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Options Case

Essay by   •  May 8, 2011  •  Essay  •  544 Words (3 Pages)  •  1,616 Views

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At the start of the portfolio selection I really didn't know too much about the whole selection criteria. With little knowledge of what I was doing I made the mistake of reading into a lot of speculation about stocks and their future potential based on analysts and their predictions. I also thought that looking at a number of top investors such as Buffet, Lynch, etc, and their portfolios and investing patterns would steer me in the right direction and allow my portfolio to grow. After purchasing the stocks I was in for a rude awakening when many of the stock prices dropped and continued on their descent.

My next mistake was the management of those falling stock prices. Like an unwise and beginning investor I thought my tips would pan out and the stock prices would turn around and net me a profit. However, that was not the case, I made the mistake of holding on to these stocks as they steadily declined when the correct thing to do would have been to drop the stocks and cut my losses.

A mistake that I made in the beginning due to my forecast of an expanding economy leading to a bull market, was that I did not follow the investing criteria. I underweighted bonds and cash equivalents and over-weighted my stocks. This risk did not pay off for me in the end seeing as how I netted a 3% loss on my portfolio. The smart thing would have been to follow the criteria and invest a more in the less volatile investments.

There was not too much that I did correctly, except make a few lucky picks. The two most successful trades I made were EEI and BIDU. I had actually been watching BIDU since it was trading around $80, a few months back. I had heard that it was one of the only search engines in China, one of the largest growing economies, so I thought that there was only room to grow. I was especially enticed to buy the stock after hearing that major players such as Google and Yahoo were not going to enter the internet search engine in China.

As for EEI, I read about the stock and liked the services they offered in environmental testing and regulation seeing as how the public is so concerned about going green and helping the planet, it just seemed like a no-brianer, and it has definitely paid off, leading my portfolio with a 28% return.

Personally I feel that it is very hard to out perform the market no matter who you are. It's even harder for someone who is new to the whole world of investment trading. There were many times that I would get frustrated during this project and wonder how can anyone be successful and out perform the market. It was then that I read a story about an orangutan at a local zoo out performing professional analysts, and it made me seriously question playing in the stock market in the future. My hats go off to those that can find a way to win in

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