Introduction

The paper attempts to describe the activities involved in buying and holding stocks and

sequential strategies to successfully achieve substantial market gains or movements in price of

commodities in various markets across the globe.

The process by which stocks were taken into consideration as viable investment prospects

involved the process of initial basic screening involving the delineation of important variables

that would delimit investment prospects to a select number for a further in depth review. The

application of appropriate technical analysis, deal evaluation and assessment of perceived risk

with anticipated return was carried out in the various Markets such as the NASDAQ, S&P500,

LSE, Toronto stock exchange and many others.

My overall goal of the project is to achieve a greater understanding of the stock market through

the Stock simulation. This report demonstrates a number of fundamental and technical analysis

methods of investments turning theories into practice. During the simulation, stock trades were

made based on different strategies and the overall effectiveness of each strategy was also

highlighted.

Buy and Hold Strategy

With this strategy many investors buy stock in an established company with strong structures and

finances and hold it for the long period of time usually at least a year. Lower commission and tax

levels are paid by investors who take a buy and hold strategy compared too many other

investment strategies. The stock is on hold in the portfolio just for the period the stock will rise

instead of exerting high efforts of research and analysis into the market to see how the stock is

performing. The Fundamental reason why investors partake in a buy and hold strategy is to buy

stock based on the expectation of investors and market analysis’s that the economy will grow up

over the time the stocks will be held for. The price of the selected stock will increase as the

company becomes stronger. They usually ignore the day-to-day fluctuation of the stock price,

since this is normally due to the smoothing out of prices over the life of the portfolio of the

fluctuations and movements of the day on day stock prices, investors ignore the daily movements

and the market as a whole.

The first plan was to develop my buy and hold portfolio and to experiment with my first stock of

20 with €1,000,000 in total to invest. The first strategy differed from strategies such as the

momentum effect which involves studying the best performers over the last 12 months or the

contrarian approach which seeks opportunities to buy or sell specific investments when the

majority of investors appear to be doing the opposite to the point where the investment has

become mispriced. However these strategies will be explored in further transactions and detail at

a later stage with the report. Instead for my first stock I decided to take a defensive due diligence

approach inspired by the Benjamin Grahams book the “Intelligent Investor” I researched various

companies annual or quarterly returns.

I read at least 5 years worth of returns to form a better idea of the shape of the company’s

finances and strategies for future growth, operations and any potential circumstances that may

cause a negative fall in stocks. If a proxy statement is available to find out if there is any conflict

of interests was also analysed. For example the business world saw the Oracle CEO Larry

Ellison resign however he was not replaced for a considerable period of time once he resigned,

this lack of ownership in the organisation can hinder growth in many ways.

I decided to experiment with the idea of studying the decision of those with experience doing it

at the highest level. Instead of buying stock from a beginners stand point. There may be use in

selecting stock based on previous professional investment decisions. This information may lie in

the records of numerous investment companies, or “Funds” which have been in operation for

many years. A lot of these funds especially the larger high trading funds are large enough to

command the services of the best Financial and security analysis’s out there.

There seems to be a large volume of studies carried out on funds, some mutual funds in

particular that suggest that funds usually underperform compared to some of the largest stocks on

the NYSE. However Benjamin Graham found in his studies that funds did perform better than

previously suggested. Graham (1973) later stated “that to trust these studies- that mutual funds,

on average, underperform the market by a margin roughly equal to their operating expenses and

trading costs - has been reconfirmed so many times that anyone who doubts them should found a

financial chapter of The Flat Earth Society”.

Buy & Hold Stock Selection

The following stocks are many of the various selections for the buy and hold account. The

Stocks were chosen from a number of Indices for the purpose of diversity and spread of risk.

This section of the report highlights the rationale for choosing the many stocks for long term

investment in the buy and hold account. As an investor who takes a long position to own a

company with the buy and hold it was taken that due to a certain set of circumstances a company

is expected to grow and be profitable in the future.

Stock prices are often described as being connected by means of growth, company profitability

and the perceived stability of an organisation. Investors analysis dividend as a determinant for

buying a stock at a certain price, however there are a large number of companies on the stock

exchanges with high growth opportunities that do not pay any such dividend in cash so this as a

standalone entity cannot be the reason for choosing a stock. This is seen in many of my stocks

listed below therefore the dividend could not be taken into consideration for the analysis.

Researching markets and analysis is an important aspect to any Financial analyst or investor

therefore I actively researched information via www.morningstar.com & www.yahoo/fianace.

It was decided to adopt a strategy by having a diverse portfolio which has been proven to be an

efficient strategy. To reduce industry related risk I choose stock in a wide variety of industries

and also choose from different countries to avoid particular economical risk of one given

country. An example of the diversity within the portfolio;

Kerry Group                                    (Food Industry) FTSE 100 Canadian Natural Resources              (Metals)       TSE  Sinopec Corp 0386                            (Oil)            Hong Kong Avanir Pharmaceuticals Inc               (Pharma)      NASDAQ The Clorox                                         (Healthcare) NYSE                                     

Figure 1: Overview of the portfolio including the above diverse trades, we can see a fall to -1.34

within the space of a few days however the portfolio performed better from the 23rd September

2014 onwards.

1. Hersey Company (Ticker HSY)

I decided for the first initial selection of a stock was to follow a professional’s decision for choosing

a stock by studying a high trading and performing fund; Marshall Wace LLP and select a company

that invested in the fund with a high increase in % share value for one QTR. The beta for Hersey Co

is good at 0.59 indicating low risk and some stability. Shares are at 61,637 share value % increase

82.46% as at last Qtr 30 June 2014. This may indicate growth, high profitability and a future returns

on equity. The Hersey Company was on their list as one of their long lasting investment positions.

The Hershey Company (Ticker HSY) is a renowned global confectionery company providing

chocolate, sweets, mints, beverages and snacks. In regards to the Hersey Company stock I didn’t

want to study P/E ratios as a deciding factor in selection as these ratios often differ per industry and

may exclude potential sound investment ideas as a result. P/E (Hersey Co. 25.6 High) does not in

itself say if a company is under/overvalued with respect to value. Same idea with EPS TTM (Hersey

Co, 3.66) growth rate, because a solid company with 0% or little growth rate can be an attractive

investment if the price is right.

