Facebook IPO

Today is my last day on my senior project. I had a meeting with Mr. Strand at American Research and Management. We discuss the new IPO (initial public offering) by Facebook. Mr. Strand recommends to his clients that they do not invest in share of a newly made public company as this involves high risk unlike that of a company a few months down the line in which market trends and reports have been produced to get a better idea on what to expect. However, some of his clients insisted that they have some shares. Each shareholder by law is entitled to a copy of the registration statement, this booklet is over 400 pages long lining out all the information a shareholder will need to know in terms of risk taking, financial records and projected investment ideas. Facebook is releasing 337,415,352 shares of common stock and 180,000,000 shares of its class A common stock onto the market. The difference between the stocks comes in the form of voting and conversion rights. The CEO, founder and Chairman, Mark Zuckerberg will have or have the ability to control about 57.3% of the voting power of the outstanding capital sock flowing the offering. The company currently has 901 million active monthly users, 3.2 billion likes and comments per day, 300 million photos uploaded each day and 125 billion friendship. This all enables Facebook to continue making money via there selective advertising, which companies will pay high premiums to have access to client data base and information regarding a target audience for their products and services.

            During this weekend I will be working on finishing off the financial planning portfolio to have a copy to show the audience next Friday at my presentation morning. I will also be making a PowerPoint presentation in order to give a visual aid to those who come to visit. Now I have finished my project I will be able to have a retrospective view on what I have gained and learnt out of my six weeks in order to produce a review for next Tuesday. I hope that a good amount of people will come to my presentation on Friday and learn that the world of finance is not as boring as some may think and hopefully they will be pleasantly surprised with what one can accomplish in a six week senior project.

AP Economics

            Today, I had my AP economics exam so I was unable to go Ameriprise in Fall River. The exam took up all of the working day as the Macro module was in the morning and Micro in the afternoon. I found the Macro multiple choices, which consisted of sixty questions manageable, and the free response also went well. I was able to write a lot and give in depth explanation to the Macroeconomics affects to the objectives of low inflation, low unemployment, steady economic growth and balance of payments.

The Micro multiple choice was a little more demanding, I find this module slightly harder so I was less confident on this one. The free response questions consisted on efficiency, market types, and comparative advantage. My college in the UK takes AP credit but I need to fine out if they count that towards freshmen year or if it’s just counted as a type of entrance requirement equivalent to A-levels.

After the exam I had my usually sailing practice in the afternoons. I am part of the JV team; I have loved going out in the afternoons, and especially when it’s sunny! I think some of my team has enjoyed hearing about my days on my internships as they usually ask how its all going and express some interest in wanting to know more information about certain aspects. It is also a great way for me to put into my own words what I felt I learnt from the day, half the time it surprises me just how much I have picked up! I have found my senior project has been very helpful for gaining knowledge on fields, which will be usually in everyday life and of that when I have money I would like to invest in life insurance, annuities and mortgages! My friends mum is looking to buy a house this summer, when my friend mentioned if I knew anything about mortgages I was quietly satisfied to give an explanation of what there about and how now is a great time to take one out due to the all – time low rate of which I wrote about on Tuesday’s blog.

I have started to plan my presentation for next Friday morning. I have taken pictures of the team at each of the internships to give a visual aspect to my power point. This weekend I will work on fine-tuning it for the first practice on Sunday evening. 

Market conditions for Real Estate

The team at Coldwell Banker, Marion -------------->


Today at Coldwell banker, we toured two properties that recently came upon the agent’s books. I like viewing the properties for sale with the other agents because it gives me an insight to what the agents then suggest to the seller in order to make their property more appealing for potential buyers. I learnt that Standard & Poor’s/case – shiller allows for home price indices in order to track changes in the value of residential real estate. While the Freddie Mac calculated house prices projected on what a given house purchased at a point in time, which would be worth, today if it appreciated at the average appreciated rate of all homes in the area. The actual value of any house will depend on the local real estate market, house condition, and age, home improvements made and needed. We also discussed the very low mortgage rates, which came out for the 15-year and 30-year fixed period. I decided to look into the last three weeks economic history in order to gain an understanding of why the low mortgage rates came to be.

