We bought stocks of Citigroup, Bank of America, JP Morgan Chase Bank, Wells Fargo Bank, Morgan Stanley Bank and we made short sell of PNC Financial Services Group.
From every transaction we earned some return.
Citigroup: -4.50% (Excess Return on Stock: -6.28%).
Bank of America: -0.95% (Excess Return on Stock: -1.63%).
JP Morgan Chase Bank: 0.05% (Excess Return on Stock: -0.68%).
Wells Fargo Bank: 1.29% (Excess Return on Stock: 0.56%).
Morgan Stanley Bank: 0.82% (Excess Return on Stock: 0.09%).
PNC Financial Services Group: 2.99% (Excess Return on Stock: 2.81%)
We can use Excess Return for comparing the index return to stock return, therefore we can say that if a result is more than 0, our investing is better than investing to market and our active strategy is more effective. However we have 4 trades with positive return (JP Morgan Chase Bank, Wells Fargo Bank, Morgan Stanley Bank and PNC Financial Services Group), but only three of them are shown that our decisions were better than market.
The three best trades were purchase of Wells Fargo Bank and Morgan Stanley Bank and short sell of PNC Financial Services Group.
The three best worst were purchase of Citigroup, Bank of America, JP Morgan Chase Bank.
We can say, that in most of case using bank financial performance ratios could help make right decisions (ratios of Wells Fargo Bank and Morgan Stanley are more effective than of Peer Group and ratios of Citigroup is less than of Peer Group), but sometimes even we use this rations it is hard to make good choice (PNC Financial Services Group has good bank financial performance ratios, but we did short sell and it was right).The two mains factor for making decision, which I use, were trend of price and tendency in financial position of bank.
Morgan Stanley had shown good upward trend and it was rational to buy stocks of this company. The Wells Fargo had some increase on market, so we thought that it would be in the future. For the last month the price of JPMorgan Chase has increased. The price of PNC Financial Services Group have been going down for last week and it have downtrend for last month. Our choses were the same like trends of price.
If we look on financial position, we can see that increase of price go with rise in financial indices.
Morgan Stanley posted a first-quarter profit of $2.39 billion, a 59% improvement from the same period a year earlier. Revenue rose 10% to $9.91 billion. Both results were better than analysts expected. Net revenues for the current quarter were $9.8 billion compared with $8.9 billion a year ago. Income from continuing operations applicable to Morgan Stanley was $2.3 billion, or $1.14 per diluted share, compared with income of $1.4 billion, or $0.70 per diluted share, a year ago.
Meanwhile The Wells Fargo reported net income of $5.8 billion, or $1.04 per diluted common share, for first quarter 2015, compared with $5.9 billion, or $1.05 per share, for first quarter 2014, and up from $5.7 billion, or $1.02 per share, for fourth quarter 2014.
Earnings per share came in at $1.45 a share, which included 13 cents a share for legal expenses. This was a nickel a share above the consensus of $1.40 a share and up nicely from $1.28 a share in the same quarter a year ago.
It is interesting that good position in Peer Group does not provide growth of stock price.
Notwithstanding the good position compared with Peer Group PNC Financial Services Group does not have better indices of their activity. Net income of this Financial Services Group decline from $1.1 billion to $1.0 billion, which already has negative influence on stock price.
The revenue fell 1.2% in its most recent quarter as net interest margin, a key measure of lending profitability, also declined. Average loans grew $2.3 billion, or 1 percent, compared with the fourth quarter.
The bank posted earnings of $1 billion, down from $1.06 billion the prior-year period. On a per-share basis, earnings fell to $1.75 from $1.82 a share.
The reduction of some indices said about increase of positions and made positive effect on stock price.
Noninterest expense declined $140 million from the prior quarter to $12.5 billion, as seasonally higher employee benefits and incentive compensation of $688 million were offset by costs that typically decline in the first quarter including outside professional services ($252 million lower), equipment costs ($87 million lower) and advertising and promotion ($77 million lower).
We can say that same news also were base of our decisions. The Wells Fargo Startup Accelerator program announced the selection of three early-stage U.S. companies for its spring 2015 program, in which they will learn to commercialize and market their ideas to enterprises. This news made a positive effect on price.
In the end, our best chose of short sell of PNC Financial Services Group was based on BlackScholes model for calculating possible price of PNC Financial Services Group`s stock. We assumed that the option's value was evaluated correctly by market. So we took option which would expire on May 15, 2015. Then we calculated price of PNC Financial Services Group`s stock on that date. It was $87.56. This said that the price would fall down in future. And we see now that it is correct.
This project helps understand that financial information can say much about a company. We can do right decision using only it, but using data without trend and tendency could give us wrong imagine of real situation.
We think that knowledge of technical analysis is also important part of process of making decisions. We used only basic information from graphs of stock price like trend and it helped us to undented where could go price. In most of evince it show us right information, but we think that learning of this aspect can be effective for future.
It is seen that some theoretical models can give us interesting prediction. We used BlackScholes mode, but decision based on it was the most effective and gave us the highest return, therefore application of other models like CAPM can be very useful.
This project has shown that strategy of active investor is more effective and give more benefits even you do not know much. A middle of our decision had highest return than market and losses from our trades were less than benefits, which we obtained.
Bank financial performance ratios also can be effective, especially if we look on it through the time. In this case we have very huge field of indices which can give us information in different areas of company`s activity. It is necessary to take some ration and use it for making decision (compared them with Peer Group).
We tried to make our choses like if we had real money, but if it was in real life, we would do something differently.
At first, we wouldn`t make decision when we were in situation one or two week before annunciation of statement. This is very important information and it can made significant effect on the price of stock.
As well, I would give more attention to theoretical models and conception which exist and are used in nowadays. The model which were applied in our investigation shows efficiency, therefore we can use others for making our decision.
Now we also can use many programs, which can help us to make a chose. We think that it is necessary to pretend more attention and time for them. These programs can be very helpful, because they can reduce time for analysis and also they can help with more hard for calculating theoretical models.
Technical analysis would be learned and applied more too in case of real situation and real money.
To sum up, projects like this are very interesting and important because they have real application. During it we tried to understand how to be real investor, how to manage our portfolio, how to use some instruments of making decision.
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