Stock confirmation: 200 units@ price 94.67 = $18,933.00

17th September 2014 – Mu portfolio did not initially perform well for the first week as at 17th

September 2014 at close portfolio with this stock market value $999,941.64 (-0.01%).

Figure 2: CTR chart for the Hersey Company (HSY Annual Report 2013).

The above graph shows the 5 year CTR chart for the Hersey Company. It can be seen between

the period of 2008 to 2013 that the company represented by the dark blue trend line initially

struggled below the S&P 500 Index and the S&P 500 Packaged Foods Index just above $100. It

can be seen from the graph that in 2010 that the Hersey Company saw a rise in common stock

price appreciation plus any dividends. The trend line intersected both Index trend lines and

could be construed as an opportunity to purchase this stock in 2010 for a buy and hold 2013.

On further Technical analysis of this stock we see a slump in price in October 16th at $91.09

however steadily grow with this Index as seen below to $95.29 on November 20th. Following

positive announcements in December that the companies Reese’s brand will be the official

sponsor of the new College Football Playoff (CFP) in the US. Also with the increased

manufacturing capacity in North America by acquiring a large player in the Canadian

confectionery brands to the Hershey portfolio the price suddenly seen a bullish trend upwards to

a high of 100.47 in late November and early December.

SMA & EMA: We see a number of situations where the stock fell below the moving averages

(as shown below) indicating to investors buy or sell the stock. However since mid October the

stock stayed well above both moving averages which suggests that the bulls are in control of the

price action around that time and that the asset will likely move higher as it crossed both 50 day

moving averages, which it did in mid October.

Figure: 3 Source (yahoo/finance).

Hersey Co. Profit & loss for portfolio = Profit $1,086.00 (5.7%)

2. Gilead (Ticker GILD)

Gilead is in the biotechnology industry and is heavily involved in hepatitis research. The biotech

industry has seen real acceleration over the last 5 years at a rapid pace with the ever increasing

new technology and competition. The reason I choose the stock was for exactly that reason. I

bought the stock in early September at $105.77 with the expectation of further upward

movements bouncing of the support line. However the stock seemed to be part of an old bull

market with misleading acceleration as on review of the Biotech index over the last few years it

has tripled overall suggesting instability. Compared to the Standard & Poor’s 500 and its 69%

gain over that same span there is vast difference.

Figure 4: Source (Yahoo/ Finance) Stocktrak 2014

Final notes: The results were not positive to hold this stock for a long period of time if inclined

to be a bull investor. After purchase of the stock one can see the flatting out of the resistance line

with many double tops which proved to show that the stock will drop. I added an extra red to this

graph to show a possible new support line trending downwards which should have raised some

concern. The stock fell as low as $96 in mid October. The total profit and loss for the buy and

hold account = -189 Loss (0.1%).

3. Costco Wholesale Corporation (Ticker COST)

Mkt Cap: 55.51b P/E: 28.30 Dividend:1.4252 Wk High:127.32 F P/E: 28.30 Yield:1,122752 Wk Low:109.50 Beta: 0.46 Shares: 438,285,696Ave Vol: 1.8m EPS:4.47 Exchange: NGS

Costco Wholesale Corporation is massive retail chain in the lower margin fast moving consumer

goods market. I selected this stock based on its position on the top 250 list of retailers. Costco

between 2012 -2013 has been in the top 10 with a retail revenue growth of 11.5% and a return on

assets of 6.5% with retail revenue from foreign operations at 27.6% just below Wal-Mart’s

29.1%. Based on the Costco annual report for 2013 the 52-week fiscal year’s net sales saw a rise

of 6% to $103 billion. This was a historical event for the company and the first time

outperforming the figure of $100 billion. The average annual sales per warehouse also increased

positively to $160 million. (Figures Costco Annual Report 2013)

The stock price was really expensive when bought on the 19 th of September 2014 at 126.79

given its P/E of 28.30. Yahoo Finance lists the beta as low as 0.46 which is very low. Please see

the below table of the top 10 Share of the top 250 retailers across the globe.

Figure 5: top 10 Share of the top 250 retailers across the globe.

Figure 6: Source www.yahoo/finance/. COST Interactive graph 2014 as at the 17 th October 2014 21:00.

Final Notes: Costco profit and loss = $15,540.00 (12.25%).

4. Lululemon Athletica (Ticker LULU)

Lululemon is a high-end sporting goods retailer including fitness goods for healthy lifestyle

activities and distributes athletic goods and accessories for women, men, and Youth.The

Company has stores in the United States and in Canada, and also has extensive wholesale

business through health and fitness clubs. The below graph displays Lululemon stock market

comparison with its major rivals Adidas (purple), Nike (blue) and Gap (pink). Lululemon stock

is represented by the candlesticks and shows similar trend to Nike but outperforms Gap and

Adidas. I choose this stock as it compares well to and outperforms many other rivals such as

Nike. The P/E ratio however is high at 42.47 you could argue that higher quality companies tend

to display a higher P/E but as a gauge on its own does not give the full picture. Based on

Lululemons quarterly annual returns for the 1st qtr and the 2nd qtr for 2014 at 0.34 per share and

0.39 respectively indicates further growth is expected into 2015.

Figure 7: Source (yahoo/finance)

Final notes: The stock was purchased for buy and hold strategy for modest earnings 100@

$42.21. Witnessed steady upward trend in this stock with good line of support and resistance

until November 25th 2014.LULU profit and loss for end of Buy and Hold account = 3,947.45

(7.5%).

5. Avanir Pharmaceuticals, Inc. (Ticker AVNR)

The strongest stock in the healthcare sector and listed on the NASDAQ index. It has an

impressive YTD which is up 252%. I analysed the movements in price between March and May

finding evidence of clear upwards trending (represented by the green lines on graph) with a small

bit of sideways movement in the middle of that period. The price saw a massive bullish jump

from $7.00 to $13.00 in one day. (www.Yahoo/Finance.com).

Figure 8: Source: www.bloomberg.com

A major influence in choosing this stock was after a lucky break soon after starting stocktrak I

heard of an announcement of a breakthrough in one if its drugs, the stock was highly influenced

by drug trial results via Bloomberg this signalled that the stock was in break out mode. This

turned out to be favourable as the stock price reached a high on September 15 th 2014 continuing

to rise within the large range of the candlestick for that day as can be seen on the below graph.

