Stocktrak Assignment Essay
Stocktrak is a virtual stock market stimulation. Many students set up an account and receive virtual money that can be used for investing in stock, bonds, and mutual funds. After purchasing these investments, you can monitor and trade them as you wish. The site is used by many teachers to get their students familiar with the stock market and its many advantages. In my simulation, I had an individual account and a group account. I was given $100,000 and had a limited number of ten trades. In the group portion, my group was given $100,000 and had a limited number of one hundred trades.
The object of the project was to become familiar with and learn the differences of frequent versus long term trading. Another goal of the project was to use the analytical techniques for the selection of companies that should be invested in. One of the differences in my individual and group accounts is the cost of trading. When trading more frequently, the commission cost appeared to decrease. As for the long term investing exercised in my individual account, the cost stayed constant at $25. 00. I assume the decrease in cost served as an incentive for trading more often.
Along with the costs of trading, there are many other advantages and disadvantages to both frequent and long term investing. Frequent trading is known to generate quick profits if the investment is done at the right time. Many companies make big moves within a short period of time. If you invest exactly or approximately around that time, you can earn large returns. The biggest complication is knowing when to invest. Frequent trading is also known to be more risky 2 than long term investing because the stock prices fluctuate quickly.
Many of the stocks traded in my group portion of the project earned a little or negative return because they were not invested at the “right” time when the company grows very rapidly. Long term investing also is noted for generating large returns if held for a longer period of time. Stocks have had an overall trend of increasing. The problem with long term investing is the time period it takes to earn a preferred rate of return. It has been criticized for taking a long period of time the might not be feasible for some investors. Inflation is also a serious threat of long term stocks because it has historically stripped 3. % a year off the value of money. This can affect what your stocks are worth and decrease your return. I actually earned a negative return on my investments made for long term purposes. I tried to buy stocks that were growing for the purpose of making the largest long term return possible. For the ten weeks I held them, the stocks did not rise as I thought they would. The stocks do have the potential to earn positive returns in the future if held for a longer period of time. When I first started the Stocktrak project, I was very unsure on how to select the companies to invest in.
I viewed the companies’ stocks and basically chose the entities with an increase in their stock price. After learning more about financial analysis, I learned there are many ways to analyze a company’s current and future earnings. The three most important aspects of financial statement analysis which assisted me in my investment decisions include profitability ratios, horizontal analysis, and analyst estimates and predictions. I did research on many companies I was interested in and 3 looked at their profit margin and operating margin. One company I invested in was Excel Maritime Carriers with a profit margin of 40. 4% and an operating margin of 41. 52%. EXM’s profitability ratios were extremely high which highlighted their earnings. Another company, School Specialty, Inc. , has a profit margin of 2. 69% and an operating margin of 10. 13%. This was extremely low but I thought that the company might have room to grow a drastic amount. If this happens, the profits will increase significantly. I also used the horizontal analysis when selecting the companies to invest in. I could not find the analysis already calculated so I computed the calculations on my own.
I found that Google had the largest percentage growth in the past three years. Its net income increased over 600% since 2004 which signaled a very good company to invest in. Google was actually one of the few companies that earned a positive return from my investment. Analyst estimates were also used in company selection for investment. I looked at the earnings and revenue predictions to get a good idea of how the company might grow in the future. All of the companies I invested in had significant growth expectancy. I am now very knowledgeable about the stock market and how it operates.
Participating in the Stocktrak project has broadened my understanding of the stock market language. I am also aware of the difference between frequent and long term investing and the advantages and disadvantages of each. I know what kind of research to do in order to invest my money wisely. After taking this course, I have learned about many ratios and analysis that can segregate the growing and successful companies from 4 the companies that are failing in the industry. This in turn will assure that my investments will be made in the right companies.