Investment Psychology: A Comparative Analysis of Three Companies

This report delves into the realm of investment psychology, exploring how human behavior and cognitive biases influence financial decisions within the stock market. The analysis focuses on three prominent companies: Alibaba Group Holding Limited, Tesla Motors Inc., and Apple Inc. The report examines their financial history, competitive landscapes, past market fluctuations (peaks and troughs), and the emotional and logical factors driving investment decisions. It explores the impact of bull and bear markets, herd mentality, and the importance of understanding market psychology to make informed choices. For each company, the report provides a detailed overview of its business operations, financial performance, and key reasons for investment, supported by relevant data and market trends. The report further assesses the potential risks and rewards associated with investing in each company's stock, considering past performance and future prospects. The overall aim is to provide a comprehensive understanding of how psychological factors shape investment strategies and outcomes within the dynamic environment of the stock market.

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Investment psychology
Investment decisions are largely influenced by human psychology. Investing goes behold
rationality and statistics and decisions are made based on human intuitions (Yuniningsih, Sugeng
and Muh Barid, 245-263). Investments are important for enabling an individual to meet financial
goals more easily. Investments generate income by putting forth an amount (something) with
expectations of a higher return in a future time. Investments allow a person to create wealth and
become financially independent (Nofsinger, 76). The investment decisions are characterized by
uncertain stock markets, risky ventures, unpredictable environment, and changing business
environment. Investors make decisions differently as they are influenced by behavior, mind,
conscious, unconscious and thoughts. Investors’ make investments decisions with an objective of
increasing their returns on investments (ROI) or getting the highest interests (Luthans, Carolyn ,
and Bruce, 321-340,).
The stock market bull and bear impact investment decisions and it depends on human
psychology to make decisions in these situations. The bull market is characterized with optimism
that leads to increased market rally increasing the stock price. The bear market on the other side
is characterized with pessimism leading a decreasing stock price (McPhee, 107).The bull market
make average investors greedy who buy many shares leading to the stock being overpriced. The
bear markets rally everyone to fear a stock and sell their share leading to a fall in the stock price.
The herd mentality when investing influences investors to think the same way and act according
to a group instead of making independent investment decisions. The peaks and trough situations
in investment happens regularly in the stock market. Prices keep changing and range from the
highest price (peak) to the lowest price (trough) and require understanding the investment
psychology to make appropriate decision in different times of price change (Kim et al., 140-154).
The following write-up contains discuss for three companies that will be analyzed for
investments. These companies are Alibaba Group Holding Limited, Apple Inc, and Tesla Motors
Inc. This will involve analyzing their financial history, competitors in the market, past peaks and
trough and reasons for buying their stocks both emotional and logical.

Alibaba Group Holding Ltd
Alibaba Group is a multinational ecommerce, Internet, retail, AI and Technology Company. The
company through subsidiaries operates in four segments; cloud computing, core commerce,
entertainment and digital media, and innovation initiatives. Alibaba provides business-to-
business, consumer-to-consumer and business-to-consumer sales services through web portal.
The company also provides electronic payments services, cloud computing and shopping search
engines. Alibaba operates in more than 200 countries.
Alibaba Group Holding Limited trades in New York Stock Exchange as BABA. The company
stock price is US$ 172.07 as at 4th April 2018. The company had a total equity of US$ 48.33
billion at the end of 2017 financial year. Alibaba 2017 revenue amounted to US$23.82billion.
The company revenue in 2016 financial year was US$22.96 billion which was 56% higher from
2015 FY. The stock price was US$121.27 in 2016 FY while 2017 stock price US$142.
Alibaba main competitor is Amazon. Alibaba revenue grew from $3.14Billion in 2012 FY to
$22.99 Billion in 2017 FY compared to Amazon that grew from $48 Billion in 2011FY to
$135.99 Billion in 2016 FY. The Amazon’s revenue grew with 23% while Alibaba revenue grew
by 48%. The Alibaba stock price increased by 79% from 2014 compared to Amazon that
increased by 192% during the same timeframe.
There are several reasons to buy Alibaba. First, the company revenues are increasing at a high
percentage that will increase the net income leading to a higher dividends payment. There is an
increasing trend for consumers to buy products online that leads to upward sales revenues. The
revenue increased to $23 in 2017 from less than $11 billion in 2014. The company has a large
scale of operation where the company managed $547 billion online shopping portals of retail
transactions in 2017 and they are expected to increase by $1 trillion by 2019. Secondly, the
exploding Chinese economy will favor the performance of Alibaba. The Chinese economy
accounts for 86% of the Alibaba retail sales. The Chinese economy has a gross domestic per
capita income of $3000 which is expected to grow to $13300 within 20 year. This is different to
US which will increase by 28% at the same time. Third, Alibaba has diversified operations. The
company is not all about retail but is also involved in other services such as digital media and
computing tools. Fourth, the Jack Ma’s vision for Alibaba will drive sales up leading to