Towards the end of September the price moved into a clear rising channel. Some resistance came

in near $13.00 we can see two clear peaks moving sideways and some support near $11.00 as

seen from the below. A rise above the major high at $13.09 signals the potential for another

advance.

Final notes: Avanir Pharmaceuticals, Inc. (Ticker AVNR) Profit & loss for portfolio = Profit

$5,193.00 (51.60%).

6. Alibaba (Ticker BABA)

The announcement of Alibaba’s Initial Public offering sparked interest in this stock as it was

expected to be the highest introduced to any of the U.S.A stock markets and New York Stock

Exchange (NYSE) to date. It has a ticker-id BABA and had set a price for its widely anticipated

initial public offering of $68 per share. The below graph shows a comparison of BABA to its

rival EBay. On review of the company’s financial expectations for the coming year with

expected revenue of $420 billion compared rather well to EBay’s annual report for 2013 that

showed a generation of just $16 million. BABA has a sound financial profile which attracted me

to the stock and has already proved to be profitable. Like I previously mentioned that the IPO

opened at the price of $68 however I was wise enough not to jump in straight away and buy at

that price. I waited until October to purchase 1000 share at $91.97 and saw an upward increase to

a price just below $120.

Figure 9: Source (Yahoo/Finance)

Final Notes: The above graph shows the Alibaba stock. The brown line represents the index and

the green line represents EBay Inc. From the graph I marked a yellow point to show the price of

$91.96 where alibaba breaks the EMA (red line) where I bought the stock for 91.97 and

thereafter saw huge gains for my portfolio. The profit and loss for BABA for my portfolio =

$13,100.00 (14.2%).

7. Clorox Company (Ticker CLX)

Over the last year, the Clorox stock has not performed, it was known for its long lasting trading

sideways pattern before an announced break out into an upward movement in trend in early

September. The price broke above the exp moving average and also the simple moving average

at 50 days between September 15th and 22nd which opened up a window of opportunity to buy

the stock as I predicted the stock to rise. News later followed in coming weeks that Clorox was

leaving the Venezuelan market (source Morningstar.com) which had a price freeze for the last

number of years. With my added delight of this news I reached further into the news on the

stock via yahoo finance, stocktrak and Reuters who expected to see some kind of merger or

acquisition to occur possibly by one of its larger its competitors Procter & Gamble or Unilever.

Figure 10: Source (www.StockCharts.com)

Figure 11: Source (Yahoo/finance)

Final notes: The trend line support resistance (bottom green line) in the end of September to

October roughly around $80 or $90 provided excellent signals of support in a gradual trending

price. However I waited too long to buy on an uptrend as I over judged the candle stick at close

on the 23rd of September to be a sign of the stock falling back to the old support line. I bought

around the higher end of the support trend line level at $97 to limit any further losses in any

gains. Ideally I should have bought earlier possibly around $90.00 to $95.00 and if I could

place a stop order below the trend line support and take a bit of profit for the portfolio. Profit

and loss for the buy and hold account = $2,151.00 (2.4%). I also earned a dividend from the

company in later months for 0.74 per 100 shares = $74.

Portfolio Movements from 16th September to 02 December 2014

Figure 12: Source Buy and hold account Stocktrak

Final Buy & Hold account details

Figure 13: Transaction History and Market value as at the 8 th December 2014 via csv file (www.stocktrak.com). The losses are in the red and any gains in Green.

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Figure 14: source John Ryan Excel 2014 - 20 stocks view of P/L %.

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Figure 15: Source John Ryan 2014 excel P/L total amounts.

Buy & Sell Account Two

Technical Analysis

Technical analysis might sound harder to understand or master but some people believed that it

is exactly the opposite. Technical analysis is a method to forecasting the future opportunities and

expected position of a company based on how the stock has behaved in the past. With technical

analysis there is a strong reliance on charts and graphs to help an investor to determine if a stock

is a good buy or when there is a good opportunity to sell minimising any losses that may occur.

The reliance on various technical tools like indicators, oscillators and Bollinger bands assist the

investor in the decision to choose a stock. It is the analysis of the data that affect a company.

Short term traders use technical analysis to help them make buying & selling decisions.

The key to technical analysis is the stock chart; one of the advantages of studying a chart is to

keeps our emotions and personal inclinations out of the decision-making process. A study by

Zielonka (2014) describes how a the notion of “Herd behaviour” can reflect the “immense

power of social pressure” on the intellectual judgement of an investor and many people due to

their own cognitive make up will be inclined to accept the perceived authority of others on stock

market valuation (most notably Warren Buffet for example) and stop trusting their own decision

making abilities even if the vast majority of investors hold a different opinion.

The basic stock charts include the line chart, bar chart and the Japanese candlestick charts. The

Line chart is the simplest chart to comprehend which is simply a line connecting the closing

price of a stock in a period of time. Friesen et al (2009) asserts that the "occurrence" of a specific

pattern in the stock price can be construed as an indicator of an upward or downward change in a

price trend signaling to the investor the correct time to buy or sell a stock. It is also mentioned

that double top method of analysis indicated by two maximum peaks of equal magnitude is also a

signal to the investors to sell at that price as a decline is likely. The opposite applies for a double

bottom.

Head and Shoulders Technique

Figure 16: Source; www.investopedia.com

Double Top

Figure 17: Source; www.investopedia.com

The below candlestick chart makes the two sticks in the bar charts into a rectangle. It is in

rectangular shape in red or black depend on the open and close price of the stock. If the closing

price is higher than opening the box is black while if open price is lower than closing price, the

box is red. According to Marshall et al (2006) “A candlestick is a graphical representation of the

days open, high, low and close Prices”. Japanese candlesticks are otherwise known as a ‘‘single

lines’’ with forecasting ability and it is said to be a single line that indicates further price

increases based on prices that open at the lowest price that day and rise during the day when the

market is open to close at a high.

Figure 18: Source (Yahoo/finance)

Two important well known patterns for an analyst are features on a trend line known as support

and resistance. I used this simple technique to base many of my purchases with considerable

results. The term support is a price line to which the stock price cannot drop below. The use of

support lines may indicate a future drop in stock price is on the way. As an investor at that point

where the stock looks to break support I would sell the stock as it may indicates a drop in price.

When I take into account the resistance which is the line to which a stock price cannot rise

above. In conclusion, when company’s stock price rises or declines, support given by large

company helps the buyer.

