IBM is a multinational firm operating under the IT sector, whose investment objectives entail the following.
To realize the utmost return on investments while avoiding exposing the company’s assets to undue risk.
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Maximizing the dividends, the investors reap from their investment is a chief priority.
Managing its investor’s money in the best interest and assisting them to accumulate the funds invested.
Offering its investors a broad spectrum of investment options while furnishing them with the most up-to-date information about the performance of their investment.
Diversifying its investments to include acquiring a stake and stocks in a wide area.
Citing performance of their investments in the past and expectations that the higher dividends are on the way, IBM has expected the rate of return on investments to hit 8.7% by December 31, 2018. In order to facilitate the evaluation and review of its investments that are currently underway, IBM has come up with clear benchmark portfolios to evaluate its investment performance. These benchmarks will be revisited and reviewed every year and amended as the circumstances may necessitate. The fund will be benchmarked as follows:
Whether the fund invested must stick to the intended investment style as well as market capitalization categorization.
Whether it performed in a way that is in line with the intended investment style.
Whether its performance satisfied the investors.
Whether the performance fell below the stated objectives in the short-term.
Whether there is a violation of the investment framework, rules, and guidelines.
Whether there is a transfer of ownership of the firm where investments have been made.
If the departure of crucial investment expert in the company would threaten IBM's investment fortunes.
Key assumptions are that the funds invested will provide sufficient return on investments to keep the investors satisfied. It also surmises that IBM as a strong firm has the ability to attract a host of investments offers. Key sources of information on investment will be government records, Wall Street journals, the media, internet, business periodicals, and magazines. The investment plan will center on targeting and buying off bankrupt and collapsing technological firms. Risk will be averted by avoiding investment unsophisticated technologies. IBM will time its acquisitions during financial meltdowns and will aggressively try to undercut its competitors out of business if they fail to refuse their firms or even a stake of it. Table 1 shows various stocks with their respective strategies.
Table 1
Stock Strategies
| Trade | Strategy |
| Yahoo stock | Third-party proxy |
| Federal Reserve bond | Targeting 25-year bonds |
| IBM equity | Selling stock only when it is high-priced |
| Facebook stock | Hostile take-over |
| Intel plant | Waiting for the company’s financial meltdown |
| Eurobond | Targeting Third World countries with budget deficits |
| Buying HP stock | Offering the company a stake in IBM |
| Acquiring a stake at Microsoft | Waiting for the company’s equity |
| Gaining a controlling stake at Google | Persuading the shareholders to sell a fraction of their stock |
| JP Morgan’s Chase Bank stock | Waiting for the next financial depression |
| Toshiba stock | Proposing a swap of IBM’s subsidiary in Japan in exchange of stock in Toshiba |
| Barclays Bank stock | Threatening to transfer IBM huge deposit there to another bank unless offered a stake in the bank. |
| Samsung stock | Induce the company to approach IBM |
| LG’s equity | Overbuying the stock. |
IBM investment strategy includes a host of techniques. First, it will buy stocks in undervalued companies. It will use third-party proxies to discreetly acquire a stake in other firms. For the case of Yahoo, the company will set up a proxy to buy shares on IBM’s behalf in order not to set the alarm and upset the prevailing market prices. It will then later buy that proxy making it appear like a normal buy-off. It will also target 25-year treasury bonds. It will also sell its equity only when it is highly priced. Sometimes, it will initiate hostile takeovers. It will also wait for firms to go under and buy them cheaply.
Using ROA parameters, the company will maximize its earnings and dividends paid in relation to its total assets. The net income will, therefore, have to be increased by actualizing the investment strategies formulated above. Using ROE benchmark, IBM will increase its profitability by increasing the equity issued to outside investors. The money invested will increase profit margins. IBM will also increase its free cash flow in order to have money to expand its asset base: a form of investment. The more the operating cash flow, the more the free cash flow, and the more money there is for capital expenditures.
Market timing strategy has been employed to support IBM’s strategy of selling its equity at a high price to raise capital but later re-acquiring it at relatively lower prices. It will not sell its equity until market conditions are suitable. The investment managers have the responsibility to advise IBM board on the best time to roll out its equity to the public.
IBM has a host of equity trading strategies, which it employs during its major corporate fiscal events. The first strategy is persuasion. During its annual earnings and dividends announcements, the company uses the occasion to persuade potential investors about the attractiveness of the equity stock. The company also uses the occasion to project an image of stability and market leader. The turnover, gross profits, growth projections and innovations and inventions made by the company are all blended together to persuade the public to invest in IBM stock when it is rolled out next. The second strategy is that of demonstration. The company uses the dividends earned by existing investors to prove the feasibility of the IBM stock. Since investors require a full conviction to invest, they must be persuaded with market facts. The third strategy is the scarcity of the equity traded. IBM makes sure that it offers as little stock as possible to the public to keep the prices high.
There are different performance criteria for evaluating equity performance. Alpha measures an investment against a set benchmark, which is considered representative of the market as a whole. Beta measures an investment’s risk against the whole market. Sharpe ratio measures the investment’s performance by adjusting its attendant risk. IBM investment has a low beta but a high alpha. The Sharpe ratio indicates that IBM equity compensates its investors well for the risk undertaken.
In conclusion, the main findings of this research project have been the unearthing of IBM’s investment objectives, its equity investment plan, equity-trading strategies in the context of the diverse financial theories and financial events. This research has been educative, as it has exposed the learner to diverse trading and the appropriate trading strategies, the benchmarks to use while evaluating the performance of a stock as well as ways to employ various tools to evaluate stock performance.
