Portfolio Management Project Risk Tolerance

Portfolio Management Project

Risk Tolerance Survey

In general, do you consider yourself to be a risk-taking person?

a) Yes

b) No

c) Sometimes

Say you have family that depends on your for support. Do you choose a risk but well-paying career (underwater welder, roughneck) or accept a safe but relatively low-paying career (shipper/receiver, tax accountant)?

a) I won't get hurt, give me the money

b) My family needs me too much, give me the desk job

c) I'd take the risky job, but make arrangements to protect my family (ie. life insurance)

Do you trust your investment advisor/financial planner?

a) Absolutely

b) No, I invest in treasury securities and savings accounts c) Only when I am thoroughly briefed on the investments and their rationale

Q4. Would you buy a house to flip it, given the current housing market?

a) Given the market right now, no way.

b) Yes, buy low today and sell high tomorrow!

c) The housing market fluctuates, so I would need to consider my time frame

Q5. You get a handsome bonus. What do you do?

a) Spend it, I get another one next year

b) Save it, it could be my last

c) buy a small treat but hold onto the rest

Q6. You view the stock market as

a) exciting

b) risky

c) a valuable component of a balanced portfolio

Q7. If you invest in a stock and it goes down 40% in the first year, but is expected to perform well over the long-term, does this bother you?

a) No, buy more!

b) Yes, I want out. Sell!

c) I would need to investigate the underlying reasons for the decline before making a decision

Q8. How badly do you need the money in your investment account?

a) I'd hate to lose it, but there's more where that came from b) I would be doomed without it

c) It is important, which is why it needs to be invested wisely and rationally

Q9. If the stock market tanked but one of your securities performed well, what would you think?

a) That stock's a champ!

b) Who cares about that stock, the market tanked.

c) That stock is a contrarian performer that lowers the total risk of my portfolio

Q10. Risk =

a) reward

b) stress

c) the market's view of a security's volatility

Points for answers -- a is worth 3 points, c is worth 2 point, b is worth 1 point. On a scale of 10-30 your score indicates your risk tolerance, with 20 being moderate.

P/E, Projected Price

The P/E for Apple is 31.79. The company has a very high EPS, however, and this cannot be expected to hold forever. Apple's earnings could dip, bringing down the multiple slightly as well. If earnings drop to $5.50 per share, the multiple could be 25, making the new stock price $137.50, a dramatic reduction from its present highs.

Brocade has negative earnings. The company is struggling financially, and there is little indication that it will recover. Thus, the stock price is expected to hold steady until a significant change occurs with the firm's earnings or operating environment.

Joy Global's success is tied to the cyclical mining industry. The firm's current P/E is 12.38, indicating a mature operating environment. As commodities markets begin to improve, growth in the mining business will pick up. Increased growth will improve Joy's multiple, perhaps up to 15 times. This will give the company a stock price of $64.95.

CTrip has a P/E of 77.21, very high but supported by the firm's high growth rate. Interest in China tourism will continue to grow at a faster rate than overall economic growth. As a result, the multiple is justified. Earnings will continue to improve at their historic rate, given the company an expected future share value of $143.61.

Gerdau's success is tied to industrial development in Brazil. The P/E is currently 64.40, which indicates a high level of growth. The Brazilian has performed well in recent years, but its growth is volatile. Gerdau's growth has been strong some years, minor in others. The current high P/E reflects strong recent growth, but the multiple should come down in the coming months, to around 58 times earnings. This will give the stock a value of $14.50.

Gol Lineas has no trailing P/E, since it loses $1.74 per share. The forward P/E is 12.07 times. However, rising fuel costs and struggles in the Brazilian economy due to the economic downturn will see the earnings fall short. The company will again lose money, so the actual P/E will be negative. The stock will fall as a result of this underperformance, to around $9.

Green Mountain Coffee Roasters has a high multiple of 45.21 on account of its rapid growth in the past couple of years. This growth is unlikely to be sustained as the company matures and enters into more intense competition with existing coffee outlets. The multiple will need to come down to around 30 in order to match the company's realistic future growth prospects. This will give the stock a price of $41.70.