Investment Psychology: Analyzing Financial History of Three Companies

This essay explores the role of investment psychology in making rational investment decisions, focusing on the analysis of three companies: Amazon, Google, and Domino's Pizza. It discusses the influence of herd mentality, bull and bear markets, and psychological biases on investor behavior. The paper examines the financial history and current standing of each company, providing reasons for investing in them based on both emotional and logical factors. A comparative analysis with each company's competitor is presented, along with predictions of their future performance. The essay concludes by recommending investment in Amazon as the first priority, followed by Google Inc and Domino’s Pizza, based on their stock prices and market performance.

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Investment Psychology
Every investor’s objective to investing is to earn high interests or dividends. Investment Markets
are unpredictable and investors need to keep cost low and a working strategy for long term
investment success (Yang & Wagner, 2014). It requires an investor to maintain and have
psychological discipline to make rational investment decisions. Psychological discipline is
important for avoiding or minimizing bias when making investment decisions. Investors with
psychological bias make decisions based on their emotions rather than reason. An average
human behavior to investment is influenced by herd mentality and the bull and bear market that
hinder making of rational decision in the stock price though peaks and trough (Maheu, McCurdy
& Song, 2012). The herd mentality makes investor to follow what others are doing in the
investment market forgoing their independent thoughts (Dang & Lin, 2016). The bull market
make investors to think in optimism thereby buying a stock that eventually lead to the stock
being overpriced. On the other side, bear market is characterized with investors’ pessimism that
leads to share price losing in the stock market value. The share prices are not static and keep
changing. The peak share price is the highest price while trough is the lowest price of a stock at a
specified period of time. An investor should buy shares at trough and sell them at peak to
minimize cost of buying and maximize the price of disposing thereby earning a high interest.
The following paper with discuss three companies that I choose to invest in. These companies
are Amazon Inc, Google Inc, and Domino’s Pizza Inc. The paper will discuss their financial
history and current standing, reasons to invest in the companies both emotional and logical and a
comparison to each company’s competitor. The paper will also outline prediction of the
company’s future performance.
Amazon.com Inc
Amazon is a cloud computing and electronic e-commerce company with head offices in Seattle
Washington. Amazon started it operations in 1994. The company is the largest internet retailer
measured by market capitalization and revenue in the globe. Amazon sells products online that
include books, software, video games, furniture, food, toys, apparel, jewelry, consumer
electronics, and cloud infrastructure. The company also offers shipping services to their
customers in different countries.

Amazon is listed in the NASDAQ stock exchange and it trading name is AMZN. The company
stock price is US$1405 as at 6th April 2018. Amazon had total equity amounting to $27.709
billion and assets amounting to $131.31 at the end of 2017 financial year. The company recorded
revenue amounting to $117.86 billion in 2017 financial year from $89 billion in 2014 FY.
Amazon has a share volume of 5882 257 trading with $6.15 earnings per share. Amazon past
peak price was $1617.54 while the trough was $884.49.
Amazon close competitor is Alibaba Group Holding. Alibaba is a multinational ecommerce, AI,
internet, retail, and Technology Company. Alibaba is listed in New York Stock Exchange and
trading name is BABA. Alibaba stock price is $172.07 compared to Amazon stock price of
$1405. The company total equity in 2017 FY was $48.33 and it revenue amounted to $ 23.82
billion. Alibaba revenue increased by 23% in 2016 financial year while the stock price increased
by 79% from 2014 financial year.
Amazon is a good company to invest. First, Amazons has a high revenue of $177.87 billion
compared to it close competitor Alibaba which recorded $23.82 in 2017 financial year. The
Amazon Stock’s value also increase by 192% as compared to Alibaba which increased by 79%
from 2014. Secondly, there is an increasing trend to use internet for purchasing product. This
trend will enable the company to increase its sales and revenue thereby increasing return on
capital. On the other side, Amazon is led by the founder. Amazon CEO Jeff Bezos knows the
company intimately and is likely to care about the company performance more than any other
person. A Company led by founder tends to outperform in the stock market (Chen & Vincent,
2016). The CEO also owns 78.89 million shares that are 10.1% of the company. The CEO
interests are therefore aligned with investors’ interests. The Amazon stock price will therefore
increase as a result of stock demand in the stock market and company sales performance
Domino’s Pizza Inc
Domino’s Pizza Inc is a pizza restaurant headquartered in Ann Arbor in Michigan. Domino’s
was founded in 1940 and has grown to be the biggest pizza seller in retail sales worldwide. The
company operates involve food delivery, franchising and restaurants. Domino’s products are
chicken wings, pasta, pizza, dessert, and submarine sandwiches. The company is led by David
Brandon as the chairman and Patrick Doyle as the CEO.

