Report on investment advice for XXX

Module Name: Market Analysis for Private Investor

Module Number: UMAD5M-15-2
Module Leader (In UWE): Helen Zhang
Module Leader (In TBC): SareenaKhadgi
Word Count: 1497 words

Prepared by:

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Executive Summary
This report is about building and managing a simple portfolio of stocks and cash as an
investment advisor to the client named Philippa Green, a 36-year old female client with two
healthy young children. Secondary research has been done to do the understanding of concept
and theories related to investment, portfolio building, portfolio asset selection, security analysis
methods, applying suitable investment strategies as per client requirement, generating summary
of trade for duration of 3 weeks starting 4th March, 2019, portfolio performance evaluation and
expectation on future performance of portfolio of client.The report aims to give us the clear
understanding on how to manage personal wealth and take investment decision and analysis
based on client’s requirement. It also focuses on the benefits that the individual gets by investing
his/her money in stock market with portfolio diversification. This report is prepared by accessing
credible websites, journals and e-books to draw the conclusion that as a rational investor,
investment decisions need to make by knowing the basics of investment and using investment
analysis methods such as Fundamental analysis and Technical analysis to maximize wealth and
not by random decisions.

Contents
1. Introduction (Investment, Portfolio and Security analysis methods)
2. Client profile and requirement
3. Evaluation of client’s risk tolerance and discussion of suitable investment strategy
4. Basis for security selection of client’s portfolio
5. Data of Key Performance Indicators of stocks in client’s portfolio
6. Summary of trades and weekly closing positions of stocks
7. Portfolio performance evaluation and expected future performance
8. References
9. Appendices
Appendix 9.1: Evidence of research conducted(Screenshots)
Introduction
Investment is the act of sacrificing resources or injecting money with the aim of getting return in
future (Commonwealth Bank of Australia, 2016). It can be defensive investment which includes
high interest saving account and growth investment which includes shares and property
investment. Investment process involves clearly defined investment objectives, asset allocation,
security selection, portfolio building, portfolio evaluation and management(Glen, 2019).
Portfolio is the collection of financial assets like stocks, bonds, currencies etc. (Chen, 2018).
Modern Portfolio Theory is relevant to investment and portfolio creation. Modern Portfolio
Theory is a model of investment in which investor creates diversified portfolio to achieve
maximum level of return with minimum risk (Thune, 2018). Modern Portfolio Theory is linked
to The Efficient Frontier.
While selecting assets for portfolio, investor’s time horizon, ability to take riskand need for
liquidity are considered. Our clients’ portfolio contains some stocks and some cash at bank. As
our client’s portfolio contains stocks, it is necessary to do security analysis and do the evaluation
of portfolio performance.Security analysis of portfolio is generally done by two methods. They
are Fundamental analysis and technical analysis. The client’s portfolio is centered around both
fundamental and technical analysis, as the market in not completely efficient and exploring both
dimensions of security analysis results to better evaluation of risk and return of the security
(2019, Essex).
Selection of individual securities that are valuable from the pile requires detailed evaluation of
company’s fundaments such as their economy, competitors, market production, earnings,
employment, GDP, housing, manufacturing and management which is fundamental analysis.
Basically, fundamental analysis means to examine the financial data, industry trends,
competitor’s performance and economic outlook, which will help to find intrinsic value of stock
and whether the stock is undervalued or overvalued. The analysis is based on future predictions
through past performance of the company. The steps are economic analysis, industry analysis,
company analysis of fundamental analysis through which key indicators such as
Financial/Valuation which includes Earnings per share, EPS, P/E, P/B, ROA / ROE, Profit
Margins; Risk, which includes, Beta, Volatility; Market Performance and Trading can be
analyzed.
On the contrary, technical analysis is completely different from fundamental analysis. In
technical analysis, past market data are statistically analyzed to find patterns and predict future
movements. Tools that are used for technical analysis are trends, indicators and price patterns.
Price movements and market psychology falls under technical analysis. The assumption of
technical analysis directly opposes the notion of efficient markets (F. Reilly, K. Brown, 2012).
The stock prices move in trend that persists. It is basically emotions of human beings that is
converted in a price chart. These trends can be analyzed through Relative Strength Index (RSI),
Moving Average (MA), Moving Average Convergence Divergence (MACD).
Client profile and requirement
The clients’ total investment is £1000000. The client is risk averter in nature as she prefers
putting money in the bank and she perceives taking risk as being loss. However, according to
risk return trade-off it is believed that higher the risk, higher the return and vice versa. As an
investment advisor to Philippa Green, it was recommended to invest 75% of £1000000 in stocks
and 25% of it in fixed deposit in bank to be on safer side. Capitan gain from trading of 75% of
investment and fixed deposit interest returns are meant to cover general expenses. The client’s
investment has two goals which are short term i.e. paying for education of her children and long
term goal i.e. wealth accumulation for her retirement. Her investment on stocks will be for
capital gain As well as for receiving dividend and accumulating wealth for retirement.

