1 / 19

PICK SIX STOCKS

PICK SIX STOCKS. Team 077 Naiim Ali Dennis Kim Jason Kornblum Franklin Tong Caleb Tseng. 1. The Problem. To develop a way in which to select any combination of up to six stocks from among the 18 given To maximize the net profit from after 1 year

imelda
Download Presentation

PICK SIX STOCKS

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. PICK SIX STOCKS Team 077 Naiim Ali Dennis Kim Jason Kornblum Franklin Tong Caleb Tseng 1

  2. The Problem • To develop a way in which to select any combination of up to six stocks from among the 18 given • To maximize the net profit from after 1 year • To use the given stock indicators as well as one of our choice • To test and validate the results 2

  3. Assumptions • In the course of the next fiscal year, the market will be generally rising. • All provided data are not subject to financial fraud, and therefore accurately represent the status of the company. • All eighteen corporations do not practice corporate manipulation, such as slush fund accounting. • The market will behave relatively normally, without unreasonably sharp increases or decreases. • Inflation will not create any exaggerated effects on the market. 3

  4. Investment Philosophies • Value Investing • Targeting under-priced stocks with the assumption that they will eventually rise • “Buy and Hold” • Holding investments for long periods of time in the hopes of eventually reaching a peak due to normal market fluctuations • Contrarian Strategy • Evaluating based on mood of investors: optimism leads to falls, pessimism brings spikes • Overall market behavior is ignored in favor of analysis of the individual share 4

  5. Indicating Factors • Cash Flow • Amounts of cash received or spent by a business • Price to Earnings (P/E) Ratio • Cost for each dollar of earnings • Return on Invested Capital • A lagging indicator of past performance 5

  6. Indicating Factors • Price to Sales (P/S) Ratio • Used to determine how a company is faring relative to its competitors for start-ups, small cap companies, and unprofitable firms • Beta (β) • Determines the deviation between a stock price and the overall market 6

  7. Discounted Cash Flow • DCF is a leading indicator, which predicts future behavior • DCF is the amount of money that one would pay today for the anticipated cash flow of the future. • DCF is the money of the future converted into the cash of the present with risk insurance in case cash disappears. • A factor such as the discounted cash flow is useful, as it helps to predict the future instead of only working off of the past, like the other five factors. 7

  8. Our Financial Plan • Three risk groups, with a certain amount of money allotted to each group • Up to two stocks per risk group • Because every stock has a chance, however small, of dropping, investing in only one stock is extremely risky 8

  9. Money Allotments per Group • Low • 50% of total funds ($15000) • Medium • 35% of total funds ($10500) • High • 15% of total funds ($4500) 9

  10. Determining & Categorizing Risk • Cash Flow • As high as possible • Price to Earnings (P/E) ratio • As low as possible 10

  11. Determining & Categorizing Risk • Return on Invested Capital • As high as possible • Price to Sales (P/S) Ratio • As low as possible • Beta • Close to 0 – no risk, not connected to market • Close to 1 – low risk • Above 1 – higher risk 11

  12. Sample Individual Stock Evaluation • Appears to have already hit a peak, and is on the decline • Lowest cash flow at 0.10 • Low ROIC, only 16.88% • P/E is reasonable, 25.98, • P/S value is very low, 2.17. • During a period of steady growth overall for the market, MSCS was experiencing a net loss of 16.3%. 12

  13. Sample Individual Stock Evaluation • Decent cash flow, 1.20 • The highest ROIC of all the companies, 30.76% • One of the highest net profits at 23.4% during the period of steady growth in the market, 2003-4 • P/E and P/S are also reasonable low, 19.11 and 6.06 respectively • Beta value is very close to one, 1.04, so it won’t experience that much change from the market 13

  14. Building the JAVA Model • “Brute Force” Algorithm - Tries every combination of stocks until best permutation is found • Modeled after 2003-04 fiscal year • Represented a generally rising year • Maximizes profit while minimizing risk 14

  15. JAVA Model MSFT: $10000 ORCL: $5000 Permutation Creator “Profit” Calculation for Permutation Permutation with Maximum “Profit” Comparison $2000 15

  16. JAVA Model: Finer Points • Elimination of outlier stocks (ones with maximal loss or extreme instability) • A variable was introduced: • Cash Flow/Beta • We wanted to reward companies with greater stability while punishing greater risk: taking a linear relation with cash flow and inverse relation with beta accomplishes this goal 16

  17. Results 17

  18. Testing the Results • Testing other similar stable growth in past fiscal years and analyzing the data that is outputted • Check the performance of the results given by the model over the next fiscal year 18

  19. Highlights • Identifying and utilizing a combination of Trend Analysis, Value Investing, and “Buy & Hold” strategies • Analysis of shares on an individual basis using the suggested indicators as well as 5-year graph and Discounted Cash Flow • Simultaneous production and testing of possible solutions using JAVA model • Understanding and using the fact that computer programs are best utilized in combination with human analysis 19

More Related