The moving average on analysis of my stocks and market chart helped structure and follow the

price activity of busy trend lines. When analysing stocks I took into consideration the direction

of the moving average to get a basic idea of the flow of the price and where the movement is

likely to end up. If the moving average shifts upwards and price is moving up overall a shift

downwards obviously indicates the price is moving down overall.

I mostly used a 50-day or 100-day moving averages to act as support lines to see if a price is

going to spring off the moving average line as it acts like a floor. The opposite can apply for the

downward moving trend forming a resistance when the price hits it and then starts to decline

once again. A moving average is the average price range of a stock for a specific point in time.

The drop in the price below it is a bearish sign and is a clear indicator to sell your stock. The

break above the line indicates a buying opportunity and is known as a bullish signal.

The On-balance volume (OBV) is a measure of trading volume and was extremely useful to me

to find out the levels of money that is taken in or going out of a certain stock. It assisted me in

my analysis of alibaba for the buy and hold account the OBV helped to determine whether the

BABA stock was oversold or overbought. In the graph below high volumes are indicated by the

large green bars below the chart. If the OBV starts to drop investors are starting to sell out their

position in that stock. This type of indicator is a good tool to judge what is happening with a

stock.

Figure 19: http://www.nasdaq.com/symbol/baba/interactive-chart

The relative strength indicator (TSI) also helps to determine if a stock is overbought or oversold

meaning compared to a second stock or an index. The strength index measures the strength or

weakness of a stock when it is compared to itself over a period time. It has a band that ranges

from 0 to 100 on a vertical scale. In the case of the Alibaba stock between the 20 th and 27th of

October 2014 we saw the NYSE fall while the company was rising which meant that Alibaba

was strong relative to the stock exchange.

My most used technical analysis technique is to use a combination of the EMA & SMA for a

stock that applies more weighting to the most recent prices. I usually input a 50-day Simple

Moving Average and a 50-day Exponential Moving Average alongside each other on the same

graph for a stock to see the different reaction to the price changes, due to the additional

weighting on recent price data I prefer to study the EMA.

Figure 20: Ebay relative index chart source: www.Investopedia.com.

Fundamental Analysis

Suresh (2013) mentions that fundamental analysis is the combination of industry, company and

economic environment analysis gaining an understanding of the stock’s honest real value called

intrinsic value and the sound condition of the company. Stock prices are often under or

overvalued however fundamental analysts believe that if the real value of the company is not

equal to the current stock price a situation of overpricing or under valuing is taking place.

Additionally Suresh (2013) sees that the current market prices will usually trend towards the real

value. For the second buy and sell active account I attempted to calculate the real value of

companies to decide whether to buy the security or to pass and move on to the next security. I

found myself adopted a defensive approach and analysing companies down to the finer financial

details and scrutinising each price assuming that it is overvalued encouraging me to explore the

real valuations.

As a fundamental analyst in this account I looked to capitalize on perceived price. One tool is the

income statement or the company’s annual report for the previous year’s reaching back into prior

years gave an abundance of information and records of company’s sales, operating expenses, and

earnings. This gives a quick idea about whether I should put money into the company or not. For

example, if the sale of the company increases by 18 percent or more each year then a growth

investor should invest in the company as this trend will be expected to continue into the future.

Sometimes however calculations declared by company CEO’s can be inaccurate especially in

relation to earning on each share.

The earnings per share (EPS) are readily available for most stocks. It is calculated by dividing a

company’s after-tax profit by the outstanding shares. For most of my trades in this portfolio were

located by means of Yahoo finance taking the quarterly or annually EPS of a company. My best

indicator when looking at EPS Stock is to watch for increases in value of earning from year to

year. Warren Buffet only buys companies with trailing P/Es of 10 or less. However I feel that

when undertaking the fundamental analysis for stock I began to think like many of the growth

investors and buy stocks with high P/E as it is common that company’s earnings will improve in

the future returning the P/E to a reasonable level. As indicated in the previous buy and hold

account discussion the P/E as a standalone indication of a good stock to buy is not concrete in its

determination a number of variables are need to make a good judgement.

Hedging Strategies

Options

I decided to use some hedging techniques for many of my stocks for this account. The use of

options contracts allowed me to have an agreement that gives me the rights to purchase stock or

other financial instruments at a defined price within a specific time frame

I used both the call options and put option for common stocks. Call options are options to

purchase, and put options are options to sell. A normal one stock option contract represents

contract size of 100 shares of common stock. I learned that a call option cannot sell for more

than the underlying asset and a put option cannot sell for more than the strike price. An option's

intrinsic value is a lower bound for an option's price.

Figure 21: Options payoff based on buying the call option

A put becomes more valuable as the price of the underlying stock depreciates relative to the

strike price. For example, if I had one January 2015 Telsa Motors put of 10, I have the right to

sell 100 shares of Telsa Motors at $10 until Jan 2015. If the shares did to fall to $5 when I use

the option, I can buy the 100 shares for $5 in the market and sell the shares to the option broker

for $10 each, which means I made $500 on the put option. Call options on the other hand gave

me the right to buy the stock if I choose to and make a profit on a call when the stock increases

in price.

Figure 22: (Source Investopedia) a long put option.

The expiration date is the time left over on an option just before I had the right to exercise a put.

At expiration, if the price of the stock is lower than the strike price of the options. The put strike

price as per the above diagram is basically the price for which you can sell a stock at a future

point in time if I wanted to.

Figure 23: buying a call option www.Investopedia.com

Futures Trading

Futures’ trading refers to very specific characteristics of an asset. I decided to partake in futures

trading for account two so it doesn’t necessarily involve me having to make daily trading

decisions about what commodity to buy or even sell. For example if I was expecting a price of

that commodity in question to double in price over a given time frame profits can be made with

buying futures contracts. My overall aim was to forecast the direction and timing of the price

change as the contracts if they eventually reach a higher price can be sold on to retrieve a profit

for my portfolio. However I saw prices decline rather than increase on a regular basis as the

commodities were difficult to judge resulting in a losses which I tried to minimise as much as

possible. Short hedging is a strategy used where a short position is taken out on a futures contract

and can be used by the investor who will view that the price will decrease over that period.

The concept of backwardation option occurs when trading with futures. It can be identified if a

futures contract is well below the spot price it will then increase as prices eventually converge

with the spot price as the expiration of the contract get closer. On many occasions the Storage

costs along with interest rates account for the difference between the spot prices. When trading

oil contracts I rule I took when experiencing backwardation was to hold a long position.