Evaluation of client’s risk tolerance and discussion of suitable investment

strategy
Client’s risk tolerance is low as she is risk averter in nature. Active investment strategy was
applied for client where her portfolio was under the close supervision and analysis of a group of
financial advisor. Active investment strategy would help the client to beat the market return.
Financial advisors had already planned to diversify her portfolio and generate good returns for
her. Fundamental Analysis and Technical Analysis of client’s securities was done to ensure good
returns from her investment. The core strategy was to do trading of her securities for 3 weeks and
receive capital gain as short term goal and even receiving dividends and reinvesting them so as to
meet her long term goals. Financial advisors had a concern to stop loss as much as possible by
staying up to date with the market information of Nepal Stock Exchange Ltd.
Investment Strategy
A diversified portfolio was created where 75% of £1000000 consisted of different stocks from
different companies and remaining 25% of £1000000 consisted of fixed interest deposit in bank
for 2 years at 10% interest return per annum and interest amount could be withdrawn after the
end of every month.The portfolio consisted of companies listed in Nepal Stock Exchange Ltd.
(NEPSE) such as Chilime Hydropower Company Limited represented by symbol CHCL
occupying 15% of the total investment amount, Nepal Life Insurance Company which belongs to
life insurance sector represented by symbol NLIC occupying 20% of total investment, Nabil
Bank Limited represented by symbol NABIL occupying 10% of total investment and Everest
Bank Limited represented by symbol EBL occupying 30%. The key performance indicators
(KPI) of the stocks in portfolio were looked into where Portfolio Return was calculated as 1.56,
Portfolio Volatility was calculated as 1.15 and the Sharpe ratio was calculated as 1.85 and the
combinations with a reasonable KPI were selected to be included in the portfolio. The trading of
those stocks was done for 3 consecutive weeks where stocks were bought at low price and sold at
high price and later portfolio performance was evaluated.
Certain factors to be considered during the investment are:
 The portfolio is diversified so as to yield better market returns at a lower risk (Wagner
and Lau, 1971)
 The value of volatility (β) should be less than 1. If it is higher than the volatility of the
stock is considered to be more than the market.
 The value of Relative strength index (RSI) should lie in between 1 to 100 where a value
higher than 70 denotes overbought stock whereas a value less than 70 denotes under-
bought stock.

The moving average shows the average stock price from March 3 to march 31, 2019.

Basis of security selection of client’s portfolio

After the assets are allocated, the client has to make certain choices regarding the selection of
securities in order to create a portfolio. The selection of portfolio depends on the nature of the
investor. In this case, the investor is a risk averter and is therefore looking for minimal risk while
expecting high return. In such case, the investor must follow the capital preservation approach
where a certain portion of cash is kept in fixed interest account of bank. Therefore, about 25%
(£250,000) of cash is withdrawn to be deposited in fixed interest account and 75% (£750,000) of
the cash is invested in stocks. The selection of the securities is done on the basis of certain
factors. They are the key indicators in not only security selection but also economic analysis of
market:
 Valuations: includes EPS, P/E, P/B, ROA/ROE, profit margins, regulatory ratios.
 Risk: also known as market risk or Beta (β), standard deviation (SD).
 Reward/risk: Sharpe ratio.
 Trading: The trading of bonds and stocks done, and the results determined from the
trades.

Since the investor is risk averter is nature, those securities must be selected which has a higher
EPS, lower risk and higher profit margins. The portfolio should be diversified thus providing
lower risk. In context of NEPSE, the investments must be made in portfolios which comprises of
mostly hydro power companies, banking sector and insurance sector.
Data of Key Performance Indicators (KPIs) of stocks in client’s portfolio
Major KPIs of stocks in client’s portfolio:
Stocks EPS (FY) Industry P/E Ratio Industry Market Beta
Average (FY) Average Capitalization
CHCL 19.05 8.83 52.71 250.45 17308.58 M 0.61
(FY:2018- (FY:2018-2019) (FY:2018- (FY:2018- (FY:2018-2019) (FY:2018-
2019) 2019) 2019) 2019)
NLIC 18.57 15.09 235.38 206.56 33843.96 M 0.98
(FY:2018- (FY:2018-2019) (FY:2018- (FY:2018- (FY:2018-2019) (FY:2018-
2019) 2019) 2019) 2019)
EBL 31.39 21.63 19.56 15.80 37056.35 M 0.91
(FY:2017- (FY:2017-2018) (FY:2017- (FY:2017- (FY:2017-2018) (FY:2017-
2018) 2018) 2018) 2018)
NABIL 50.41 21.63 14.52 15.80 45263.52 M 0.68
(FY:2017- (FY:2017-2018) (FY:2017- (FY:2017- (FY:2017-2018) (FY:2017-
2018) 2018) 2018) 2018)
Summary of trades and weekly closing positions of stocks
Trading of stocks CHCL, NLIC, EBL, NABIL started from 5 th March, 2019. It lasted for 3 weeks
time and the trading week ended on 25th March, 2019. All the buying and selling decisions of
stocks during that period is given below:

