Final Portfolio Management Project

Portfolio Management

I chose to invest $350,000 in stocks of various public companies, $100,000 in a mutual fund, and the rest in treasury bills and bonds. I chose stocks from Financial, Energy, Conglomerates, Technology, and Capital Goods Sector. In the Financial Sector, my portfolio consisted of Citigroup Inc, Bank of America Corporation, and HSBC Holdings. I used Exxon Mobil Corporation for Energy Sector, Boeing Company for Capital Goods sector, General Electric Company and Raytheon Company for Conglomerates Sector, and Microsoft Corporation, Hewlett-Packard Company, and Wipro Limited for Technology sector.
As stated, I invested $100,000 in Fidelity Puritan Mutual Fund. . Fidelity Puritan is a mutual fund that seeks income and capital growth consistent with reasonable risk. The fund invests 60% of assets in stocks and other equity securities and the remainder in bonds and other debt securities, including lower-quality debt securities, when its outlook is neutral. It invests at least 25% of total assets in fixed-income senior securities (including debt securities and preferred stock). The fund also invests in domestic and foreign issuers and invests in Fidelity's central funds.

I chose Fidelity Puritan Mutual Fund because it fit my criterion of a mutual fund that carried only reasonable risk. Since most of my stocks were the largest corporations within their sector, and not high growth corporations, I reasoned a mutual fund, which places reasonable risk for investor gain would be the most likely candidate.

On a note, I used market closing prices of the stocks on Monday to calculate the value of my portfolio. As Wall Street Journal reports the previous day's market closings - I reasoned it would be a better option to use Yahoo or Google Finance. I double-checked the closing prices of Wall Street and Yahoo Finance to make sure they were the same.

Before Synopsis due date, S&P 500 Index fell 3.4% while Fidelity Puritan, the portfolio I am supposed to compare against fell 1.2%. Both the market and the Mutual Fund provided less loss than my portfolio. At the end of the project, my portfolio had a net loss of 1.02%. S&P 500 Index rose 1.02% during the duration of the project while Fidelity Puritan Fund saw its net asset value rise by 1.80%. Both the S&P 500 Index and Fidelity Puritan Fund outperformed my portfolio.

As mentioned earlier, my portfolio consists of Citigroup Inc, Bank of America Corporation, HSBC Holdings, Exxon Mobil Corporation, General Electric Company, Boeing Company, Raytheon Company, Microsoft Corporation, Hewlett-Packard Company, and Wipro Limited.
Citigroup Inc. (NYSE:C) - Citigroup Inc. was one of the three companies I chose from the financial sector. I chose Citigroup because the corporation was the largest in regards to market value within its industry. As Citigroup Inc. is the largest company in the Money Center Banks industry; any significant changes in the financial sector would be reflected in Citigroup Inc, as the company's stock is more likely to respond to new fiscal policy or a slowdown in financial sector.

Citigroup Inc. had a market value of $252.60 Billion, and a beta of 1.28 as of April 02. The company's stock had a 52-Week high of $57.00 and a 52-Week low of $46.22. Citigroup Inc. had a Price-Earnings Ratio of 11.84, and a Future Price-Earnings Ratio of 11.14. Company's earnings per share stood at $4.31.

Bank of America Corporation (NYSE:BAC) - I used the same reasoning for Bank of America Corporation as I did for Citigroup Inc. In terms of market value, Bank of America is the second largest financial corporation with an Annual Net Income of $21 billion, closely trailing Citigroup Inc.

Bank of America's stock beta stood at 0.56, with earnings per share of $4.59. Company's market value stood at $224.87 billion, with an average trading volume of 17.25 million as of April 2, 2007. Banks of America's stock had a 52 Week high of $55.08, and a 52 Week low of $45.26. Company's Price-Earnings ratio stood at 10.99, while its Future Price-Earnings Ratio stood at 10.15.

HSBC Holdings (NYSE:HBC) - A British Company, HSBC was the third and the final choice from the Financial Sector. I was looking for a foreign Financial Corporation with a substantial US presence, and HSBC Holdings fit that criterion. The corporation is not only the third largest Financial Institution in the sector, but also has a major presence throughout the world.
As of April 02, HSBC Holdings market capital stood at $203.91 billions, with a beta of 0.81. The company's stock on average has a trading volume of 788,000, with earnings per share of $7.20. In the past 52 Weeks, HSBC stock had a high of $98.56, and a low of $84.00. HSBC Holdings had a Price-Earnings Ratio of 12.23, and a Future Price-Earnings Ratio of 11.63.
Exxon Mobil Corporation (NYSE:XOM) - Due to the war in Iraq and on going Middle East tensions, I felt that a portfolio consisting of Energy Securities would definitely enhance my portfolio.

