Investment Portfolio of 10 Companies & Efficient Market Hypothesis

This project details the construction of an investment portfolio comprising ten companies listed on the Singapore Stock Exchange (SGX), employing a fundamental analysis strategy. With a notional SGD 200,000, the goal was to maximize returns and outperform the FTSE ST All Share Index. The analysis encompasses various sectors, trading strategies, and the implications of the Efficient Market Hypothesis (EMH). The methodology includes considerations for trading costs, share volume optimization, and holding periods, with specific examples provided for each company in the portfolio. The project also addresses criticisms of the EMH, particularly concerning the impact of human errors and biases on market reactions, using the COVID-19 pandemic as a relevant example. The aim is to evaluate the practicality of the EMH and its limitations in real-world trading scenarios.

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Introduction
Investment or trading in shares usually involve a very high level of risk taking, especially
if it is for a short period. Investing therefore in a single company is quite risky. This is because if
the sector invested in performs poorly over the investment period or during the trading period,
then the investor stands to lose much. Therefore, by investing in different companies in the same
sector or in various companies across different sectors, the risk is somehow lowered by
spreading it.
Therefore, in this regard, there was need to invest in industries like the real estate
industry, the financial industry, information technology industry, health care industry, mining
industry, hotel industry among others. In the trading, there is employment of the fundamental
analysis strategy. This strategy works around the current market prices of various stocks (Yuen,
2012). This strategy makes it possible to maximize the returns on the investment during the
trading since the market prices of the shares are used.
Additionally, whenever there is introduction of some information in the market, these
market prices are usually subject to change to reflect the impact caused by that information.
Trading would therefore be affected because some investors could decide to buy shares in large
numbers while others would panic and sell theirs too. This highly depends on the readiness to
take risk of every investor.
Come up with a portfolio made up of 10 companies therefore needs a lot of
considerations. Such considerations include the number of shares to trade in for each company,
the period of withholding the purchased shares before selling, the implications and limitations of
the used trading strategy, the trading period among others. Additionally, with the changing share

prices, it is also expected that the volume of shares being traded in across the market will as well
keep changing.
Literature Review
Efficient Market Hypothesis.
In the field of finance, Efficient-market hypothesis (EMH) is basically a believe that any
information that is available in any market directly affects the price or the prices of assets (Sarno
& Thornton, 2013).
Theoretical Information
The EMH implies that whenever there is new information, the asset prices are affected by
it in a direct manner for as long as this information is useful or is relevant. This as a result makes
it quite hard to outperform any efficient market. However, this does not justify the
unpredictability of share prices or stock prices. However, as stated earlier, any information
weather it brings good news nor bad news to the investors, will affect the prices.
As said earlier also, no investor would want to hold on to shares if the new information
available states that a crisis is looming. A large number of investors are likely to panic and sell
their stocks in large numbers resulting in low prices. On the other hand, no investor will want to
lose or sell shares if the information available indicates a company expansion or merger They
will likely hold on to their shares for some time. This would result in higher prices of the shares
or stocks.
Empirical Findings

With this theoretical background information, it has however been found out that in as
much the available information directly affects the prices of various stocks, the prices will be
affected according to the type of information that is available (Sewell, 2012). This information
could be the underlying historical prices of the stocks, any information beyond these historical
prices and information which is private. The extent to which the prices will be impacted will
therefore depend on the type of information that is available.
Criticism of Efficient Market Hypothesis, EMH
It is critical also to note that this whole concept of Efficient Market Hypothesis (EMH)
has not gone short of criticism or limitations. It has been criticized that it has not valued the fact
that the imperfectness of the market can also be as a result of several predictable human errors in
their reasoning as well as processing this information during the time the information is received
in the market. Such errors include bias, being overconfident and overreacting to the received
information (Deng, 2013). All these have a direct impact too on the market.
For instance, with the COVID-19 pandemic crisis in the world, there is no doubt that
every information coming into the market everyday will have an effect or an impact on the
market prices of shares. It is highly likely that the crisis has left across all sectors or industries in
our economies. The health care industry, the finance industry, the information technology
industry among other industries have all had a share of the effects.
It is true to say that when this information is received or is available to the investors, all
investors will not be affected in the same way. Since the crisis is new to our economies, the
investors are likely to choose different courses of action and take different decisions. Some
investors may choose to buy some little or some more time and observe the trend of the market.