.

1. Dresser-Rand

I choose this stock with the potential to perform my first fundamental strategy calculation. The

company manufactures compressors and turbines to serve the oil and gas industry mostly in

North America and Canada as the drilling boom boosts demand for equipment. The Company’s

revenue according to its financial statements for 2013 is expected to grow in size over the next

few years. Dresser Rand are operating in an expanding industry with expanded market

opportunities such as new markets such compression systems, liquefied natural gas and CAES.

News in Late September of Siemens and Pump manufacturers Sulzer are interested in taking

over the company as it has a market cap of $6 billion dollars sparked my interest.

I bought 100 shares in total at $81.15 with a market value 10,115.00

.

Figure 24: Source: Dresser Rand – Annual Report 2013.

Figure 25: Dresser -Rand Fundamental Analysis John Ryan excel 2014. Calculations of PV are based on Formulas provided by Investopedia.com.

The goal of analyzing this company's fundamentals and company details is to determine the

stock's intrinsic value or in other words its real actual value not the value currently displayed in

the market. The intrinsic value for the company displayed in the above table of the current share

price for the company shows that the stock is worth more than its price at an intrinsic value of

$6,940.58 much higher than the PV of $5448.79 and on that basis would make sense to buy the

stock.

I carried out the calculations based on a discount factor = D=1/ (1+P) ^ N. Firstly I calculated

the total sum of the discounted future cash flows from 2013 to 2017 five years

And got residual value by adding sum of the future cash flows from starting six years from

present year. According to the Dresser- Rand annual report for 2013 the company is assumed to

grow at 18% a year for the first 6 years and then 8% every year after that 2018 and beyond.

I added the first five yearly cash flows and discounted each back to year zero. Once I got the

present value for the first five years I calculated the value of the cash flows from the sixth year

and all the following years expecting the growth rate to be 8%. The cash flows from all these

years are discounted back to 2017 added together, then discounted to year zero, and finally

combined with the PV of the cash flows from years one to five.(Source:www.Invsetopia.com)

Please see the below table for the calculation to discover the Discount factors and capitalisation

rate.

Capitalization Rate= annual operating Income

Value

$3,738,000,000/ $383,000,000 = 0.10246121= 10.20%

Figures taken from Dresser Rand Financial Statements 2013.

Final notes: Interpreting this stock price was one of the most challenging aspects of the report and stocktrak. Without a full array of variables to judge price is efficient for the market, it is difficult to know whether this predictor is accurate and reflects risk or mispricing.

Discount Factor Calculations

Year 5 - 2017 Year 4 - 2016

Year 3 - 2015 Year 2 - 2014 Year 1 2013

D=1/(1+P) ^ N D=1/(1+P) ^ N

D=1/(1+P)^ N D=1/(1+P)^ N D=1/(1+P)^ N

D=1/(1+0.0052)^60 D = 1/(1 + 0.0052) ^ 48

D = 1/(1 + 0.0052) ^ 36

D = 1/(1 + 0.0052) ^ 24

D = 1/(1 + 0.0052) ^ 12

D= 1/(0.0052)^60

5x12 =60

D=1/1(0.0052) ^ 48

D=1/( 0.0052) ^ 36 3X12 = 36

D = 1/(0.0052) ^ 24 2X12 = 24

D=1/(0.0052) ^ 12

4X12 = 48 1X12 = 12

D= 1/(1.3650) = 0.7326

D= 1/1.2826 = 0.77

D=1/1.20528368 = 0.82

D=1/1.13255556 = 0.88

D=1/1.06421594 = 0.93

2. Tesla Motors (Short Put) TLSA

This was one of my best trades on both accounts as I studied the company details of Tesla by

means of technical analysis. Tesla Motors’ share price plunged by 12.3% as investors scrambled

to re-analyze the long term effect the accident would have on the company’s ability to sell its

electric cars. On The 4th Tesla had a trading close to the high-end of its 52-week trading range of

between $26.86 and $192.30. We can see from the below graph clearly that the price breaks the

EMA marked in red at the price of preceding that it be seen a clear downward channel and I

believed that the price would continue to fall in line with the support that was already there. I put

a short put to gain on the downside. I bought the 100 at the price of $237.76 with market value of

23,776 finally making a profit of $2,340.00. Throughout this period, the stock has consistently

traded below its 50-day Simple Moving Averages (SMAs).

Figure 26: source (Yahoo/Finance)

3. Apple Inc (Call)

On the 5th of November I bought 500 shares of Apple at a price of $108.50 (strike just above

price) and sold the position soon after making a minor $390 profit. From the analysis I saw that

the price floated well above the EMA. The P/E was good at 16.98 for apple showing that current

investor demand for a company share is within an acceptable range and indicated a good time to

buy at the price as the p/e grow gradually for each day when I looked back trough the October. A

high PE ratio generally indicates increased demand because investors anticipate growth in the

future. The announcement of the new Iphone 6 came a month previous which saw a huge slump

in the price due to many technical problems with the devise but soon broke above the moving

averages and its old line of resistance.

Figure 27: Source www.StockCharts.com

4. Intel Corporation

I found that a number of factors could see an upside of $49.20 a share compared to the

price I paid $34.57 and there was a clear channel upwards in the trend. Buying at the

maximum resistance level I realized that the price may fall soon after back to the support

line and this was a mistake on my part as I could have bought the stock at a much lower

price at possibly $33.8 as the upward trend continued above $37 and $38. The stock was

then sold for a price just above the price I paid for a profit of 131.50 to minimise any

future losses. However it was a fair price for a company that has operating margins of

25% and generates $6 billion a year in free cash flow. The earnings per share however

are very low at 2.10 and the P/E is getting close to 20 but still reasonable. The beta sits at

0.9 at low risk levels.

Figure 28: source (Yahoo/Finance)

5. Ryanair Holdings (RYA)

For this stock I attempted to follow a price channel technique that generates signals to buy

when applied to stock graphs. With this stock the buy signals are produced when the price

closes above the upper band of the price channel. The graph below has the Donchian price-

channel rule applied to it (grey shaded area on the graph). I bought 250 shares at £8.3 when

the price was close to the upper band on the 4th November 2014 I watched the where the price

penetrates the upper band between the 24th of November and 1st of December which was also

a signal to buy which confirmed that my decision was correct to buy even though the price

did fall back to around £8.3 and I was breaking even for a number days after that. I had little

gains on this trade as a result selling for a minor profit of £551.30.

