Final Project

Group: Chia Ching Ng, Li Jing Lu

Professor William C. Johnson

FIN 315

Final assignment: Portfolio Project

December 6, 2012

Portfolio Project

We changed our strategy after the first interim report. We realized that it is hard to use “bottom-up” approach to invest by looking into a particular stock to invest. Right now, we are trying to use “top-down” approach to invest in our portfolio. Top-down approach is a method of analysis that involves looking at the "big picture" first, and then analyzing the details of sector or industry then towards the company or stocks. By first analyzing the overall picture, such as a macroeconomic trend, we can start narrowing potential companies to invest.

After conducting some economic analysis, our group concludes that the U.S. economy is recovering slowly and it should be the case for next year. However, we believe that those indicators such as housing sector, unemployment and others may not tell us how long the improvement will continue in the future. For this reason, we should be more conservative when selecting sectors in which we should invest. Our team thinks that stability, return or equity (ROE), and P/E ratio should be used as criteria for selecting sectors then towards the company. As a result, we selected three sectors in which we invest, namely, conglomerates, consumer goods, and services that we expected to have the potential to increase in the future.

We average out nine sectors P/E ratio and ROE as a benchmark for comparison. Conglomerates and services both have higher ROE than all the industry average. Their P/E ratios are little higher than all the industry standard but they fall into our acceptable range (+/- 20% of all the industry average). In addition, we also choose consumer goods to invest. Although its ROE is little below all industry average and the P/E ratio is little higher than our acceptable range, we believe that consumer goods sector will have a very stable financial performance in the future....