Stocktrak is a virtual stock market stimulation platform that allows students to create an account and receive virtual money to invest in stocks, bonds, and mutual funds. Once these investments are purchased, users can monitor and trade them at their discretion. This website is commonly used by teachers to introduce students to the stock market and its various benefits. In my simulation, I had both an individual account and a group account. For the individual account, I received $100,000 and was limited to ten trades. As for the group account, my group was given $100,000 with a maximum of one hundred trades.
The main objective of the project was to understand and differentiate between frequent and long-term trading. Additionally, we aimed to apply analytical techniques to select suitable companies for investment. One noticeable difference between my individual and group accounts was the trading cost. While the commission cost decreased with more frequent trading, it remained constant at $25.00 for long-term investing in my individual account. This decrease in cost seemed to serve as an incentive for trading more frequently.
In addition to trading costs, there are various pros and cons associated with both frequent and long-term investing. Frequent trading can yield rapid profits if timed correctly, as numerous companies make significant movements within a short timeframe. By investing around that period, substantial returns can be earned. However, determining the right time to invest poses the greatest challenge. Another drawback of frequent trading, compared to long-term investing, is its higher risk due to rapid fluctuations in stock prices.
Many of the stocks traded in my group project did not earn significant returns due to being invested in at the wrong time during rapid company growth. Long-term investing is known for generating high returns if held for an extended period, but it can take a considerable amount of time to achieve desired returns, which may not be feasible for some investors. Inflation also poses a serious threat to long-term stocks as it historically erodes the value of money by 3% each year, impacting stock worth and reducing returns. Personally, I experienced negative returns on my long-term investments as the stocks I purchased with the intention of maximizing long-term returns did not increase as expected within the ten-week holding period. However, these stocks have potential to earn positive returns in the future if held longer. Initially starting the Stocktrak project caused uncertainty when deciding which companies to invest in.
After examining the stocks of various companies, I specifically selected those that had experienced an increase in their stock price. Upon gaining knowledge about financial analysis, I discovered multiple methods to assess a company’s present and future earnings. The main elements of financial statement analysis that guided my investment choices included profitability ratios, horizontal analysis, and analyst estimates and forecasts.
During extensive research on numerous companies that interested me, I focused on three companies and evaluated their profit margin and operating margin. One of the companies I invested in was Excel Maritime Carriers which showcased a profit margin of 40.4% and an operating margin of 41.52%. These figures indicated an exceptionally high level of profitability for EXM.
Another company named School Specialty, Inc., displayed a profit margin of 2.69% and an operating margin of 10.13%, significantly lower than Excel Maritime Carriers. However, I believed this company had great potential for future growth which could lead to substantial profit increases.
In addition to profitability ratios, I also utilized horizontal analysis while evaluating the companies for investment since pre-calculated analyses were not available. Therefore, I independently computed these metrics myself.
Google’s net income has increased by over 600% since 2004, making it a standout investment option with the highest growth rate in recent years. In fact, Google was one of the few companies that yielded positive returns on my investment. When selecting companies to invest in, I meticulously reviewed analysts’ estimates, specifically assessing earnings and revenue predictions to gauge their potential for future growth. As a result, all the companies I invested in displayed promising prospects for expansion. Consequently, I have gained extensive knowledge about the stock market and how it functions.
Participating in the Stocktrak project has broadened my understanding of the language used in the stock market. I now have knowledge of the differences between frequent and long-term investing, including their advantages and disadvantages. Additionally, I have developed the ability to conduct comprehensive research to make informed investment choices. This course has introduced me to a range of ratios and analysis techniques that can assist in distinguishing successful companies from unsuccessful ones within an industry. As a result, I can be assured that my investments will be directed towards suitable companies.