Figure 29: source: www.LiveCharts.co.uk

Brent Crude Oil December 2014 (Stop)

Brent futures are traded on both the ICE and NYMEX exchanges and I wanted to experience a

trade on movement of a commodity to I choose this future trade. On the 16th of October I took a

gamble on Brent crude oil to take a turn and go up in price as I felt that stock may form a new

support line upwards. I decided to buy the stock for $90.89 and put a stop loss at $90.00 to limit

any chance of losing money if the commodity fell which it did.

Figure 30: Source (Yahoo/Finance)

MILK JAN 15 - DA/F5

Purchased milk on the 10/28/2014 and sold the futures on the 10/30/2014 for 18.22 making a

profit of $180 as I believed the price was to fall soon after which it did as per the below graph on

the 30th October 2014. Producers of milk like hedge to reduce risk with falling prices. To lessen

the risk the producers selling milk will hedge by selling futures contracts. The cash and the

futures prices move in the same direction.

Figure 31: Source: http://www.nasdaq.com/markets/milk

COCOA December 2014

I Purchased Co on the 10/30/2014 1 contract for $2,923. I made a loss on the commodity. From the below graph below it can be seen that price break below the moving average which signalled to me to sell to minimise any losses in the future.

Figure 32: Source: http://www.nasdaq.com/markets

Wheat December 2014 – Future

I decided to purchase 5 contracts of wheat at a price of 5.54.Wheat futures contracts are at an

average price $5.70 per bushel. Within one contract of Wheat there are around 5000 bushels. The

reason I wanted to invest in wheat futures is that it is a commodity that has a value throughout

the year and I do not need to pay the full price of the 5 contracts. I will only put up a small

deposit of $ 1,850.00 to open the long futures position. This will mean that I put up a small

amount to gain substantially if the price moves upwards which I expected it to.

When I looked at the moving average on the graph below I studied the EMA and SMA For the

longer term analysis predicting where the commodity will end up by Dec 2014. The price fell

below both moving average for a short period in Late November and early December. In recent

months especially in September and October 2014 the market for wheat was highly bullish. This

drop below and above the moving averages pay be a buying sign (pull back) once again

indicating a rise further for December 2014.

Figure 33: Source: http://www.nasdaq.com/markets

COTTON December 2014

Cotton is one of the oldest commodities on the market and has a large bank of information to

make a sound prediction of where a price is likely to end up at a certain point in time in the

future. I purchased 1 contract of cotton for 0.64 and sold it for 0.65 making $400 as soon as the

price increased so I could get out of the downward moving commodity. This is another

Commodity based on putting up a small margin and the margin changes based on market

volatility or face value which is which is usually around 14% of the total value. Recent news

suggested to me that Cotton as a crop was extremely under-valued according to the U.S

Agricultural department. The same department also reported news that china inventories for

cotton which is said to be 60% of world total is not a high as expected therefore world

demand for the commodity may increase. The estimates of lowering price factors in the

expectation of Chinese farm subsidies reforms which I believe will help lower the price giving

room for growth further down the line when demand increases. (U.S Department of

Agriculture 2014).