Domino’s Pizza is listed in the New York Stock Exchange and trades under the name DPZ. The
company stock price is $231.46. The company recorded revenues that amounted to $2.79 billion
in 2017 FY. The total equity in 2017 FY was $1.88 billion. The revenues increase from $1.8
billion in 2013 to 2.79 billion in 2017. The company past peak for 52 weeks is $236.93 and
trough price is $166.74 ("Topic: Domino's Pizza", 2018).
The Domino’s Pizza Inc close competitor is McDonald’s. McDonalds is an American restaurants
dealing with fast food and was found in 1940. The company is listed in the New York Stock
Exchange and trade name is MCD. McDonald stock price is $161.25 as at 6th April 2018. The
company revenue reduced from $28.11 billion in 2013 FY to $22.82 billion in 2017 FY.
McDonald past peak for 52 weeks is $178.70 while trough is $129.52 ("McDonald's Corp.",
2018).
Domino’s Pizza is attractive company to invest fund. First, the company revenues have been
increasing for the past 5 year as compared to its competitor McDonald whose revenues have
been decreasing. The company share price is at peak. Therefore the company revenues, financial
metrics, current valuation, and dividend growth show that Domino’s is a good long term
investment (Frank & Sanati, 2015). On the other side, Domino’s Pizza Inc has loyal customers
and an increasing customer attraction will increase the company sales and revenues (Bouville,
2016). Therefore, Domino’s Pizza stock value will continue to increase in the future offering
investor higher returns on investments.
Google Inc
Google is a multinational technology business that specializes in internet services and products.
The company products include search engine, online advertising technologies, software, cloud
computing and hardware. Good was founded in 1998 by Sergey Brin and Larry Page and was it
IPO was done in 2004. Google ranked as the most valuable brand in the globe. Google is led by
Larry Page as the CEO.
Google is listed in the NASDAQ stock exchange and trading name is GOOGL. Google stock
price is $1007.04 as at 6th April 2018. The company recorded revenues amounting to $111.02
billion in 2017 FY that had increased from $59.73 billion in 2013. Google had total equity at

$152.50 at the end of 2017 FY. The company past peak for the 52 weeks is $1186.89 while the
trough is $817.02. The company earnings per share stand at $17.96 ("Alphabet Inc. Cl A", 2018).
Google close competitor is Microsoft Corporation. Microsoft Corporation is a multinational
technology company that has its headquarters in Washington. The company manufacture,
develops, supports, licenses, and sells personal computers and software, consumer electronics
and services. The company is listed in the NASDAQ stock exchange and it trade name is MSFT.
The company stock price is $90.23. Microsoft past peak was $97.24 and trough was $64.85.
Microsoft Corporation recorded revenues amounting to $89.95 billion in 2017 FY from $77.65
billion in 2013.
There are several reasons to choose Google for investments. Google revenues have consistently
increased for the past five years. The upward trend in increased sales will increase the company
earning and stock value. Secondly, the company has attractive valuation and reliable growth.
Google is the most valuable brand in the globe and it consistency in increasing sales will increase
the company stock value (Distinguin, Hasan & Tarazi, 2009). Google Inc is an innovative
company that periodically unravels new products in the market. This will enable the company to
maintain market leadership in online technologies. Lastly, adoption of online advertising by
many businesses will increase the company’s revenues in the future (Yang & Wagner, 2014).
Therefore, Google Stock Price will increase value in the future making it a good investment
option.
Conclusion
In summary, investment markets are unpredictable that can lead to loss or gain of invested funds.
Investor’s psychological bias is a barrier to successful investment. Investors need to separate
their emotions with reason when making investment decisions. From the analysis of three
companies in the write-up, Amazon has the highest stock price, followed by Google Inc and then
Domino’s. Amazon and Google have a large stock price variance with their close competitors. It
is therefore recommendable to invest in Amazon as the first priority, Google Inc the second and
lastly Domino’s Pizza as the last.

References
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https://www.marketwatch.com/investing/stock/googl
Bouville, M. (2016). When Investing in Stocks, The Long Term Starts at Three Decades. SSRN
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Chen, Y., & Vincent, K. (2016). The Role of Momentum, Sentiment, and Economic
Fundamentals in Forecasting Bear Stock Market. Journal Of Forecasting, 35(6), 504-
527. http://dx.doi.org/10.1002/for.2392
Dang, H., & Lin, M. (2016). Herd Mentality in the Stock Market: On the Role of Idiosyncratic
Participants with Heterogeneous Information. SSRN Electronic Journal.
http://dx.doi.org/10.2139/ssrn.2863657
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McDonald's Corp.. (2018). Marketwatch.com. Retrieved 7 April 2018, from
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Topic: Domino's Pizza. (2018). www.statista.com. Retrieved 7 April 2018, from
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Appendix
Figure 1: Amazon Income Statement 2014-2017

Figure 2: Domino's Pizza Stock prices and volume for past 5 year
Figure 3: Google Stock price for past five years