On the week of April 26^th 2012, the federal government stated that it expects economic growth to remain moderate and then pick up gradually. Labor market conditions improved in recent months and anticipate the unemployment rate to decline gradually.

On the week of May 3^rd 2012, there were signs of slowing economic growth and inflation remained unresponsive which allowed the yields on treasury bonds to ease somewhat and brought most mortgages rates to a low record. The real gross domestic product that week rose at an annualized rate of 2.2% in the 1^st quarter of this year down from the previous 3.0 and below the market forecast of 2.5%. The twelve months growth in the core price index of personal consumption expenditures was 2.0% in March, which matches the federal reserves inflation target.

On the week of May 10^th 2012, there was a weaker than expected employment report and the French and Greek election resulted in raising concerns over the stability of the Euro currency zone, long term treasury bond yields declined allowing fixed mortgage rates to ease to new all – time record low (30 years at 3.83%; 15 year 3.05%). The economy added only 115,000 jobs below the market consensus forecast & less than in march. Although the unemployment rate decline, it reflected fewer people actively seeking jobs. 

Meetings and Marketing

Today at Ameriprise I firstly worked on going through the client data system to ensure that all the clients on Tom’s books had a meeting scheduled with him this financial year. It is advisors policy to ensure they have an annual meeting with their clients to discuss any changes that may need to be taken place. Advisors however, like to try to meet as much as possible as renewals can be done and more money can be made through investments. To make the schedules I would go through the clients passes meeting records to see at what time of year and at what time they prefer to visit, giving consideration for those who live elsewhere other parts of the year and those who have full time jobs who may prefer evening meetings. I went through Tom’s schedule to see which times would be best for him, then filled out an electronic invitation letter stating the time, date, who to call if a change needs to be made and contact information for the client. These then got printed off and enveloped along with a mock timetable of Tom’s schedule in case they preferred another time. I also got a chance to answer the phones, this was actually quite tasking people most of the clients are elderly so they speak softly and don’t like to repeat themselves.

The next task was to make an invitation to a marketing event happening in June in Rode Island. This included information about guest speakers and what the event would entail. The marketing event helps to keep the current clients up-to date on possible product ideas and give a chance for Tom to have potential new clients on his books that help to increase his client base. Events like these help to keep good relationships with clients, which is a must for Tom to encourage other family members to invest with him.  We also filled out paperwork that will get sent to Ameriprise head office in Minneapolis’s, this paperwork can prove to the parent company that this marketing event will be beneficial for the company as a whole, which allows Tom to be reimbursed the expenses incurred from having the guest speaker and the food and drinks at the venue.

This is my last day at Ameriprise for my senior project; I have really enjoyed my time there. I will go back next week for “fun” as I feel spending as much time as possible there will only increase my knowledge base for the field of finance.  

US small, large and international funds

Today at American Research and Management I looked at Morningstar reports in order to decide which funds would be better to invest into for the family. Morningstar reports rate mutual funds from one to five stars based on how well they've performed in comparison to similar funds. Within each Morningstar Category, the top 10% of funds receive five stars, the next 22.5% four stars, the middle 35% three stars, the next 22.5% two stars, and the bottom 10% receive one star. The funds are rated on time periods such as one; three, five, and 10 years and these ratings are combined to produce an overall rating. The ratings given are objective and based entirely on a mathematical evaluation of past performance, They are a useful tool for identifying funds so this is why it is a good resource for me to help gather information on which to base the Smiths investments on.

I produced a spreadsheet with Fixed income investments, US large company, US small company and International on a % total return of one month, three months, total return YTD, total return 12 months, % return 3 years and the expense ratio. I also incorporated the Standard and Poor’s 500 rating for comparing the US large cap total to show comparisons on market trends and rakings. For the US small Cap total I used the Russell 2000 and the international total I used the MSCI EAFE.