increased dividends payment. The Jack Ma wants the business to serve more than 10 million
small business and 2 billion consumers (Chandra, 203). Lastly, the company insider ownership
will also drive it performance Jack Ma owns 6.3% of the company shares that amount to $27
billion. Jack Ma personal fortune is tied to the company success and will act as an incentive to
the company performance to increase its value.
The Alibaba past peak for the past 52 days is $206.20 while the trough is $106.78. There is
variance is $99.42. This shows that the Alibaba shares have a high potential of rising up to $206
which represent 23% from the current share price of $173. On the other side, the company shares
can drop down by 40% to 106 from the current $173. Therefore investing in Alibaba shares has
both possibility where the investor can lose by 40% or gain by 23%.
Tesla Inc
Tesla Motors is company that specializes in energy storage, electric vehicles, solar panel
manufacturing. The company was founded in 2003 and is based in California. The company
products include lithium-ion battery, electric cars, photovoltain panels, Telsa Powerwall
batteries, solar panel, sonar roof tiles, and Powerpack batteries. The company is led by Enlon
Musk who envisions that the company will be a leading technology company and automaker that
will offer affordable electric cars at competitive prices to average income consumers. The
company subsidiaries are SolarCity, and Telsa Grohmann Automation.
Tesla Motors has a total equity of US$4.24 billion at the end of 2017 financial year. The
company recorded revenue amounting to US$11.76 billion during 2017FY. The Company is
listed as TSLA in the NASDAQ. The Tesla common stock price is $299.67 as at 4 April 2018.
Tesla Revenue increased from $3.2 billion in 2014 to $1.76 billion in 2017.
The main Competitor for Tesla Motors is Ford Motors. Ford is a multinational automobile
company with headquarters in Michigan. Ford is listed in NYSE and it trading name is F. It stock
value is $11.5 as at 4 April 2018. Ford Motors earned $156.8 billion in 2017 from $147 billion in
2013.
There are several reasons to buy Tesla Motor share. First, the company has a beloved brand.
Consumers are increasingly shifting to products that conserve the environment. The Company