Figure 34: Source: http://www.nasdaq.com/markets/cotton.aspx

Options Transactions

Transaction Type/Security Symbol Company Name QTY Price Comm.* Amount*

Market - Buy Options TWTR1420X33.5 Twitter Inc 20 0.36 -50 -720

Market - Buy Options FB1420L79 Facebook Inc 12 0.37 -50 -444

Market - Buy Options AAPL1426L114 Apple Inc 1 1.5 -50 -150

Final Stock Transactions for Account two

Final market Value: $993,768.2825

Trades Made Orders Made94 108

Profit Long Profit Short$2,748.16 $2,265.00

The account History for the Buy and Sell Account

Trade Date Transaction Type/Security Company Name QTY Price Comm.* Amount*

11/11/2014

Market - Sell Equities Alibaba Group Holding-

100 115.09 -50 11,509.0010:58 AM

11/06/2014

Stop - Cover Futures FATSTOCK NOV 14 1 2.37 -50 -412.51:40 PM

11/05/2014

Market - Buy Equities Toyota Motor Corporation 100 121.5 -50 -12,150.001:52 PM

11/05/2014

Market - Buy Equities Apple Inc. 100 108.5 -50 -10,850.001:48 PM

11/04/2014

Short Proceeds Equities Ford Motor Company -50 13.93 0 696.52:36 PM

11/04/2014

Short Proceeds Equities Tesla Motors Inc.-

100 237.76 0 23,776.002:34 PM

11/04/2014

Market - Buy Equities Intel Corporation 50 34.57 -50 -1,728.502:33 PM

11/04/2014

Market - Buy Equities Alibaba Group Holding 100 104.69 -50 -10,469.002:32 PM

11/04/2014

Market - Sell Futures SILVER DEC 14 -1 16 -50 -6,175.002:30 PM

11/04/2014

Market - Sell Equities PUMA BIOTECHNOLOGY -51 240.14 -50 12,247.142:29 PM

11/04/2014

Market - Sell Equities USA Technologies Inc.-

100 1.71 -50 1712:28 PM

11/04/2014

Market - Sell Equities Sprint Nextel Corporation -30 5.03 -50 150.92:27 PM

11/04/2014

Stop - Short Futures FATSTOCK NOV 14 -1 2.36 -50 010:32 AM

11/04/2014

Market - Buy Equities RYANAIR HLDG. 250 8.31 -50 -2,628.2410:31 AM

11/04/2014

Stop - Sell Futures FCOJ-A NOV 14 -1 1.3 -50 -217.510:25 AM

11/04/2014

Market - Buy Futures FCOJ-A NOV 14 1 1.32 -50 010:21 AM

11/04/2014

Market - Sell Equities Dresser-Rand Group Inc. -50 81.67 -50 4,083.5010:19 AM

11/04/2014

Market - Sell Futures WHEAT DEC 14 -3 5.32 -50 -1,912.5010:17 AM

11/04/2014

Market - Sell Futures PALLADIUM 1 UZ DEC 14 -1 793.5 -50 -11010:17 AM

10/30/2014

Market - Sell Equities Yahoo! Inc. -20 45.28 -50 905.610:45 AM

10/30/2014

Market - Sell Equities Helmerich & Payne Inc. -40 84.68 -50 3,387.2010:45 AM

10/30/2014

Market - Sell Equities Hewlett Packard Co.-

100 35.72 -50 3,572.009:48 AM

10/30/2014

Market - Buy Futures WHEAT DEC 14 3 5.45 -50 07:45 AM

10/30/2014

Market - Sell Futures WHEAT DEC 14 -2 5.45 -50 1,850.007:45 AM

10/30/2014

Market - Sell Futures COCOA DEC 14 -1 2,923.00 -50 -1,710.007:44 AM

10/30/2014

Market - Sell Futures MILK JAN 15 -1 18.22 -50 1807:43 AM

10/30/2014

Market - Sell Futures COTTON DEC 14 -1 0.65 -50 4007:43 AM

10/28/2014

Market - Cover Futures BCOLDC DEC 14 1 86 -50 -4102:51 PM

10/28/2014

Market - Buy Equities Hewlett Packard Co. 100 35.49 -50 -3,549.002:48 PM

10/28/2014

Market - Buy Equities Helmerich & Payne Inc. 40 84.76 -50 -3,390.402:42 PM

10/28/2014

Market - Sell Equities Costco Wholesale Corporation -50 130.7 -50 6,535.002:37 PM

10/28/2014

Market - Sell Equities Gilead Sciences Inc.-

100 113.13 -50 11,313.002:37 PM

10/28/2014

Market - Sell Equities NORTHWEST BIOTH CMN -10 4.82 -50 48.22:34 PM

10/28/2014

Market - Buy Futures PALLADIUM 1 UZ DEC 14 1 794.6 -50 02:31 PM

10/28/2014 Market - Buy Futures SILVER DEC 14 1 17.23 -50 0

2:30 PM

10/28/2014

Market - Buy Futures COTTON DEC 14 1 0.64 -50 02:28 PM

10/28/2014

Market - Buy Futures MILK JAN 15 1 18.13 -50 02:24 PM

10/28/2014

Market - Sell Futures CATTLE LIVING OCT 14 -1 1.69 -50 7602:23 PM

10/28/2014

Market - Sell Equities eBay Inc.-

150 51.1 -50 7,665.002:21 PM

10/28/2014

Market - Sell Equities Johnson & Johnson -20 103.8 -50 2,076.002:19 PM

10/28/2014

Market - Sell Equities Minerva Neurosciences-

100 4.5 -50 4502:18 PM

10/28/2014

Market - Sell Equities The Clorox Company-

100 97.63 -50 9,763.002:17 PM

10/28/2014

Market - Buy Futures WHEAT DEC 14 1 5.3 -50 02:13 PM

10/28/2014

Market - Sell Equities Microsoft Corporation -60 45.99 -50 2,759.409:42 AM

10/27/2014

Dividends Equities The Clorox Company 100 100@0.74 0 7412:00 AM

10/23/2014

Market - Sell Equities HUSKY ENERGY INC -60 27.55 -50 1,471.8312:19 PM

10/23/2014

Market - Buy Equities eBay Inc. 150 50.84 -50 -7,626.0011:54 AM

10/23/2014

Market - Buy Equities Avanir Pharmaceuticals Inc. 200 11.93 -50 -2,386.009:46 AM

10/23/2014

Market - Buy Equities The Clorox Company 100 99.16 -50 -9,916.009:46 AM

10/23/2014

Market - Buy Equities Costco Wholesale Corporation 50 131.16 -50 -6,558.009:39 AM

10/23/2014

Market - Buy Equities Gilead Sciences Inc. 100 106.71 -50 -10,671.009:39 AM

10/23/2014

Market - Buy Equities Dresser-Rand Group Inc. 50 81.15 -50 -4,057.509:39 AM

10/23/2014

Market - Sell Equities ZaZa Energy Corporation -50 3.66 -50 1839:31 AM

10/22/2014

Market - Buy Equities Microsoft Corporation 60 44.6 -50 -2,676.0011:29 AM

10/22/2014

Market - Sell Futures JPY/USD DEC 14 -1 0.93 -50 -687.511:27 AM

10/22/2014

Market - Sell EquitiesInternational Business Machines Corporation -15 163.47 -50 2,452.0511:25 AM

10/22/2014

Market - Sell Equities Facebook Inc. -30 79.49 -50 2,384.7011:25 AM

10/22/2014

Market - Buy Equities Johnson & Johnson 20 101.14 -50 -2,022.809:37 AM

10/22/2014

Market - Buy Equities Fortis Inc. 30 46.5 -50 -1,242.119:30 AM

10/22/2014

Market - Buy Equities CORAL SEA RESOURCES INC 500 0.39 -50 -173.639:30 AM

10/22/2014

Market - Buy Equities HUSKY ENERGY INC 60 28.48 -50 -1,521.529:30 AM

10/21/2014

Market - Sell Futures AUDLK DEC 14 -1 0.87 -50 -2907:48 PM

10/21/2014

Market - Buy Equities Metlifecare Limit 90 4.36 -50 -308.77:41 PM

10/21/2014

Market - Buy Equities USA Technologies Inc. 100 1.8 -50 -18012:40 PM

10/21/2014

Market - Buy Futures CATTLE LIVING OCT 14 1 1.68 -50 012:36 PM

10/21/2014

Market - Buy Futures WHEAT DEC 14 1 5.22 -50 012:34 PM

10/21/2014

Market - Buy Equities NORTHWEST BIOTH CMN 10 5.06 -50 -50.612:33 PM

10/21/2014

Market - Sell Futures BRL/USD NOV 14 -1 0.4 -50 -58512:31 PM

10/21/2014

Market - Buy Equities ZaZa Energy Corporation 50 2.54 -50 -12712:31 PM

10/21/2014

Market - Buy Equities Minerva Neurosciences 100 4.35 -50 -43512:31 PM

10/21/2014

Market - Buy Equities Facebook Inc. 30 77.98 -50 -2,339.4012:24 PM

10/21/2014

Market - Buy Equities PUMA BIOTECHNOLOGY 20 228.13 -50 -4,562.6012:09 PM

10/21/2014

Market - Buy Futures JPY/USD DEC 14 1 0.94 -50 012:05 PM

10/21/2014

Market - Buy Futures AUDLK DEC 14 1 0.88 -50 012:03 PM

10/21/2014

Market - Buy Equities Yahoo! Inc. 20 39.86 -50 -797.212:00 PM

10/21/2014

Market - Buy Equities Sprint Nextel Corporation 30 6.27 -50 -188.111:59 AM

10/21/2014

Market - Sell Equities Seabridge Gold Inc. -40 8.3 -50 33211:53 AM

10/21/2014 Market - Sell Equities Costco Wholesale Corporation -15 130.17 -50 1,952.55

