Free «Stock Market Investment» Essay Sample

A stock market is an entity that trades shares belonging to companies at agreed prices (Bhole, 2009). It is not necessarily a physical facility but a network of transactions. People wishing to buy stocks in the stock markets engage the services of brokerage companies, which become their agent. Trading of shares takes place in stock exchange markets where setting of the prices of stocks is by the principles of demand and supply in a setting such as an auction.

When one places an order to buy shares in a company of their choice, the brokers use their networks to investigate whether there is anyone who is willing to sell such shares. When successful, a trading of the shares takes place and one owns the shares. Just like any other market place, trading of shares takes place between buyers and sellers (Simanovsky).

The word Stock market investment is a market capitalization technique involving the issuing and trading of shares in the stock exchange market with the sole aim of making profits. Thus, today many people are involved in investments in the stock market than it was done in the past. The internet has provided a platform for many people especially in London to access the London Stock Market in order to acquire knowledge on the investment practices available in London.



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London stock market incorporates two markets; the main market that is quote- driven and has a market for small companies stock including unlisted security market, the bulletin and the alternative investments Market. Shortly after the big bang, London stock exchange was restricted to cash instruments thus the options market became part of the London International Financial Futures and Options Exchange, which is the major securities derivatives in the United Kingdom.

The initials FTSE 100 stands for 'Financial Times Stock Exchange' FTSE 100 formed on 3 January 1984 to be index for most highly capitalized markets on the London Stock Exchange. Listing in the FTSE 100 comes with a list of requirements that companies are expected to comply with. The requirements incorporate standards on sterling-dominated price SETS, nationality test, free float and liquidity. (Moles P, 1997) .

Moreover, since it is made of high performing companies, the FTSE 100 is the tool that measures the British economy. Therefore, in order to understand the scope of the stock market, the study done in this coursework seeks to examine how the weekly price may fluctuate or remain steady in a six-week period in four of the listed companies in the FSTE 100.

A company listed in this stock exchange is the 3i group plc, which is a private venture and equity capital organization that specializes in emerging growth, middle markets, growth capital, mid venture, late venture and mature investments among others. The following is an overview of the performance of their shares in the FTSE 100.


The value of the stocks was on a general downward trend from February 20 to March 15 as shown in the line graph. This is an indication of a reduced demand for the stocks. However, from March 16, the prices had a significant increase. Indications that demand for the stocks increased. The value of the stocks reflects the value of the company and the confidence that buyers have on their return on investment (Mankiw, 2008).

Vodafone is the world's leading mobile telecommunications company, with a significant presence in Europe, Africa, Asia Pacific and the United States through the company's subsidiary undertakings, joint ventures, associated undertakings and investments. In 31 March 2007, Vodafone had approximately 206.4 million proportionate customers worldwide

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The share price of a company shows investors its net worth. The current price of the stock not only depicts the company's net worth but also the investors' expectations of future prosperity and the earnings. Analysts base their opinion on the performance using the share price ratios, P/E ratio amongst others in the interpretation of the bar graphs. If there is an increase in the share price of the investment from the previous period then the company experiences growth, otherwise the firm declined in the growth.

Between the Week 1and Week 2, the company experiences decrease in the close share prices because of less subscription of shares by of potential investors to the company. This in turn has a low impact on the rate of investment turnover in the company as depicted by the low share prices in the below bar graph.

A gradual rise in the close rate of share price between the second and the third week shows the positive influence by the potential investors who see it fit investing in the company because of the profits it accrued.

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The chart below shows the Closing share price of investments by Vodafone Group Plc.

Being in the banking sector, Lloyds Banking Group is the biggest ever UK bank. It is a Merger of Lloyds TSB and the Halifax banking Group HBOS. The government owns 43.4% the group; Lloyd TSB shareholders own 36% and the remaining 20% belongs to HBOS shareholders. The company engages in three segments: Retail banking, Insurance and Investments, and Wholesale and International Banking, though in the past six weeks, it has been one of the losers in the FSTE 100 having a steady drop in the value of the share index.

A fall in the share index from the third to the sixth week indicates that the share prices of the shares have progressively decreased. The decrement has a negative impact on the investment opportunities for the investors and therefore it discourages investment (Shleifer, 2000).

The banking group has experience a slight increment in the share price index in second week as compared to the first week of the month.

Lloyds Banking Group Share index

Some of the risks involved in investing in the equity market include inflation, where there is destruction of the value of one's stock. Economic risks, which affect those investing in shares and the economy of a country goes down. The values of the stocks go down with it and recovery takes a long time. Market value risks can occur where there is no demand for the stocks that you intend to sell, ignoring of these stocks will lead to their loosing value and eventually their causing huge losses.

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The advantages of using line graphs to analyze the performance of stocks are that they give a clear visual impression of the trend and offer one the opportunity to compare. These graphs give the investor the ability to predict the results of stocks in the near future and this information is very useful. The disadvantage of this method is that manipulating the way the line looks like is impossible and its accuracy reduces when it comes to big ranges (Clayton & Raddiffe, 1996).


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