Portfolio optimization Markowitz Method

To demonstrate  Markowitz Method we will assign some tasks and answer them step by step, morover you can find an excel file with formulas and all calculations at the bottom of this article.

Collect daily data for your stocks from https://quantquote.com/historical-stock-data Free Data tab.

Assignment 1. (5 points)

Collect data for last four years (ending in 2013). Identify risk free rate.

Calculate monthly returns for each of the stocks in the portfolio.

Calculate the mean monthly return for each stock.

ROE and Residual income analysis for a bank (Old line Bancshares, Inc.)

Bank Name: Old line Bancshares, Inc.

Question 1.

Table 1. Necessary information¹ to calculate decomposed ROE for Old line Bancshares bank

for last 3 years, as of and for the Year Ended December 31.

			2016			2015			2014
	Average assets		1584,939759			1324,556962			1182,166667
	Average stockholders’	148,9807475			138,7798408			130,146789
	equity
	Net income		13,16			10,46			7,09
	Sales*	68,721			58,298			51,56

Sales are taken as a sum of Interest income and other income, that is to say, total income *.

Other needed information is taken from Income statement and balance sheet of the bank and

the source is represented by a link on the bottom of the page.

Table 2. Components of decomposed ROE

How to make money online

How “Get Paid to Post Ads” Scams Work

Read every section of every job description carefully. You want to look for things like a company name, required skills, etc. You know — a typical job description. You’re often provided with instructions to apply. When there are any links provided, they take you to a website that looks like it belongs to a company or an agency of some sort.

If you click through any links and you get to what looks like a sales page with a fee or payment button, you’re most likely dealing with a scam. Not always, but almost always.

Here’s how it works:

You click on the ad. You get to the landing page, which is essentially a sales page. You have to pay a fee (anywhere from $20 to $150 or more!) to access the materials/start your membership/get your starter kit. However they put it, you have to pay to get it.

Here’s what happens when you sign up for one of these programs: You receive a packet of information telling you how to post the same ad on various job boards and websites. You make money by posting the same ad you clicked on, and you get paid every time someone pays using your ad. However, you don’t get paid anything if they don’t. Congratulations! You’ve just joined a pyramid scheme.

Now, don’t get me wrong — paying for things like memberships and starter kits can be entirely legitimate. But you have to be extremely careful when looking at any company that wants you to do so. More often than not, a membership or training program should be something that supports you in your work — and not actually the source of your work.

Same with starter kits — many direct sales organizations

Apple again topped the rating of the most expensive brands

Apple for the fifth time in a row became the most expensive brand in the world. This is stated in the study of the agency Interbrand.
The cost of the Apple brand for the past year increased by 3% and amounted to $ 184.1 billion (about 10.6 trillion rubles). The second place in the rating went to Google, whose brand is estimated at $ 141.7 billion (up 6% year-on-year), while Microsoft ranked third ($ 79.99 billion, up 10%).

At the same time, the cost of the Coca-Cola brand decreased by 5% and is now $ 69.73 billion, which is why the company moved from the third to the fourth place. Technical giant Amazon is located on the fifth line, showing growth of 29% (cost $ 64.79 billion), and South Korean electronics maker Samsung took the sixth position ($ 56.24 billion, an increase of 9%).

The fastest growing was the cost of the Facebook brand, which went up by 48% over the year. Its cost today is estimated at $ 48.18 billion, which allowed the company Mark Zuckerberg to take the eighth place in the ranking. Closing the top ten brand IBM, whose price was $ 46.82 billion (a fall of 11%).

In addition, Adobe (56th place), Huawei (70th place) and PayPal (80th place) brands showed serious growth, the value of which increased by more than 10% for the year. Also in the agency Interbrand note that in the period from 2008 to 2017, the total value of brands increased by 54%.

Mogerini About German products on Crimea

European Commission Vice-President Federica Mogerini explained to the MEPs that she was not going to punish the German corporation for the fact that its products were on the territory of the Russian peninsula.
The head of EU diplomacy, Federica Mogerini, found it difficult to recognize the deliveries of the German corporation's turbines to the Crimea as a violation of existing directives on sanctions against the Crimea. So the vice-president of the European Commission (EC) responded to the request of European Parliament deputies Rebecca Harms (Germany) and Petras Ashtryavichus (Lithuania). Both MEPs were interested in what the EC will do in connection with the fact that the turbines produced by the German machine building concern Siemens were supplied to the territory of the Crimea, which is under EU and US sanctions, and how to avoid such cases in the future.

The EU legislation establishes restrictive measures in response to the "illegal annexation of Crimea and Sevastopol." Sanctions include a ban on exports to the region of goods in the following industries: transport, telecommunications, energy, oil, gas, and minerals. Equipment for power plants is also prohibited for supplies to the Crimea.