Quote Date Action Rate (in NPR) Qty Realised Gain (in NPR)

NLIC 2019-03-05 Buy (Secondary) 1049 191 -

NLIC 2019-03-12 Sell 1124 170 10,614.50

NLIC 2019-03-24 Buy (Secondary) 1067 170 -

EBL 2019-03-05 Buy (Secondary) 506 593 -

EBL 2019-03-17 Sell 554 550 23,058.00

EBL 2019-03-19 Buy (Secondary) 548 550 -

NABIL 2019-03-05 Buy (Secondary) 681 147 -

NABIL 2019-03-17 Sell 722 140 4,580.37

NABIL 2019-03-25 Buy (Secondary) 709 140 -

CHCL 2019-03-05 Buy (Secondary) 500 300 -

 CHCL 2019-03-12 Sell 521 250 3,762.00

CHCL 2019-03-21 Buy (Secondary) 500 150

The total realized gain after trading the stocks for 3 weeks was found to be Rs. 42014.87 which
is equivalent to £289.61.

Summary of weekly opening and closing price of stocks:

Stocks Week 1(March 5-11) Week 2(March 12-18) Week 3(March 19-25)
CHCL OP: 500 OP: 518 OP: 508
CP: 518 CP: 508 CP: 504
NLIC OP: 1050 OP: 1116 OP: 1098
CP: 1116 CP: 1098 CP: 1083
EBL OP: 510 OP: 525 OP: 556
CP: 525 CP: 556 CP: 553
NABIL OP: 682 OP: 696 OP: 722
CP: 696 CP: 722 CP: 712

Note:
OP: Opening Price
CP: Closing Price

Portfolio performance evaluation and expected future performance

Portfolio performance can be evaluated based on expected portfolio risk and return, portfolio
volatility and Sharpe Ratio. The calculated results of our portfolio on the day of its creation i.e.
as of day 1 of trading i.e. 5th March, 2019 are:
Portfolio Return: 1.56
Portfolio Volatility: 1.15
Sharpe Ratio: 1.85
It is expected that this portfolio will generate good results in the future and the capital gain and
dividend from the client’s portfolio will be used for general expenses and reinvesting purpose.
References:
Commonwealth Bank of Australia (2016). Different types of investments. [online] Available at:
https://www.commbank.com.au/guidance/investing/different-types-of-investments-201607.html
[Accessed 9 Apr. 2019].
Glen, J. (2019). How to Invest in Stocks: 7 Steps to Start Investing. [online] InvestorGuide. Available at:
http://www.investorguide.com/article/13488/how-to-invest-in-stocks-7-steps-to-start-investing-0513/
[Accessed 9 Apr. 2019].
Chen, J. (2018). Portfolio. [online] Investopedia. Available at:
https://www.investopedia.com/terms/p/portfolio.asp [Accessed 9 Apr. 2019].
Thune, K. (2018). How is Modern Portfolio Theory Used With Investing?. [online] The Balance.
Available at: https://www.thebalance.com/what-is-mpt-2466539 [Accessed 9 Apr. 2019].
Reilly, F. Chang, P. Brown, K. Hedges, P.(2010) Investment Analysis and Portfolio Management
[online]. Canada: Nelson Education Limited.
Bauman, M.P. (1996). A Review of Fundamental Analysis Research in Accounting. Journal of
Accounting Literature [online]. 15, pp. 1-33. [Accessed 5th April 2019].
Graham, B and Dodd, D. (2008) Security Analysis [online]. 6thed. New York: McGraw Hill Professional
[Accessed 21st March 2019].
https://www.dailyfx.com/forex/fundamental/article/special_report/2019/01/17/Fundamental-vs-
Technical-Analysis.html

Appendices
Appendix 9.1: Evidence of research conducted (Screenshots)
Screenshots for the test of portfolio combination:
Image: Selected portfolio
CHCL KPIs screenshots:
EBL KPIs screenshots:
NABIL Bank KPIs screenshots:
NLIC KPIs screenshots:
Screenshot of trading of stocks:
Screenshots containing Moving Average of companies in client’s portfolio:
Individual Reflections

