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You have been asked to participate in a portfolio analysis and investment seminar...

You have been asked to participate in a portfolio analysis and investment seminar where you will be providing information to potential investors. The two main objectives that the organization has asked you to key in on are listed below. You have been asked to limit your scope to the US Stock Markets:

1. How do individual investors make investment decisions in practice rather than in theory?
2. How do investors manage their funds/savings/investments in light of current stock markets?

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1. How do individual investors make investment decisions in practice rather than in theory?

In investing, like many other things, size does matters to individual investors. Individual investors limit their selections to certain size companies, while large investment companies spread their money across the size spectrum.
Company size is just one aspect to consider when Individual investors evaluate a stock; however, it is important because large and small companies react differently in the market
Market capitalization or market cap is the standard measure of company size used by the individual investors. They compute market cap by multiplying the number of outstanding shares by the current stock price. For example, if a company had one hundred million shares of common stock outstanding and a current stock price of $55 per share, its market cap would be $5.5 billion (100,000,000 x $55 = $5.5 billion).
This calculation lets individual investors do an "apples to apples" comparison with any two or more companies.
Another group of individual investors focus on fundamental analysis. Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of a business to determine its financial health and gives individual investors an idea of the value its stock. individual investors don't actually calculate these ratios but look these up in financial websites like Hoover's Online. Many individual investors use fundamental analysis alone or in combination with other tools to evaluate stocks for investment purposes. The goal is to determine the current worth and, more importantly, how the market values the stock.
Earnings
Many individual investors focus on earnings. It's all about earnings they feel and they focus on the P/E ratio. When you come to the bottom line, that's what individual investors want to know.
How much money is the company making and how much is it going to make in the future.
Earnings are profits. It may be complicated to calculate, but that's what buying a company is about. Increasing earnings generally leads to a higher stock price and, in some cases, a regular dividend.
When earnings fall short, the individual investors may sell the stock. Every quarter, companies report earnings. Analysts follow major companies closely and if they fall short of projected earnings, sound the alarm. While earnings are important, by themselves they don't tell individual investors anything about how the market values the stock. To begin building a picture of how the stock is valued they need to use some fundamental analysis tools.
Fundamental Analysis
There are some individual ...

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"Another group of individual investors focus on fundamental analysis. Fundamental analysis is the process of looking at a business at the basic or fundamental financial level. This type of analysis examines key ratios of..."

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