The fate of the ruble is decided by the barrel and the rating

During the week, the ruble was traded in a horizontal channel: the price for 1 US dollar fluctuated in the range of 64 - 66 rubles. Relative stability, reminiscent of the calm before the storm, is associated with the fastening of the barrel in the price range of $ 48-50 after the price rebound last week.

Unfortunately, the currency markets are still very modestly reacting to the improvement of the situation in the hydrocarbon market, preferring to play out the negative headlines with great enthusiasm, including the revision by the international rating agency S & P of the Russian rating to "non-investment" level. According to estimates by Moody's and Fitch, Russia is also at the last stage of the investment part of the rating scale, so that S & P may become the first agency that will lower the rating to "junk". Lowering the ratings can have a meaning?! This will put pressure on Russian Eurobonds and increase capital outflow from the country. Sanctions and the aggravated geopolitical situation in Ukraine continue to make the country unattractive for investments, and a downgrade could significantly exacerbate the situation.

At the opening of MICEX trading on Friday, January 23, the ruble appreciably strengthened to 62.9, however, while there is no longer any long-term trend. The International Energy Agency and OPEC are confident that in the near future oil production will be reduced in countries outside the cartel, which, instead of reducing the volume of supplies, on the contrary, increases production. This means that the growth of the barrel is temporary, and so the Russian ruble has nothing to catch. On the other hand, if the barrel of Brent drops again ?!?  $ 45, then the dollar will not keep you waiting and will rise above 65-66 rubles. It can be said that the markets are in anticipation of further movement of the barrel. Reducing the cost of oil, up to 40 dollars and below, waiting and rating agencies as a signal for a downgrade of Russia.

Investment assessment Technics

In capital budgeting process every company needs to assess investments to compare them and then choose which one is beneficial for the company. There are different methods to do that but In this article, we will discuss two of them which are easy to understand and require fewer efforts to implement in real life. These are methods, which helps us to avoid complex calculations and make decisions about relatively small investments. Let us discuss them separately.

ROCE: Return on capital employed

The formula to calculate ROCE is

ROCE =

Where EBIT is Earnings before tax and interest paid and average capital employed is calculated as

  .  The decision rule is simple, it says that if ROCE is higher than target or benchmarked set by management it should be accepted. The meaning of this ratio is also pretty simple, it shows how much operational profit is available for each unit of capital employed.

There are some advantages and disadvantages of this method:

Advantages:

It is simple and easy to calculate as there are two variables EBIT, which is available in an Income statement, and Capital employed in a balance sheet. The other advantage is the measure is in percentage terms and easy to compare with historical data or with alternatives.

Disadvantage:

Value based pricing framework

Price is one of the most important components in a 4P analysis and in general, it has a big influence on customer and company behavior. Price contains an information about the market and it is a guide for people and organizations to make important decisions about their future movement and strategy. But the question is how prices are set, who is the one to decide the price of a certain good? To answer this question we need to go back in a time.

The price can be defined as a mean or a term of a contract between the buyer and seller. In the past, there was just a barter exchange that is to say people were changing some good with another. But it became harder and harder to implement, because when the network is increasing and needs differ it is hard to make a transaction on this framework. For example, person A has an apple and needs spade which is owned by the person B. But the B does not want an apple but wants C’s leather. Now imagine the huge network in the same logic which can exist in the world of divers goods and needs. This was the base of creation of a money, which becomes a measure for a product value. So, the other good description of a price is a quantity of money which customer wants, has the willingness to pay.

After the industrial revolution, products started to be more standardized. There was an exciting need, demand in the market and there was no diversification of products as now. Till 1940^th there was a widespread opinion that the only reason of every company to exist is to maximize its shareholder's wealth. So, that time there was no market or customer orientation as they were weaker than now. The pricing had a cost base framework. Companies were producing a product, calculating costs in terms of materials, salaries, transportation and so on, then putting a margin on that cost setting a price in a best possible manner to increase shareholders wealth.

Companies were not driven from the market they had a sought that they can promote what they produce and it was possible because of low competition in any market.

Market five forces

There are forces, which are shaping the strategy of a company to act in a specific manner in the market. The Porter’s five forces model is a widespread method of market analyzing. We will try to explain each of them separately and will bring some examples to make our points more understandable.

            First, the force that has an impact of companies’ actions is a treat of an entrance. If the barriers to entering specific market are low, there is a treat that others would like to enter and increase competition, pressure on costs and prices, consequently on profits. Actually, it is not the real entrance which impacts, but the threat, because companies try to decline prices => profits to make the market less interesting for others to enter and make “hard” competitive environment. An example of a new entrant can be Pepsi when it entered bottle water industry. What are the barriers?

1.      First, is an economy of scale from supplier side. Companies which have a big size and produce a big number of goods enjoy an economy of scale cause they can share the fixed cost to more products and get less average costs, so if there is a new company which wants to enter need to do it with big investments or accepts cost disadvantage.

