Invest Ed Students Tracking and Researching the Stock Market

Transcription

1 Invest Ed Students Tracking and Researching the Stock Market Erin Yen 9th grade Mr. Boda Personal Finance Mount St. Mary s High School United States Central Region FALL 2012

2 The ability to manage your personal finances is one of the most vital skills a person can process. It can be everything. It can shape your entire future. If you are unable to manage your finances, you can be more easily scammed. You can go into deep debt, end up bankrupt, lose your family, your happiness, and even your life. Being able to organize and efficiently manage these finances however can lead to a happy and much less stressful life. A big part of managing your finances will be investing in the stock market. This project taught me how to invest in stocks, what to watch out for, how and why you should diversify, how to protect yourself from fraud, what risks are too risky, how to minimize losses, and how to use research and your own criteria to choose the best stocks for you. This will stay with me my whole life and will increase my chances of having a stable financial future. The research process was by far the longest and most complex part of this project, at least for me. To find the stocks I would later put my money in, I went through the following process. (1) I took a sheet of paper and listed several companies that I either patronized or heard about often. (1) I looked all these stocks up on Yahoo Finance. I wrote down the beta, the analysts opinion (whether there were more strong buys or buys than holds or weak buys ) the price, and the highs and lows for the past few weeks. (3) I then looked up the company s website and any news articles about it to learn any products, special offers, or internal changes that were likely to affect their profit. (4) Finally, I narrowed my list down to fifteen very different stocks that I felt would be best for me and bought shares of them until I had about $23,000 left. I have not bought or sold any stocks. The criteria I used to determine which stocks to buy were (1) was the beta at a reasonable number for my particular risk tolerance, (2) did most analysts say it was a strong buy or buy, 1

3 (3) the price (not too close to the highest price it had ever been or it would be likely to plummet), (4) whether the company had something going on (i.e. a new product, new offer, change in management, new store, etc.) that would increase or decrease their profit, (5) would it fit reasonably into my budget of a little less than $500,000, (6) the debt to asset ratio, (7) the current ratio, (8) the price-earnings (P-E) ratio, and (8) the rate of return (ROR). The stock screener I used was Yahoo Finance because it was simple and easily comprehended. It was immensely helpful because it gave me sites and news articles to go to in order to learn more about how the company was run, any new products and promotions, changes in management, customer reviews, etc., as well as the beta, the analyst s opinion, the lowest and highest price the stock had been at, and some other stocks I might look at if I bought this one. There is, however, a difference between research and criteria. Research is when you dig into your writings about the stock to find information helpful for deciding on whether or not you should purchase it. It s a process. Criteria, however, are those certain characteristics you want a stock to have in order for it to be a good buy for you. Amazon was one of the stocks I bought. It was founded in 1994 by Jeff Bezos. It started as a bookstore, funded by a businessman Nick Haneaur, who invested $40,000 in it. The website was weak at first, not very attractive. But when another man, Tom Alburg, invested $100,000 in it and the website got a bit more professional; it really took off. Bezos decided to make it more than just a bookstore. In 1997 he opened it up to movies and CD s too. When this made the website even more popular, 1998 brought about software, electronics, video games, toys, and home improvement items to Amazon. The company exploded. But what goes up must come down, and in 2001 the company began to decline rapidly. Bezos had to do something and fast. So 2

4 he recruited other companies such as Target and Toys R Us to sell their items through Amazon. Amazon gets a percentage of the profit, and they are now back on top as a billion dollar company. Since this change, Amazon stock has been climbing fairly steadily, with no more alarming drops. Amazon is the leader in its industry by far, worth about $200 dollars more than the second-place industry, ebay. There is always risk in investing. You can t control what the companies you invest in do; they might go completely under and take every penny you own with them; or they may hit it big, like Amazon did, and you could make millions of dollars. There may be a crisis that causes the whole stock market to plummet, like 9/11, or the whole system could totally crash and burn one day. There are so many things that could happen. You just have to determine whether or not you re willing to take the certain amount of risk always associated with investing. I used the financial calculator from CalcXML to determine my risk. I was deemed moderately aggressive. My results matched my portfolio well because some of my stocks were risky and have spiked UP or DOWN, such as Amazon and Starbucks, while some were not very risky at all, such as Wal-Mart. My portfolio has been plus or minus $20,000 of the original amount as of today. My project goals were (1) to learn what stocks to buy and when you should buy stocks, (2) to make at least $10,000 dollars, (3) to learn which stocks NOT to buy, (4) to learn how to research stocks properly, and (5) to learn how to keep a stock portfolio. So far I have achieved all the goals except the second, which I sadly fell short of. However, I now have a basis of knowledge to do much better in the future, especially when I have more time for my stocks to recover from a plunge. I have learned you should buy stocks when they re at their low, because 3