Roadster brand is not one decade old but has managed to get top 100 global brands in interbrands
List. The Tesla brand is estimated to be worth $4 billion. Secondly, the company enjoys low cost
marketing. Tesla Motors innovations make headlines that attract media attention. Most of Tesla
moves are covered in details by media that provide unbelievable free amount of advertising. The
company is therefore able to lower its operations costs that are then channeled to other projects
or minimize the operations costs optimizing returns. Thirdly, Tesla enjoys ridiculous loyal
customer base. The company has loyal customers who are willing to buy the same brand given
another chance. The customers are highly satisfied and Tesla is ranked first among automakers in
the industry in terms of consumer satisfaction. Fourth, Tesla is located in Silicon Valley at the
hotbed of engineering and technology. The company is therefore able to attract talents that will
lead innovation that will increase the company value. Lastly, Tesla Motors has access to SpaceX
engineers. Tesla CEO Elon Musk is also the head of SpaceX Company. SpaceX is a valuable and
remarkable company makes rockets and leads innovation on engineering, material science, and
manufacturing. The automaker therefore has access to SpaceX engineers who are likely to lead
innovation to the company and make it to be a market leader in the automobile industry.
Therefore Tesla Motor is a promising share to buy and there are likelihood of high returns.
The peak of Tesla Motors for the past 52 weeks was $389.61 while the trough was $244.59. The
variance between pas6t peak and trough is $145.61. The peak and trough show that the share
price can increase by 27.7% or decrease by 20%. Therefore the investor is likely not to lose by a
big margin.
Apple
Apple Inc is a multinational technology company. The company is headquartered in California
and is involved in designing, developing, and selling computer software, consumer electronics,
and online services. The company products include iPhone Smartphone, Mac computers, IPad
tablets, iPod media player, Apple Watch, Apple TV, and HomePod Smart speaker. Apple
software includes IOS operating system, iTune Media Player, macOS, Iwork, and safari web
browser. The company online services include iTunes Store, Mac App Store, iOS App Store and
Apple Music. The company was started in 1976 and is led by Tim Cook as the CEO and Arthur
Levinson as the chairman ("Apple").

Apple Inc is a public company and is traded in Nasdaq as AAPL. The company stock price is
$172.8 as at 4th April 2018. The company recorded revenue that amounted to US$229.234 billion
in 2017 financial year. The company total equity was US$ 134.047 billion in 2017 FY. The
company revenue increased from $170.87billion in 2013 FY to $228.57 billion in 2017 FY. The
net income increased from $37.04 billion in 2013 FY to $48.35 billion in 2017 FY.
Apple Inc main competitor is Hewlette Packard Company (HP Ltd). HP Ltd is a multinational
company that specializes in developing hardware components, software, and related consumer
services related to technology. Their products include personal computers, tablets, and printers,
networking hardware, data storage devices and designing software. The company trades as HPE
in the NYSE. The company stock price is $17.20 as at 4th April 2018. HP Ltd recorded a
decrease in revenue from $57.33 billion in 2013FY to $28.94 billion ("Hewlett Packard
Enterprise Co."). The past peak and trough for 52 weeks were $19.48 and $12.70 respectively.
The company also recorded a decrease in income from $2.05billion in 2013FY to $436 in 2017
FY ("Hewlett Packard Enterprise's Net Revenue 2011-2017 | Statistic").
There are many reasons to buy Apple stock shares. First, Apple Inc is earning high revenues that
equivalent to a country GDP of US$ 229 billion. Consumers’ perception to Apple Products as of
high quality, latest technology, and unique features drive the company’s revenue high. The
revenues are also in an upward graph. The company also earned $48 billion profits for 2017 FY.
This shows that the company shares will earn high dividends. Secondly, Apple is a market leader
in technology hardware devices and software. The company enjoys a powerful competitive
advantage that will enable the company to increase its profit margins above it competitors. This
will increase the capital returns on investments. Lastly, Apple is an attractive valuation. The
company is likely to remain as the top trading technological company. The company has a wide
customer base and is perceived to have best products in terms of quality and technology
advancement. This shows that the company will continue to attract new customers that will
increase it sales. In addition, the company share price is affordable (not overpriced) and it’s
expected to boom in the near future.
The past peak for Apple in 52 weeks is $183.50 while the trough has been $140.06. The variance
between peak and trough is $43.44. The stock prices are likely to increase value by 6% or lose
value by 19%.

Conclusion
From the write- up, different companies have different trends in terms of performance that can be
used to make investment decisions. It is also evident that financial performance is not the only
determinant of making decision to buy share because of other factors that impact company’s
ability to make financial gains. Tesla Motors has the highest placed stock price of $299 while
Alibaba the least with $172.07. Tesla Company stock prices are facing bull market situation.
According to past peak and trough, Apple Inc stock price are the most stable, followed by Tesla
Motors and then Alibaba. It is therefore recommendable to invest at Apple Inc as the first
priority then Alibaba Group Holdings.

References
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