Exxon Mobil Corporation had a market value of $433.61 billion as of April 02. In the energy sector, Exxon is the largest corporation in terms of market value, with an annual net income of $39.5 billion. In the past 52 Weeks, Exxon's stock rose to a high of $79 and a low of $56.64. The company's stock on average had a trading volume of 26.93 million, making it one of the heavily traded stocks. The company has a beta of 0.79, while it's Earnings per Share stood $6.62. Price-Earnings Ratio of Exxon stood at 11.50, while its Future Price-Earnings Ratio stood at 10.69.

General Electric Company (NYSE:GE) - From Conglomerates sector, I picked General Electric Company for my portfolio. General Electric is one of the most well known corporations in the world. I would say brand image, and the fact that GE owns numerous well renowned world corporations led me to add this company's stock to my portfolio.

In the Conglomerates Sector, GE is the largest corporation by market value with annual net income in tune of $20.66 billion. The company has a market value of $362.89 billion as of April 02, a beta of 0.80, and EPS of $2. Company's stock had a 52 Week high of $38.49, a low of $32.06, and trading volume of 36.70 million. Price-Earnings Ratio of GE stood at 17.65, and Future Price-Earnings Ratio estimated by the company is 15.86.

Raytheon Company (NYSE:RTN) - Although Raytheon Company fell under Conglomerates sector, the primary reason I chose this company was due the fact that it specialized in defense industry. Due to the ongoing War on Terror, Iraq War, rising defense expenditure, and uncertainty in regards to global stability, I felt Defense Corporations would make an excellent addition to my portfolio.

Raytheon Company had a market value of $23.63 billion, and a beta of 0.83. On average, Raytheon stock has a trading volume 2.03 million. The company had an EPS of $2.85, a Price-Earnings Ratio of 18.49, and Future Price-Earnings Ratio of 18.12. Raytheon Stock had a 52 Week high of $55.63, and a low of $42.51.

Boeing Company (NYSE:BA) - I chose Boeing Company for the same reason I chose Raytheon Corporation. They have huge interests in the defense industry, and thus are less prone to volatilities of day-to-day market.

Boeing is much biggest than Raytheon Company, and had a market value of $70.10 billion as of April 02. The company's stock had a beta of 0.79, and earnings per share of 2.85, P/E Ratio of 31.17, and a Future P/E Ratio of 19.07. The company's stock had a 52 Week high of $92.24, and a low of $72.13. On average, Boeing Company's stock has a trading volume of 4.11 million.

Microsoft Corporation (NASDAQ:MSFT) - Microsoft Corporation is the one of the most well renowned technology corporations in the world. The company has a solid product, and has an overwhelming monopoly in the Operating System software market. Due to its solid market share, and release of a new operating system, I believed that Microsoft would provide solid returns to its investors.
Microsoft has a market capital of $271.64 billion, with a beta of 0.99. The company's stock had a 52 Week high of $31.48, along with an all time low of $21.45. Microsoft P/E Ratio stood at 23.12, while its Future P/E Ratio stood at 18.96. On average, Microsoft stock has a daily trading volume of 62.25 million.
Hewlett-Packard Company (NYSE:HPQ) - Along with Microsoft, Hewlett-Packard is also a very well renowned company. I chose Hewlett-Packard due to its brand image and its popularity the PC market. With the release of Microsoft's new operating system, it was my belief that people will buy new PCs, thus surging HPQ's sale - thereby increasing company's stock price.
Hewlett-Packard Company had a market value of $107.89 billion as of April 02. The company's stock had a 52 Week high of $43.72, and a low of $29. On Average, Hewlett-Packard stock has a daily trade volume of 17.07 million. Hewlett-Packard stock had a beta of 1.79, and an EPS of $2.18. The company's P/E Ratio stood at 18.49, while its Future P/E Ratio stood at 15.19.
Wipro Limited (NYSE:WIT) - I picked Wipro Limited because it is a very well know Indian Technology Company, and with Indian economy expanding at a rapid pace, I felt investing in the company's stock would provide considerable gain in the future.

Wipro Limited had a market value of $21.87 billion, and a beta of 1.11. The company's EPS stood at $0.36, while it's P/E Ratio and Future P/E Ratio stood at 42.49 and 28.33 respectively. The company's stock had a 52 Week high of 18.44, and a low of $10.18. On average, Wipro's stock has a daily trading volume of 478,000.