On the other hand, some other investors may hastily decide to buy more stocks or sell their stock
in the stock market. It is good to notice here that the information did not affect all investors in the
same way. Some investors could overreact to the fears on the crisis while others could be
overconfident that the crisis may not bring a lot of effects to the market. It is this critical fact that
the Efficient Market Hypothesis EMH fails to outline.
Method
Strategies used
As earlier stated, the fundamental strategy was chosen for trading in this scenario. With
this strategy, the market prices of every stock at that particular trading time (share purchase date
and share sale date) are used. The market prices are then used to set up the portfolio comprising
of 10 companies drawn from various industries or sectors to try and find out if using this
strategy, outperforming the market would be possible (Donaldson, Flagg & Hunter, 2011). This
would help me draw a conclusion on the practicality of the Efficient Market Hypothesis (EMH)
and its criticism.
The table below is a summary of the companies whose stocks or shares I chose to trade
in.
S/N NAME OF COMPAN SECTOR /

COMPANY Y CODE INDUSTRY
1. ACCORDIA
GOLD TRUST
SGX:ADQU
Consumer
Discretionary
2. ABR
HOLDINGS LIMITED
SGX:533
Consumer
Discretionary
3. AF GLOBAL
LIMITED
SGX:L38
Consumer
Discretionary
4. AVI-TECH
ELECTRONICS
LIMITED
SGX:BKY
Information
Technology
5. AXCELASIA
INC.
SGX42U Industrial
6. AYONDO LTD SGX:1I5 Financial
7. ASPIAL
CORPORATION
LIMITED
SGX: A30 Real Estate

8. ASIAMEDIC
LIMITED
SGX:505 Health Care
9. ASIAPHOS
LIMITED
SGX:5WV
Metals And
Mining
10. ASCENDAS
INDIA TRUST
SGX:CY6U Real Estate
Another important aspect applied in the methodology of this trading the trading costs
consideration. It is provided that during this trading, a stamp duty of 0.2% on the share purchase
as well as broker commission of S$10 every time there is purchasing of shares and every time
the shares are sold would be incurred. Bearing this in mind, it emerges that several transactions
are done, higher costs especially on commission would have to be incurred. It is therefore better
for to engage in trading in large numbers of shares for profit maximization rather than trading in
a small number of shares multiple times.
Returns from every company or stocks is different. Therefore, it is advisable to determine
the number of shares to trade in for every company for profit maximization period (Jeong &
Kim, 2019). This is quite critical because it would be a waste of investment time to invest in
thousands of shares with minimal returns and invest only in some hundreds of shares that are
clearly going to bring better returns within the same period of time. For instance, it may not be
wise to invest in a large number of shares in a company giving a return of -5% and invest in few
shares that are likely to give out a return of 20% or 50%. This is the reason, there is need to limit

trading in shares for companies that give less returns and trade more in shares for companies
giving higher returns. For instance, trading can be done in this instance in a large number of
shares in Asiaphos Limited within a period of time it would double the price, giving a return of
close to 100%.
The holding period.
Since there is application of the fundamental analysis method, trading in the shares would
therefore be done between times when the prices were low for purchasing and times when prices
were higher for selling (Gitman, et al. 2015).
There was also consideration on the length of time to withhold the purchased shares
before selling them off. Any investor or any trader would apply a basic ideology here. The
ideology is to purchase the shares when their prices were relatively low and sell them off when
prices were seen to have increased. This will ensure maximization of the gains or profits.
The following are reasons why I chose to withhold the shares that I purchased in different
companies for the time I decided to before selling them off.
a) Accordia Gold Trust Limited. After purchasing shares in the company on
11 January 2020, the shares were withheld until 6 April 2020. The main reason being,
after the share prices had gone extremely low throughout February and March, the returns
from the shares would be low. They therefore could only be sold when prices have started
rising for maximization of the returns (Boulatov, et al. 2013).
b) ABR Holdings Limited. Throughout the month of January, the share price
for the company was constant. The shares were purchased on 14 February 2020 when

