There are many factors which influence the value of shares on the London stock exchange. We had to find out these factors by performing a role play over a period of 4 weeks. We were given a capital of i?? 50,000 and were allowed to invest in no more than three companies at any one time. Week one was a week for buying shares only. The next two weeks were for buying and selling shares and recalculating share values. Week 4 was just for recalculating share value and calculating profit over the four weeks. The aim of the project was not to make money.
However, it was to understand the factors that influence the value of shares on the London stock exchange, hence the title. It was not a particularly good time for us to hold this role play, due to the terror strikes in the USA but there were still things to learn. Week 1 There were 5 companies we were interested in. These were Marconi, Tesco’s, BAE Systems, Barclays and Ryan Air. We decided that in order for us to invest in the company, there had to be concrete evidence that this would be a good choice.
Even though the aim of the project was not to try and make profit, there had to be a good reason, and evidence, for our choice. We though Marconi would be a good company to invest in because they were at their lowest ever and there was some evidence that they would go up. We thought Tesco’s would be good to invest in because we thought that people would be panic buying due to the U. S. terror strikes. We had solid evidence that Barclays would go up in value because they had a new scheme in which they were offering i??
50 million assistance to foot and mouth and they were offering loan repayment deferral and extended overdraft facilities. Barclays were also at a low point and therefore likely to go up. We were interested in BAE Systems because we thought that due to the terror strikes, demand for aeronautic equipment, especially from America, would be high. We had solid evidence for being interested in Ryan air. They broke a week of gloom following doubt about the aviation industry. Over night it made a 3% rise and last Monday they were down 17. 9% so it was obvious that they would go up.
We eventually decided to invest in Marconi, Barclays and Ryan Air which were all supported by solid evidence from newspapers and internet sources. We purchased 500 shares in Barclays (worth i?? 8,925. 00), 2000 Shares in Marconi (i?? 5,250 in value) and 6500 shares in Ryan Air (worth i?? 35,327. 50) We were left with i?? 497. 50 in cash and the total value of the portfolio was i?? 50,000. 00 Week 2 As we recalculated our portfolio’s we found, to our disappointment that we has lost just under i?? 1000. We soon discovered that Marconi, which had plummeted to even lower depths, was the full cause of this.
Had it not been for Marconi We would have made a profit. We hastily sold Marconi for a value of i?? 2,650. 00 and instead we embraced 550 shares from BP to the value of i?? 3003. 00. Our reason for purchasing shares in BP were because they were doing quite well in the stock market and because they are indulging in a i?? 650 million oil development in just off the west coast of Shetland which was poised to make jobs and money. We ended up investing in Ryan Air, Barclays and BP which were all supported by solid evidence from newspapers and internet sources.
We kept the 500 shares in Barclays, 6500 shares in Ryan Air (worth i?? 35,327. 50) and the BP Shares (Worth i?? 5,805. 00) We were left with i?? 144. 50 in cash and the total value of the portfolio was i?? 49,007. 00 Week 3 The purchase of BP shares led us flying back into making money; we recovered the lost money and made a profit of i?? 257. 77. We had predicted correctly that BP shares would go up. We, however, felt that although Ryan Air shares were increasing constantly in value, they were not generating profit quickly.
We decided to look into a company that had been increasing and would generate profit quickly. We soon decided it was Lloyds TSB that we would invest in. But this was only part of the reason, the other part of the reason was that we wanted to gain experience in the world of shares and financial markets. We sold all of our Ryan air shares (i?? 37,115. 00 in value) and purchased 5000 Lloyds TSB shares (i?? 34,400 in value) leaving us with i?? 2,859. 00 remaining in cash. Week 4 This was the week in which no buying and selling was to take place but just a re-calculation of shares.
We made a huge profit from Week 3 in which we were only just recovering to make i?? 747. 75 more meaning that we made from the start a i?? 1,150. 00 profit which is good considering we suffered a heavy blow in week 2. We were left with i?? 51,150. 00 a good finish. What we learned from all the choices we made Marconi – When we purchased Marconi, we were optimistic that they would increase in value. Although we had evidence to suggest that Marconi shares could increase, we didn’t have enough. One of the articles, part of the evidence, is entitled ‘Board builder ready to take on Marconi’.
The article contains content on how a new interim chairman for Marconi was appointed and saying how there were many things he was going to do to bring Marconi out of debt and back into the light again. This was not enough evidence to suggest that Marconi would do well. It was only afterwards in which 3 more articles generally saying how Marconi shares were poised to go down in value and Marconi were set to plunge deeper into debt, were found. It was then too late to change the decision on our portfolio was led swiftly into losing money.
As soon as we got hold of this evidence we pulled our money out of the company. We learned that usually when a company is in debt it shares tend to go down but this is not always the case. Also, when people think that the company is going to lose money most people pull their shares out as was the case in one of the articles when Marconi fell down 11% after people feared it could lose another i?? 200 million. Ryan Air – We had to look very carefully before investing in Ryan air because just after the terrorist strikes on the world trade centre and the pentagon, the tourism industry faced a big blow.
But Ryan air stood against the odds and is beginning to rival companies such as British Airways. This is because it is a low cost airline company. Ryan Airs careful strategy kept it afloat even in the wake of the terrorist attacks. It offered 1 Million seats for i?? 9. 99 in a successful bid to maintain demand for air travel. From this we can conclude that if a company makes a successful bid to save it from falling into trouble, share value would go up. Lloyds TSB – We chose this company mainly for experience in stock markets.
We didn’t really have any evidence on why we chose this company but the shares still went up. I feel this is probably because the company made a profit or were going to make an investment of some sort. It was announced recently that this company were beginning an online car business. This may have increased consumer interest and led to share value increasing.
Barclays – Barclays went up in value because they had a new scheme in which they were offering 50 million assistance to foot and mouth and they were offering loan repayment deferral and extended overdraft facilities. Barclays were also at a low point and therefore likely to go up. The share value went up for Barclays because it was providing assistance for foot and mouth farmers. It was able to provide this service quickly and therefore helped share value go up. We can conclude therefore that when companies can provide assistance to people in crisis’s as big as the foot and mouth in the form of money, it tends to increase share value in a company.
BP – BP went up in share value as they had plans to begin a i?? 650 million development in a new oil field just off the coast of Shetland. This instantly aroused consumer interest and the share value of the company rose. If a company plans to make an investment poised to make money this will attract consumer interest and increase share value. Conclusion We have learnt from this product that there are many different factors which affect the value of shares on the London stock exchange.