As the portfolio management project required us to restrict to government treasury bonds, I chose a 20 Year Bond, as there weren't any other options.

For market index, I chose S&P 500 as it is composed of mainly large corporations. As my portfolio mainly consists of companies that are the largest in terms of market value within their sector and industry, I felt S&P 500 would be more appropriate benchmark to compare my portfolio performance.

I chose companies from Financial, Energy, Conglomerates, Technology, and Capital goods sector. I believed that a mix of companies ranging from different sectors would ensure future growth prospects along with minimizing risks. The companies that I picked to make my portfolio are among the largest corporations within their sector or a very well known company.
Events that affect Stock Market include testimonials from officials of Federal Reserve, speculation on what Federal Reserve might do, new government fiscal policies -both foreign and local, earnings release reports of Corporations, growing inflation or inflation worries, rise in interest rates, national manufacturing activity reports, performance of foreign exchanges, economic slowdown, and new import / export duties implemented by both foreign and local governments.

January 31, 2007 - According Commerce Department, US Economy grew at 3.5% annual rate in the fourth quarter vs. a 2% growth rate in the third quarter and above the average economist estimate compiled by Market-Watch of 3%. Consumer prices fell 0.85 annualized during the quarter, the first quarterly decline in 45 years. The Labor Department also said that fourth-quarter employment costs increased 0.8%, below expectations of a 1% gain. Even though US GDP posted a stronger growth, my stocks were still in decline. My "Stock Portfolio" was down 0.52% on January 31st closing price. S&P 500 on the other hand dropped 1.70 points to 1,432.30.
February 2, 2007 - A solid payrolls report pushed US Stock Futures higher on Friday. S&P 500 futures rose 3.4 points at 1,454.20. My portfolio on the other hand was down 0.15% on Friday's closing price.
February 8, 2007 - Lackluster January sales performance by retailers and a warning from HSBC Holdings on the US Sub-prime lending market caused the S&P 500 to slip 3.70 points to 1,452. My portfolio on the other hand gained 0.57%.

February 9, 2007 - Probability of rise in mortgage defaults pushed down shares of banks and property owners. Citigroup recorded its biggest drop in seven months, while the S&P 500 sank 10.25, or 0.7 percent, to 1438.06. Even though financial institutions formed a big part of my portfolio, my portfolio was nonetheless up by 0.33%
February 12, 2007 - Drop in Oil prices were by prompted sell-off in energy shares, and upcoming testimony from Bernanke on Capitol Hill. My portfolio was down 0.62%.
February 16, 2007 - Slowdown in Housing Construction caused US stocks to decline. My portfolio was down 0.14%.

February 22, 2007 - Iran's refusal to stop a uranium-enrichment program chilled investors and caused S&P 500 to drop 1.25, or 0.1 percent, to 1456.38. My portfolio on the other hand was up 0.37%.
February 26, 2007 - Persistent concerns about mortgage defaults caused US Stocks to drop for the fourth day. Citigroup Inc fell the most since July, sending S&P 500 Index to its longest stretch of declines since August. My portfolio on the on other hand climbed a significant 3.38% defying market slowdown.

February 27, 2007 - Fears about China and its growth plunged US Stocks. The drop pushed S&P 500 index to its lowest one-day drop in 4 years. My portfolio dropped 0.11%.
March 1, 2007 - As Yen strengthened it raised worries that it may force an unwinding of borrowing funds in Yen. S&P 500 futures were down 8 points. Even though my portfolio consisted of numerous financial institutions, my portfolio seemed to be unaffected. At the closing price, my portfolio was up 1.16%.

March 14, 2007 - Worries over sub-prime mortgage market fueled a second straight day of sharp losses; S&P 500 was down 1%. My portfolio also declined by 0.44%.
March 16, 2007 - New inflation data caused US Stocks to fall. Consumer price data showed prices rose faster than analyst's estimated. The Standard & Poor's 500 Index was down 5.85 points, or 0.42 percent, at 1,386.43. My portfolio was down 0.92%.

The project required us to update our portfolio gains / losses weekly. At the end of the first week, my portfolio dropped to $396960.58. Exxon Mobil Corporation was the only company in my portfolio that had a considerable rise in its stock value. All other stocks except Wipro and Hewlett-Packard Company lost their values. My portfolio stood at a negative return of 0.7% at the end of first week. S&P 500 Index on the other hand saw its value fall by 0.16%. Fidelity Puritan on the other hand lost 0.10% of its value.

