fund managers to ensure that all growth and value funds are clearly identified. The market downturns should also be predicted early enough.

Limit and Manage the Trading Frequency

The portfolio created intended to increase its value as fast as it could and that goal was only achieved if the management process is conducted right. One of the reasons why most of the investors make losses is because they make frequent trading. When an investor is involved in daily or frequent trading, they get exposed to brokerage fees and high taxes. The portfolio helped the investor to make informed trading decisions and this includes reduced frequency in trading and to only buy and wait until it is the right time to make a trade.

Diversification

As stated above, diversification is one of the main strategies that an investor can use to increase the success rate of the portfolio and it helps to reduce the risks that the portfolio is associated with. A diversified portfolio had a lower chance of making losses as compared to a case whereby the investor has shares in a few selected and preferred companies.

Maintain a Healthy Competition

The other goal of the portfolio is to prevent unfair and unnecessary competition. The competition among investors could force the investors to make the wrong decisions and this could lead to poor investment decisions. For example, the main competitors in the portfolio are John Auer and Michael Montenaro. If any of the two makes an investment move, then Anthony Santiago should not feel obliged to make a similar or counter move. The spirit of unnecessary competition is likely to harm investment and lead to losses.

Managing the Costs

Just like in any other investment strategy, the portfolio should manage the cots and profits. The goal to ensure that the costs are maintained at the right level is for the investors and the managers of the portfolio and this can be achieved if the right decisions are made. The first advice to be used here is that making a purchase of funds based on the performance is a bad idea that could lead to losses and high costs. The truth is that even if an investment is made on the worst performing and best performing funds, at the end of the year, the returns from the two are almost equal. Therefore, to cut on costs, the purchases and investments should only be made on stocks that are promising to grow, based on the analysis of the market data. The portfolio also focused on reducing investment fees.

Desired Rate of Return

The value of the stock is shown by the returns that the portfolio records over a given period of time. The rate of return for the stock portfolio is an indicator of the performance achieved over a given time and it is calculated by dividing the value of an investment at the end of an investment period by its value at the beginning of the same period. The answer is then raised to the power of one and divided by the length of the period and minus one from that answer. In this game portfolio, the goal of getting the desired rate of return was achieved through a keen analysis of the value of the stock at the beginning of the financial period and at the end of the same period. The desired rate of return was achieved if the value of the stock increases or grows over the period.

Risk Tolerance

The tolerance to risk refers to the ability to take risks in the investment process and how the investor handles the risks associated with different investment decisions. The goal related to the stock portfolio is to enable the investor to understand the risks they are exposed to and the strategies to use to retain the competitiveness of the business. The first analysis is risk capacity. It refers to the amount of risk that the business or the portfolio can handle. The level of tolerance for the investors helps them to make decisions on the way to allocate the available resources. The other goal is to enable the client to understand the demographic factors that affect risk tolerance. For example, men are believed to have a higher risk tolerance than women (Kannadhasan, 2015). The analysis done for the Anthony Santiago portfolio is based on the historical data as seen in the Market Watch account.

Investment Philosophy

Evaluation and Diversification Strategies

The investment philosophy in a portfolio is the guiding principles used to make decisions on how to achieve the goals set by the investors. One of the evaluation strategies is by the use of the Net Present Value (NPV) which is a measure of the present value of an amount invested for a given period at certain compound interest (Rivers et al., 2015). The method was used to determine the investment that has the most positive NPV value. The other evaluation method is the calculation of the discounted payback period. The investment options that have the least payback period was chosen. The other method is the r...