Master's Theses

Date of Award

Spring 1968

Degree Name

Master of Science (MS)

Department

Economics, Finance, & Accounting

Advisor

Archie C. Thomas

Abstract

The author in this thesis prepared a formula investment plan for investing a low-priced stock and ran the study through two separate time periods to determine the feasibility of such a plan as an effective investment tool. Following the completion of a list of eligible stocks the author then initiated the first study period in January, 1957, which was completed in December, 1959. This period coincided with a general upward movement of the stock market and as a result a sizable profit was secured. Any losses resulting from stock transactions were infrequent, and when they did occur they were relatively small. Disregarding the few stocks which did suffer losses the remaining ones, even if they did not double in price, rose high enough to secure a profit. The stocks included in the first study period rose very favorably through the course of the study period. The second study period covering the time period between January, 1960, and December, 1963; was run under different circumstances than the first. Instead of a generally rising market there was a generally falling market. However, while the investment plan did result in a loss; it was limited somewhat by the use of the investment plan. Most of the stocks included in the portfolio resulted in a profit, but the few which did result in a loss were large enough to more than offset the gains. The two separate studies combined cover a period which could be considered something of a business cycle. The first time period covered the upswing and the second time period covered the downswing. Since the proposed investment plan will be continuous any user will be interested in how the plan functions through the various stages of the business cycle. The only point of concern will be that more profits are secured in the upswing than there are losses in the downswing. Such was the case in this thesis. The overall rate of return for both studies was 31.3%. The basic promise of the proposed formula investment plan was that low-priced common stocks fluctuate more than do higher priced stocks proved to be true. It was from these fluctuations that the profits were made. The exclusive use of low-priced common stocks thus had a double advantage of fluctuation and allowing an investor with limited capital funds a chance for greater diversification. The author feels the proposed formula investment plan has proved itself to be an effective tool to utilize in the pursuit of profit.

Rights

Copyright 1968 Timothy J. Gerstner

Comments

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