At the end of second week, my portfolio saw a significant rise in value, and stood at $405590.58- a 2.17% gain over the last week. All the stocks provided positive returns except Microsoft. Boeing Company rose the most significant, from $85.50 to $90.72. S&P 500 Index saw a rise in its value by 1.86%. The index rose from 1420.62 to 1446.99 since last week. Fidelity Puritan also saw its portfolio rise by a modest 1.65%. In the second week, my portfolio outperformed both the S&P 500 Index and Fidelity Puritan mutual fund.

At the end of third week, my stocks saw significant decline in their market value, with my portfolio falling as much as 1.52%. This fall erased all the gains I made since last week. My portfolio stood at $399425.58, which was less than what I started out with. S&P 500 Index fell by 0.94% this week. The stock fell from 1446.69 to 1433.37. Fidelity Puritan mutual fund also saw its value fall by 0.44%. Both the index and the mutual fund, saw their values fall but not as significantly as my portfolio.

At the end of fourth week, my stocks recovered, and my portfolio moved up by 1.1%. Major gainers since last week included Boeing, Hewlett-Packard Company and Wipro Limited. My portfolio at the end of the week stood at $403850.58. S&P 500 Index surged to 1.84% since last week. Fidelity Puritan also saw a rise in its value. The mutual funds' Net Asset Value rose by 1.43%. Both the Mutual Fund and the S&P 500 Index outperformed my portfolio's performance for the week.

The end of 5th week saw my portfolio decline again, this time buy 1.52%. The fall in stock prices erased all the gains I made last week. All of the stocks in my portfolio saw their values drop. My portfolio stood at $397705.58. S&P 500 Index lost its value by 0.71%. The index fell to 1449.37 from 1459.68. Fidelity Puritan also fell in value by 0.15%. My portfolio saw much steeper decline in its value when compared to S&P 500 Index and the Mutual Fund. It appears that whenever there is a gain, my portfolio trails in performance of both the Index and the Mutual Fund, and when there is a loss, my portfolio seems to lose a lot of more of its value than the Fidelity Puritan Fund and S&P 500 Index.

At the end of 6th week, my portfolio saw further loss. My portfolio fell a record 4.33%, and stood at $380460.58. Ever since, I started portfolio management, my portfolio lost 4.86% in its value. S&P 500 Index lost a whopping 5.19% since last week, the biggest drop in the duration of the project. The S&P 500 Index was at 1449.37 points last week, and is now currently at 1374.12. Fidelity Puritan also saw good drop in its value, as the Mutual Fund's Net Asset Value decreased by 3.52%. This is the first time my portfolio provided less loss compared to the S&P 500 index.

At the end of 7th week, my portfolio saw a rise in its value. The portfolio rose by 1.98%. All stocks except General Electric Company and Microsoft Corporation provided positive gains since last week. S&P 500 Index rose by 2.36%, while Fidelity Puritan rose by 1.67%. For the first time, my portfolio's performance outpaced Fidelity Puritan Mutual Fund, but was behind S&P 500 Index gains.

At the end of 8th week, my portfolio slightly lost its value. The portfolio declined in value by 0.365%, a marginal drop in value. Portfolio's value currently stood at $388030.50. S&P 500 Index declined by 0.32% since last week. The Index fell from 1406.6 to 1402.06. Fidelity Puritan on the other hand also lost its value by 0.35%. The losses for this week were more or less even matched.

At the end of 9th and final week, my portfolio saw its value rise by 2.37%. Excellent performers include Exxon Mobile, which rose to $75.47 from previous week's $71.10. Other notable gainers in stock price include General Electric Company, and HSBC Holdings. S&P 500 Index saw its value rise by 2.53% since last week. Fidelity Puritan on the other hand saw its net asset value rise by 1.70%. For the first time, my portfolio outperformed both the S&P 500 Index and Fidelity Puritan Mutual Fund.

My portfolio at the end of the project stood at $395805.58. Since the beginning of the project, my portfolio saw its value decline by 1.02%.

Some of the major lessons I learned were to not pick stocks just because they happened to be the largest corporations within their sector. That particular method I believe caused me to not have any gains in my portfolio. I was also able to fully understand how even if the market falls, some stocks would go against it. It was especially true in defense companies, which seemed to thrive in instability.

Due to the project, it has now become a habit of mine to track stock performances of not only companies in my portfolio, but also most major companies. One of the biggest advantages I had from this project was that I was able to know when companies release their financial reports, and analyst estimates of future earnings of corporations in wall street journal.

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