2.      Buyers willingness to buy. There are customers who are loyal to the specific company not only for prices but also there is a kinda partnership, so it is hard to enter a market where existing firms have good networks with customers.

Marketing mix or 4P analysis

To understand what is 4P analysis and why we need it, we should answer a question: What is a marketing? The answer is too simple and at the same time is a good guideline for any marketing analysis. That is “ Marketing is about meeting customers needs profitably”. For this purpose businesses need to sell appropriate product or service which satisfies customers’ needs   and this should be done in a right place, right time on a right price.

            Imagine situation when you sell expensive toys in a poor country or village, or you sell Christmas gifts in summer or warm coat in hot Brazil. Common sense even says that this is not going to work, so what every business need is to consider all these factors, cause even if one of it will be “wrong” business will have troubles. Any business needs to answer several questions to do some analysis to understand correct price, product, place and promotion.

Product is the first component in a 4P analysis and it is vital for any company to succeed. To design a good product in terms of a good or service company needs to answer some questions:

1.      What kind of needs customer wants to satisfy ?

2.      What kind of attribute our product has to do that?

3.      Is its size, color and other features preferable.

4.      What product lines the company has in a specific sector and so on.

Price

Induction Process explained with example

The induction program is an important part of human resource management. No matter what size is a company induction is an important program for setting a new employee into their role as quickly as possible. First, every company invests on its employee and needs to make them productive and get returns from that investment sooner. Second, if recruitment process failed it worth to know to change a person, to hire new one again as soon as possible, because it costs time and money to keep or train someone who does not fit in specific position. I would like to represent the induction process of CCMS NGO where I worked for two years. The organization has around 40 employees and specific steps of employee onboarding.

            Firstly, I would like to mention that in the organization there is no specialized HR employee and all processes related to HR is implemented by CEO who is also the founder of the NGO. I think this is the major reason that there is no formal procedure of induction process but there are several steps, which are implemented to set an employee to the role. 

Step 1: Before the new employee starts

This is an important phase to prepare someone to feel more confident and be less stressful before he/she will arrive at the workplace as an employee. For this purpose, CCMS administrative employee, mainly administrative executive sends the pack of information to the newcomer. Information includes the job description, one to two pages, stated in an informal way, organizational structure, culture, mission, vision and implemented major projects. In that pack, a new employee can also find an information about a mentor who is allocated to provide an answer to day-to-day questions. Mentorship is also an important practice for a mentor to improve his or her supervisory skills. I had the experience to be a mentor for EU volunteers in the NGO and for sure can say that it is one of the important parts of the induction program.  In addition, the workplace is prepared for the arrival of an employee.

 Step 2: First day

PESTEL Analysis

This analysis is done to understand the macro environment of a company and is supportive to 5C analysis context part. This analysis includes some investigation in Political, Economic, Social, Technological and Environmental Legal spheres. Let us discuss them separately:

Political factors influence upon the regulation of businesses questions that should be discussed are:

·         How stable is the political environment?

·         Will government policy influence laws that regulate or tax your business?

·         Does the government have a view on culture and religion?

·         Is the government involved in trading agreements such as EU, NAFTA or others?

·         Government and the health care

Economic factor has a great impact on a company and questions which should be discussed are:

·         Interest rates

·         The level of inflation

·         Employment level

·         Gross Domestic Product (GDP) per capita, etc.

Socio-cultural

5C analysis

In order to profitably satisfy customer needs, the firm first must understand its external and internal situation, including the customer, the market environment, and the firm's own capabilities. Furthermore, it needs to forecast trends in the dynamic environment in which it operates. 5C Analysis covers the internal, the micro-environmental, and the macro-environmental (climate) situation. It is an extension of the 3 C analysis (company, customers, and competitors).

The process of analyzing includes following steps:

·         Consumer characteristics & trends

·         Resources of the Company

·         Current and potential Competitors

·         Current and potential Collaborators

·          The Context or environmental factors

Company analyzing includes investigation of several aspects of it core activates and features like Product line, Image in the market, Technology and experience, Culture and Resources: Finances, Employees, Production, Development and Design, Research, Facilities, Marketing/Advertising. To analyze a product line firstly you should look what kind of product the company sales its dimensions:  Core benefits that it provides, actual product (styling, packaging, brand name, quality) and augmented product Installation, Warranty, after sell service and so on. Additionally, it is helpful to implement SWOT analysis to understand company’s real condition.

Competitors are very important factors who affect business’s everyday activates. So, it is an essential part of any analysis of a company to examine its competitors.   Major spheres that analysis should examine are:

Who are competitors: Actual or potential, direct or indirect what kind of market share they have, where they position their products and what kind of strength or weaknesses they have.

This specific information is needed because each of them offers different challenges and needs a different attitude.