11:47 AM

10/21/2014

Market - Buy EquitiesInternational Business Machines Corporation 15 162.06 -50 -2,430.9010:51 AM

10/21/2014

Market - Sell Futures BRENT CRU OIL LASDA DEC 15 -2 88.69 -90 -4,330.0010:27 AM

10/21/2014

Market - Buy Equities Seabridge Gold Inc. 40 8.66 -50 -346.49:49 AM

10/21/2014

Market - Buy Equities PUMA BIOTECHNOLOGY 30 226.91 -50 -6,807.309:49 AM

10/20/2014

Market - Sell Futures HT-OIL NOV 14 -2 2.48 -90 -6308:27 PM

10/20/2014

Market - Buy Equities Costco Wholesale Corporation 15 125 -50 -1,875.009:35 AM

10/17/2014

Market - Buy Futures HT-OIL NOV 14 2 2.49 -90 012:42 PM

10/17/2014

Market - Buy Futures BRL/USD NOV 14 1 0.41 -90 012:37 PM

10/17/2014

Market - Buy Equities PUMA BIOTECHNOLOGY 1 223.48 -50 -223.4812:22 PM

10/17/2014

Market - Sell Futures SOYBN NOV 14 -1 9.58 -90 -62511:58 AM

10/16/2014

Stop - Short Futures BCOLDC DEC 14 -1 85.59 -90 06:00 PM

10/16/2014

Stop - Buy Futures BRENT CRU OIL LASDA DEC 15 1 90.87 -90 06:00 PM

10/16/2014

Market - Buy Futures BRENT CRU OIL LASDA DEC 15 1 90.84 -90 05:14 PM

10/16/2014

Market - Buy Futures COCOA DEC 14 1 3,094.00 -90 012:09 PM

10/15/2014

Market - Buy Futures SOYBN NOV 14 1 9.7 -90 010:04 AM

10/15/2014

Stop - Sell Futures COCOA DEC 14 -1 3,131.00 -90 -32010:01 AM

10/15/2014

Market - Buy Futures COCOA DEC 14 1 3,163.00 -90 09:55 AM

Overall Reflection of Trading Activity and Stocktrak

The overall performance of both portfolios include a final profit of $9,471.61 for the buy and

hold strategy and a long profit of $2,748.16 for the second buy and sell account. This is profit is

insignificant given the volume of cash available totalling $1,000,000 for each account.

TWTR, AMZN and CNET stocks were purchased for the buy and hold account and in hind sight

purchased based on volume and influence from other factors other than technical or fundamental

strategies which proved to be a critical mistake and proved to contribute huge losses over the life

of the account. However I did learn from these mistakes and started to turn theory into practise. I

studied more into how to make a put gaining on the down side of prices, limit loss with stops,

trade options. I enjoyed the exposure to new trading activity such as commodities and although I

could not utilise my new skills to make large profits with futures and options I learnt how to

hedge. A major highlight of the report is conducting forensic analysis of the Dresser Rand stock,

analysing the company financial health gave me a better understanding of the company stock

valuations and contributed to my overall business intelligence. It was interesting to work out the

various calculations of determining if a company is over or under valued and it gave me great

satisfaction.

In regards to the rankings I started off well at 10 spot but gradually dropped to within the top 20

consistently. I learned that even if new products launched that are likely to increase company’s

sales and earnings may not signal that the company’s stock may be a good buy. The overall

lesson of the portfolio was that not a single aspect of the fundamental analysis or technical

analysis by itself can be a good predictor of the company’s future. It is more of a combination of

all the factors.

The most effective strategy during the simulation turns out to be buying defensive and with

growth stocks in mind. First of all, buying defensive stock is a safer way to gain at least a small

profit during a long term investment. Anavir, Apple and Puma Bio Technology are one of many

these stocks with high growth and acceleration. A defensive strategy saw small profit with HSY

being in the sector of food processing and distributing it is a great defensive stock.

Although I had a great deal of difficulty with stocktrak when trying to process future options and

options generating error messages and freezing continuously. I also experienced situations where

I wanted to make an option trade and the trade would be missed by stocktrak and would never be

accounted for. It was a great way however to get an insight to economics and the general

understanding of the markets. I enjoyed the interaction with mu fellow students in regards to

discussions on stock selection.

In a previous job I had a role of updating the ISE website with fund announcements without

really having an understanding of the impact these announcements have on the overall price of

the company as I was not partaking in the markets. This simulation game give me a real life

market situation to learn from without fear or risk of huge losses and I benefited greatly from

analysing finances in great depth and improving my commercial awareness.

Unlike the “buy and hold” account the strategy for buying and selling stocks as prices move and

not let the stock just sit for months was more of the learning curve for me. I studied some market

timing investors who can sell or buy stocks whenever they feel it is worth to do. There are also

some problems with the market

Timing strategy one cannot always predict the rise or fall of the stock price at will, since it is

easy for you to make wrong correlations between the current market conditions and the past

stock prices by applying technical analysis.

My most successful tools used for stock selection was with the moving averages and the use of

support line and resistance lines to judge a direction of the stock. I had massive enjoyment and

interest in studying the futures and NASDAQ indices. I would of liked to of traded some

currencies however the volume at times was enough to make any significant money. I did buy

some BRL for November but made no money just lost commission as I did not understand the

right strategy to approach this type trade.

My philosophy of the stock the market is to be defensive, invest in growth and keep the

emotional decisions away from the stock market. After analyzing and comparing my portfolios

each week, I eventually saw the key to the stock market which is simply converting risk into

opportunity by applying specific investing strategies. However, the risk is always changing into

different forms as the world and commerce develops with a new set of risk factors that need an

alternative way of analysing therefore we would be wrong to be controlled by a single way of

looking at stocks that cannot be wisely controlled by any single investing strategy for every

strategy has its own.