Real-Life Math
A big part of your responsibility to your clients is deciding which
stocks or mutual funds will help them meet their investment goals. Some clients
will be able to tolerate more risk than others. Your decisions carry a lot
of impact because other people's livelihoods are at stake.
Every
money manager will make mistakes at one time or another. "It's part of
investing, but it is difficult to explain to a client why you made the wrong
decision. Most of the time they are understanding," says portfolio manager
Mike Ward.
You look at a number of factors to determine
whether you want to add a particular company's stock to a portfolio.
A good starting point is the company's annual report. You try to get
a sense of how strong the company is, how it compares to other similar businesses
in the industry, and how it may fare in different economic climates.
Turn
to the financial statements. Some of the elements you will evaluate include
the sales and earnings figures, price-earning ratio (P/E), the earnings per
share (EPS), the projected future EPS, and other ratings.
You are comparing
2 financial institutions: Save-Moor Bank and Happy Returns Bank. Here are
the analysts' recommendations for this week:
Save-Moor Bank:
(Ratings
are from 1 to 5, with 1 being a strong buy and 5 being a strong sell.)
| Recommendations | Rating | Number of Analysts |
|
| Strong Buy | 1 | 3 |
| Moderate Buy | 2 | 5 |
| Hold | 3 | 18 |
| Moderate Sell | 4 | 1 |
| Strong Sell | 5 | 2 |
Happy Returns Bank:
| Recommendations | Rating | Number of Analysts |
| Strong Buy | 1 | 3 |
| Moderate Buy | 2 | 4 |
| Hold | 3 | 19 |
| Moderate Sell | 4 | 2 |
| Strong Sell | 5 | 0 |
It looks like a close call. Calculate the average recommendation
and see which one comes out ahead.