Finance 350 Section C

To: Monica Marin

From: Harry Stenberg, Jordan Jessen, Dylan Fletcher, Justice Ladenburg
Subject: Finance Case 1 Analysis

When our group was deciding on the stocks to choose at the beginning of this assignment, we
decided to pursue four stocks within different sectors of the economy. We chose Apple in the
technology sector, Nordstrom in the retail sector, Bank of America in the financial sector, and
finally ConocoPhillips in the Gas and Energy sector. The choice to do this ended up paying off,
as our diversified portfolio ended up outperforming the Vanguard S&P 500.

One specific market-wide event that affected our entire stock market was the United States
presidential election. During election years in the past, markets have fell almost every year.
There are several reasons for this, including the volatility of a president in a lame-duck situation
as well as the inherent uncertainty that comes with electing a new commander-in-chief.

ConocoPhillips’ price ended higher ($48.12) than the point it purchased ($44.22). The major
event that would have increased the price of this energy stock is the proposal of an OPEC
production cut. The rumors of this cut have forced prices of energy stocks up, as the resource
would be more scarce as a result--following the law of supply and demand. As production cut
doubts are arising however, price increases are tapering off.

The price of a share for Nordstrom started at $54.83 and rose to $56.54 over the nine week
period. We can attribute this increase to many factors. This includes the multiple triple points
days that Nordstrom has leading up to Christmas, encouraging shoppers to buy more by
rewarding triple the amount of points for each dollar spent. Another reason for the increase
could be due to the Half-Yearly Sale they have every November. In our opinion what attributes
the most to the increase over this small time frame is the fact that Christmas is right around the
corner. With this holiday coming up purchases at Nordstrom exponentially increase.

Bank of America’s stock price increased from $16.13 to $21.23. The primary event we feel that
would have caused this increase is due to interest rates rising. There is also an expected
interest rate hike on December 14th. This causes them to receive more money from interest,
increasing the value of the firm because the shareholders have higher potential of getting paid
more.

Unlike our last three stocks, Apple’s stocks priced actually dropped from $114.06 to $109.90.
There can be several reasons for this, but the main one has to be the humbling performance of
the iPhone 7. The release was much anticipated and was the reason for us choosing this stock
to begin with. However, sales haven’t quite reached the levels that many thought they would,
perhaps leading to investors withdrawing their optimistic investments. Apple’s stock normally
revolve around their latest technological release and a lower sales return on a release of this
magnitude can no doubt affect the entire company’s stock price.
By comparing our portfolio standard deviation with those of VFINX, QQQ, and VHGEX, we
noticed that the standard deviation of our portfolio was the highest observed. This means that it
was the most risky investment that we made. This makes sense because our portfolio is only
made up of 4 stocks and in order to eliminate diversifiable, or unsystematic risk, many more
stocks need to be added to the portfolio. Our portfolio did better than the market as displayed by
the higher returns for our portfolio. We concluded that volatility in stock or the overall market is
cause by uncertainty of individual company performance and overall market conditions.

The main thing that we learned from this exercise was the power of diversification. Even though
one of our stocks (AAPL) lost money, our other three stocks performed well enough to make up
for this loss and ultimately give us a return which exceeded the market.