Group Member 1
The portfolio creation and trading of stocks for the client Philippa Green was done by using the
Nepse Guide simulator and I learnt the basics for investing and trading in stock market by doing
this assignment. This assignment helped me to learn about investment strategies and things
needed to consider while allocating assets for portfolio. To do the assignment of this module, we
4 people of our class formed a group and we divided each other’s part and contribution to
accomplish the assignment. We created a group on Facebook and Viber to interact with each
other while we were away from each other. We then created the portfolio of 4 companies which
involved Chilime Hydropower, Nabil Bank, Nepal Life Insurance Company and Everest Bank
which are considered strong company based on their past financial performance, competencies of
their Board of Directors and past dividend history. We even did fundamental analysis and
technical analysis while choosing these companies from numerous companies enlisted in Nepal
Stock Exchange. We were able to generate the amount of Rs. 42014.87 which is equivalent to
£289.61 after trading the stocks for 3 weeks.
If I were allowed to invest in other financial and nonfinancial UK assets, I would apply the same
strategy i.e. portfolio diversification as we did for our client Philippa Green. However, I would
like to invest certain amount of my money in real estate as it has good growth potential over
time. I would also invest certain portion of my money in stock market by creating diversified
portfolio of good performing stocks in London Stock Exchange. I would also invest some
amount of my money in fixed account of bank to get certain interest amount from my saving. I
would also consider the concept of The Efficient Frontier which is concerned about selection of
portfolio with the highest expected return and same risk or portfolio with least risk and same
expected return. This way, I believe I would be able to manage my personal finance very well.

Group member 2
First of all we all had a meeting in a class and discussed about the related business report. Before
heading towards the report we elected Pramod as our leader. He as a leader clearly explained us
to our specific task. Before doing any research we all read the report clearly and after that I was
appointed to theory part of the report.
I came up with the research based on the background of the company. I presented research report
according to the task. And for a couple of hours we discussed the risk that the company have to
bear both financially and non-financially. It helped in recognizing a lot about the marketplace
where the company operates in.
We immediately started to combine all the individual work and inputted them into single word
document.
We also researched about the company to find any other notable information. And lastly, an
extra editing and brain storming session was conducted after the completion of appendix of
finding.

Group member 3
The decision and strategy given in this appraisal is limited to the companies in the Nepal stock
exchange (NEPSE) and the companies are chosen to yield maximum return with minimum risk.
The shares from Nabil, EBL have a good risk/return ratio and the ones from CHCL have a very
high potential for growth in the near future.

But had there been other financial and non financial assets as option then investing in land would
be the best option. This matches the risk averter nature of the investor as land is a very low risk-
high return investment which neither depreciates nor stalls.

Since Nepal is a developing country, there are a lot of construction projects ongoing. Investing in
those would yield good return as well. There are companies such as “Build up Nepal” who have
a lot of entrepreneurship driven construction where the investor can invest in for a good return.
The investment would help develop a lot of rural places so it’s a win-win.

Also, investing in tourism industry would yield a good return. Nepal is a country where tourism
is one of the main sources of economy. A research by World travel and tourism reported the
contribution of tourism in the economy of Nepal is about 83.7 billion (WTTC, 2015) (Basnet,
2016). Therefore, it is a good area one can invest in for high return.

In context of the developed countries like UK, there are various sectors for investment and one
of the investment sectors with a promising future is Artificial Intelligence (AI). A research by
Accenture institute for high performance, the growth rate of AI in UK will reach 3.9 % by 2035
from the current rate 2.5 % in 2019. The potential for investment in AI in Nepal is not as
appealing in the present but it could have potential in the future.

Group member 4
If investment in other financial and non-financial assets were allowed than possibility of return
and stability could be maintained. There can be many possibilities to invest in.
Investing in land and properties can be a strong non-financial investment as it is easy to hold due
to the low tax and maintenance cost. On the contrast, the land not being liquid is quite hard to
sell off. However, the land and properties can be rented to generated stable return.
Another option can be investment in real estate development projects as an alternate to buying
land. As, in Nepal the real estate development projects are largely conducted on heavy
government investment. This option can be opted as it has low risk and provides return.
Bonds that are issued by government also have low risk. However, the returns are also low. This
option can be taken to invest besides shares and cash in order to stabilize return and carry low
risk.
The money can also be utilized by lending as a loan to people in need with reasonable interest
rates. Peer to peer lending can be profitable. The interest rates can be high or low according to
the risk. The returns gained from interests can be deposited in bank or can also be used to lend.
The client can also opt for preferred stocks. They are not usually traded as the common stocks
but have lesser risk compared to common stocks.
Investing in gold can be another option. Gold is regarded as a liquid asset and long-term store of
value.
Dirty price= Clean Price+Accured Interest

Accured Interest =6/365

= 6/365*267 267 is coupon since rate