5 they can only go up. I learned that each stock is a small piece of a company, and you should not buy stocks that are above what you re willing to risk, that are almost at their highest price, or that have a really high beta. I learned to properly research stocks; you should read the company s website as well as articles about the company to decide whether or not the company will make you a profit. Keeping a stock portfolio is as simple as putting stocks in a computerized list and monitoring it a few times a week (for the project) or a few times a month (in real life). From the video The Rogue Broker, I learned that if a deal seems too good to be true, it probably is. You should not invest with individuals in general unless both they and the securities they are selling are registered with your area s securities commission. No matter how trustworthy someone seems, he/she could just be a really good liar. I decided to stick to investments that are registered on the New York Stock Exchange. This is simply as safe as investing will get. Diversification is when you get more than just one type of company to invest in. You should always diversify in case one industry is not doing very well. Then you won t lose all your money; rather, you will have the other industries as a safety net to keep you financially stable. Diversification can save you from total bankruptcy. I diversified by buying shares of companies in industries such as online vendors, accessories and clothing vendors, food vendors, drug stores, pharmacies, toy vendors, home improvement vendors, financial institutions, electronics vendors, and machinery vendors. Had I invested in only one type of company, I m sure I would have lost much more money than I did. As a result of this project, I learned that you should never arbitrarily buy stocks. You need to research them through articles about the companies and the company s website at the very least. You should also develop certain criteria such as analyst opinion, the beta, and the price and history of a stock before you buy them. I also learned that stocks are one of the easiest 4

6 ways to make a lot of money, but also one of the easiest ways to lose money. You have to be careful about the amount of risk associated with the stocks you buy as well as the general risk of investing. I also learned that a beta is a measure of a stock s risk in relation to the market. A lower beta means a lower risk, and a higher beta means a higher risk. The rate of return (ROR) is the value then subtracted by the value now, divided by the value when you bought it. The debt ratio is all of the debt divided by all of the assets. The current ratio is current assets divided by the current liabilities. I have decided that I am going to have to get involved in all these complicated financial issues when I grow up. I m going to invest in the stocks and bonds and securities, but I m going to be really careful. I m going to spend wisely and have a strict budget, as well as control the amount of risk I put into my investments. I don t want to get caught off guard and go bankrupt or get cheated out of my money by some fraud. I have decided investing is important, but it is dangerous; tread carefully. My perspective on the stock market as a result of this project is that it is a very good financial tool to use wisely as I try to build my financial security. It allows companies to obtain the financing to do well, while also allowing people to be part of the company and earn some money aside from their normal jobs. It, however, can be a very dangerous endeavor. It is incredibly easy to lose all your money if a company you invest in goes under, if someone decides to make a fake investment and scam you, or if the whole stock market drops because of a widespread crisis. But let s face it; nothing is ever 100% guaranteed. This project has had a great value to both my present and future life. For the present, it has taught me to be more careful with my money and save up because it is incredibly easy to lose so much so quickly. It also showed me that nothing comes without a lot of hard work. For my 5

7 future life, it taught me how to invest which is no doubt a vital skill. It taught me how to choose good stocks, keep the risk level in my comfort zone, develop criteria the stocks should fit, and how to properly research the stocks before purchase. All of this will lead to a more stable and prosperous financial future. Although investing will be an imperative part of my financial future, it will never rate higher than the financial well-being and safety of my family. I do not want to get greedy and spend everything in investing, trying to get more, more, more. Should something go wrong, that would put not only my own financial well-being in jeopardy but my family s as well. I plan instead to use investing as one of the many tools to achieve financial stability for me and for my family. This project has taught me some imperative lessons. Good investing requires effort and knowledge; you must research stocks before purchase as well as have certain criteria such as beta, analyst opinion, and price history for the stocks to meet. You must diversify and choose stocks with risk rates depending on your current financial state and your personal risk tolerance. You have to be aware of the many scams people set up and try to avoid them. However, despite the effort that must go into investing, it will be an important financial tool throughout your whole life. It may be risky, but it is also necessary: the best you can do is learn how to be as successful in investing as possible Education is protection. 6