To gain access to Morningstar reports a membership is needed. Mr. Strand kindly gave me this admittance in order for me to study various funds in order to research, which would be suitable for the family. I have chosen for the US small company caps the following – Conestoga and Walthausen. This provides a 21.4% and 30.3% return over three years; this compared to the market trend of small cap at 25.9% is doing well in combination. The US large companies chosen were – Artisan Value fund investor shares, Edgewood Growth Instl and Jensen I. These funds provide an 18.5%, 15.7% and 16.5% return compared to the market average of 17.3%. For the International funds the ones chosen were the Thornburg international growth I, WHV international equity I and the Artisan International Value investor, which provide returns of 25.3%, 14.9% and 17.9% which compared to the market trend of 19.4% is doing well as a group. 

Mr. & Mrs. Smiths Life insurance

Today, I worked on my financial planning portfolio for American Research and Management. I researched into what sort life insurance would suit them and how much should be allocated incase one spouse was to die before the other. 

The average women life expectancy is 80 years in the US while the men life expectancy is 75 years. Based on this information I will work out the Mr and Mrs Smiths life insurance quotes at http://www.accuquote.com/tools/term-life-insurance-calculator.cfm

Average inflation rate =

The total average over 12 years = 30.54% divided by the 12 years:

30.54%  / 12 = 2.545% (3%)

The average interest rate is based on a 10-year average of 6%

Mr. Smith:

Annual income before tax: $105,000
% Of income needed by dependents: 57%
Age: 40
Numbers of year’s benefits are needed: 35
Annual inflation rate (estimate): 4%
Annual interest rate (estimate): 6%

Mr. Smiths needs to earn $1,881,421 in life insurance to insure Mrs. Smith is financial secure from his loss of income.

If income doesn't keep up with inflation, the purchasing power of Mr. Smiths will diminish. For example, if inflation rises five percent every year over the next 35 years, a earnings are $105,000.00 he would need a salary increase of $3,150.00 each year just to keep pace. At the end of the 35-year period, the salary would total $215,250.00, but would only offer the same purchasing power of the original $105,000.00.

Mrs. Smith:

Annual income before tax: $51,000
% Of income needed by dependents: 27 %
Age: 40
Numbers of year’s benefits are needed: 40
Annual inflation rate (estimate): 4%
Annual interest rate (estimate): 6%

Mrs. Smith needs to earn $360,666 in life insurance to insure Mr. Smith is financial secure from her loss of income.

If income doesn't keep up with inflation, her purchasing power will be diminished. For example, if inflation rises five percent every year over the next 40 years, Mrs. Smiths earnings of $51,000.00 would need a salary increase of $1,040.00 each year just to keep pace. At the end of the 40-year period, the salary would total $82,600.00, but would only offer the same purchasing power of the original $51,000.00.

The price of faith

The next chapter of my book was named “The price of Faith”.  I found this chapter interesting as I always previously assumed that religious faiths are close knit in order to help their career prospects by having a easy networking ability to land good jobs and socialize with like minded people, that could potentially be off help to them. As I began to read on it seems that the ultra-Orthodox in Israel earn less than half of what non-Orthodox families do. I learnt that in the mid – 1990s, their fertility rate was 7.6 children per women while the fertility rate of other Jews in Israel was bout 2.3. This would help to improve a family’s lifestyle as a family would have more to invest in fewer children, but I was surprised this only occurred in the Jewish faith in Israel so late in the century. The next piece of information that caught my interest was how certain U.S states can link up religion to fertility and affluence. I learnt that New Hampshire was the least religious state in the Union, where 21.4% of its population are atheist or have no religious beliefs. It is a rich state with a median income per capita of $74,625 and it only had forty-two births per one thousand women. In Mississippi on the other – hand had sixty-two births per thousand and a median family income of $44,769, of this state only 5.8% reported not having a religious belief.


It was noteworthy to read that the happiness gap between those who go to church every week and those who never go are about the same magnitude those between the richest 20 percent of Americans and the poorest living among the bottom fifth. 

            I’ve really enjoyed this book so far I just have two chapters left. I put down five books to read in total but I doubt I will be able to read them all before the end of senior. They are books that I would like to read at some point so I guess I’ll have to put them on my summer reading list!