Investment Analysis And Portfolio

The folllowing sample essay on Investment Analysis And Portfolio discusses it in detail, offering basic facts and pros and cons associated with it. To read the essay’s introduction, body and conclusion, scroll down.

August 08, 2010 Mr. Saif Rahman Faculty School of Business North South University Dhaka Subject: Letter of transmittal Dear Mr. Saif Rahman Here is the term paper on investment analysis & portfolio management from 31st may to 1st august. Now you will see that we have collected stock information and calculate relative things to evaluate our performance.

We think that if anybody want to invest in the DSE , this term paper can help them to make decision whether or not they will invest or not and what strategy should they follow.

Finally, we are also very much satisfied to have the scope of doing this investment which gave us the practical flavor like working in a real workplace. We really hope that you will enjoy reading our term paper as much as we had enjoyed doing it.

Thank you very much, for giving us such an opportunity to complete such an interesting term paper. Sincerely yours Mohammad Saifujjaman073 442 030_____________________ M. Ashikur Rahman081 076 530_____________________ Wael Ahmed081 256 030_____________________ M. Shafayet Hassan081 305 030_____________________ Acknowledgement

We would like to thank all the authors of the journals, books and articles that are secondary sources from where we have collected necessary information regarding our term paper. Also we would like to thank the fellow classmates who helped us when we faced any problem. Our report was the endeavor of a great experience on both the practical and the theoretical field of portfolio investment simulation.

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The completion of the project was much owing to our instructor Saif Rahman. It is through his viewpoint that a prolonged part of the report could be completed.

Portfolio Management Sample

We give our utmost gratitude and respect to our honorable instructor for giving us his prolonged time behind teaching us every step in developing this report. Without his support and advices this report could not have been completed so successfully, timely and completed with accuracy as we predict. All of our team members have put their greatest efforts to the finishing of the project with such devotion, target, energy and their participation that is possible. This report was thus a combined effort and therefore all the credit of our accomplishment spreads to all the helping hand of the participants.

Introduction This paper constitutes the maintenance of an efficient portfolio of stocks, dedicated to investors who are willing to invest in the Dhaka Stock Exchange (DSE). The duration of the portfolio was for two months starting from 31st May 2010 till 1st August 2010. The initial investment consisted of 10, 00,000 BDT with a preset condition of maximum limit of 1, 00,000 BDT on a particular stock. That is, a maximum of 10% of the total investment could be allocated on any stock to ensure proper diversification of the portfolio, presenting a risk free investment for the investors.

After the initial investment which was the first phase, there were another two phase. At the first phase, statistical analysis of the stocks in the portfolio, for instance correlation and covariance, presented some investment drawbacks which resulted in the investment on some new stocks by generating cash from the sale of some existing stocks for the initial portfolio. Although the stocks generated a return of 4. 52% but the positive correlation among the stocks were alarming indicators of improper diversification.

The new portfolio continued through the second phase till the end. The second portfolio was continued to third portfolio without any change because of the current market situation and different trading strategies insist us to do this. In the second phase other than some few stocks like BATBC and DBH all other stocks generated very little capital gain and even some had negative return. Therefore it was necessary for the stocks to reach its full potential of and by the end of the third phase the portfolio generated 16. 2% return before tax against an expected return of 6%. This shows that in amidst all the fluctuations of economic variables and market situations the portfolio was well managed. Objectives In this term paper our objective is: o The primary objective of this project is to evaluate our performance as investment managers o To impose theoretical knowledge into practical life o To become acquainted to corporate activities o How To select stocks to buy o How to make a portfolio with minimum risk by diversification. o Using strategy of trading To improve skills in analyzing investment opportunities as well as become experienced in making term paper o To develop our skill in using analytical tools and techniques for analyzing portfolio management problem Methodology We tried our level best to follow the instruction or this term paper. Collecting primary data was really difficult and troublesome; we used all secondary data for this topic. For this project, we first planned and decided where to go and how to go. I prepared a schedule accordingly. Collecting secondary data was not that easy also.

At first we went to Dhaka Stock exchange (DSE), and collect the trade information from the library of DSE. We also collect the current price of share at the end of the every trading day. For calculating the rate of return, utility, beta, co-relation among stocks we use different formula and Microsoft office excel. By applying subjective judgment some data are assumed that are not given in the case. Limitations ? A lot of information regarding industry, economy, and company are required. ? We have put our optimum effort to formulize the available information ?

At last, the time was not enough for this analysis. If I got more time for that I could have prepare a better ratio analysis. ? Many analytical techniques and tools are needed to apply to get appropriate result but due to our lack of practical knowledge our analysis may not be a highly efficient one. Asset Allocation Asset allocation is the strategy used in choosing between the various kinds of possible investments, in other words, the strategy used in choosing in what asset classes such as stocks and bonds one wants to invest. As, in this term paper we allocate our asset only in the stocks.

We used the bottom up approach to select the stocks. We also measure the P/E ratio to choose the stocks. We also take in to consideration return on the stocks. In the first portfolio we didn’t do deep research. To ensure the diversification we allocate our first 10, 00,000 BDT in 10 different industry and 13 different company. You will get the details allocation from the appendix. In the second portfolio, by calculating correlation we add another industry that means 11 industries and maintain 13 companies to make the portfolio more diversified.

For the market position we carry on the same portfolio in the 3rd phase. All of this invested portfolios details is available in the appendix. Macroeconomic & Industry Scene Presently, Bangladesh is witnessing a sustained growth rate in the region with increasing foreign investments in the country and a shift from agricultural based economy to industry based economy. The macroeconomic policies being undertaken and the political stability has been a driving force in this recent phenomenon. That’s why so many companies are enlisting their self in DSE.

For investment we measure some macro economic factors like interest rate, demand, supply, tax rate, inflation etc. which were pretty much in favor for investment. I. Inflation: Inquiry has proved that there is a negative relation between inflation and stock prices. We assume similarly: an increase in the rate of inflation is likely to lead to economic tightening policies, which in turn increases the nominal risk-free rate and hence raises the discount rate in the valuation model. The effect of a higher discount rate would not necessarily be neutralized by an increase in cash flows resulting from inflation. II.

Money Supply: Bangladesh’s Economy the relationship between money supply and stock returns can be simply hypothesized that the growth rate of money supply would affect the aggregate economy and hence the expected stock returns. III. Interest Rate: Interest rates can influence the level of corporate profits which in turn influence the price that investors are willing to pay for the stock through expectations of higher future dividends payment. Most companies in DSE finance their capital equipments and inventories through borrowings. A reduction in interest rates reduces the costs of borrowing and thus serves as an incentive for expansion.

This will have a positive effect on future expected returns for the firm. IV. Exchange Rate: We theorize a positive relation between the exchange rate and stock prices. A depreciation of the Bangladesh TAKA (BDT) will lead to an increase in demand for Bangladesh’s exports and thereby increasing cash flows to the country, assuming that the demand for exports is sufficiently elastic. Alternatively, if the BDT is expected to appreciate, the market will attract investments. Industry Scene: We invested eleven different industries in total in our three phases.

Those industries were Fuel & Power, Cement, Bank, Financial Institution, and Food & allied, Tannery Industries, Textile, Insurance, Engineering, and Pharmaceuticals & Chemicals. The reason behind investing in this type of industries is on that time the for this industries companies shares demand was relatively low than others as a result price was low, and this industries are not dependent each other’s market position though which helps us to make a more diversified portfolio. Trading Strategies The main tool used in the trading of stocks in all the phases is the Price-earnings ratio. Stocks that had a P/E ratio of less