there was a change in the prices upwards. They were withheld until 25 February 2020
when the share price was highest. It is this time that they were sold off.
c) AF Global Limited. From the time shares in this company were purchased,
their price only got highest on 28 February 2020. After this date, the share prices started
dropping again. This is why This necessitated their sale at this price because there was no
other time within the trading period when the share price of the company got beyond this
point. This therefore was the best time to sell the shares.
d) Avi-Tech Electronics Limited. After purchasing the shares in the company
on 20 February 2020, it emerged that their prices kept dropping with every passing day.
When it got to 2 March, they were sold off before the price could even drop further.
e) Axcelasia Inc. Purchases for shares in this company were made on 26
February 2020. The share prices did not move either upwards or downwards. The shares
were withheld rather than being sold at the purchase price. They were later sold when
their share price started to drop.
f) Ayondo Limited. Purchasing of shares in this company on 26 February
2020. Prior to this time, the share price had been constant for quite some time. Even after
the purchase, the pattern went on still for some time. They were sold have maximum
returns, bearing in mind that there was commission fee to be paid.
g) Aspial Corporation Limited. The purchasing of shares in this company
was done on 6 March 2020. After observing the pattern on share price fluctuations, they
were sold at a time when the share price was reasonably high. This would be in line with
the strategy employed in creating the portfolio.

h) Asiamedic Limited. At the time of purchasing the shares in this company,
the prices of the shares had a dropping curve. After purchasing the shares, they were
withheld at least until the share price curve could rising and then they could be sold.
i) Asiaphos Limited. Share purchase in this company was done on 23 March
2020. Particularly the withholding period for shares in this company was strategical since
the period could give a return of almost twice the amount invested. It was therefore no
doubt that the shares had to be withheld until such a time.
j) Ascendas India Trust. The purchase of shares in this company was done
on 3 April 2020. The shares were withheld up to almost the close of the trading period.
They were sold off on 9 April 2020 when the price had gone a bit higher.

Results
Best performing shares
Some stocks that were traded in outperformed the market while others couldn’t. To be
specific, the following stocks were able perform well.
1. Shares in ABR Holdings limited.
2. Shares in AF Global Limited.
3. Shares in Aspial Corporation Limited.
4. Shares in Asiamedic Limited.
5. Shares in Asiaphos Limited.
6. Shares in Ascendas India Trust.
Out of the shares in the six different companies that did well, shares in ASIAPHOS
LIMITED had the best results. The shares had a return on investment of 98.7%. This was a result
of good timing that was exercised. By the time of share purchase that was on 23 MARCH 2020,
the share price in the company was at S$0.011. Trading was done in these shares considering this
low price. On realization that the share price in the company was not increasing or rising faster
anticipated, the shares were sold off at maximum returns.
By 9 APRIL 2020, the share price had risen to S$0.022. This was twice the purchase
price. Considering the fact that a large number of shares in the company had been, this was quite
a perfect time to sell off the shares. The decision was arrived at based on the fact that of all the
shares already traded in, there was no instance where the share price had doubled. The shares
were then sold at twice the purchase price. This surely maximized thereturns and gave a gain on
investment.

Shares that didn’t perform well
On the other hand, the shares that did not perform well were:
1. Shares in Accordia Gold Trust.
2. Shares in Avi-Tech Electronics Limited.
3. Shares in Axcelasia Inc.
4. Shares in Ayondo Ltd.
Of all the share in different companies that were traded on, shares in Avi-Tech
Electronics limited performed poorly. As we can see from the spreadsheet, share purchase in
Avi-Tech Electronics Limited was done on 20 FEBRUARY 2020 when the share price was S$
0.44. After seeing that the share prices were dropping with each passing day they weresold off on
2 MARCH 2020. This was because if the shares continued to be withheld with their dropping
prices, gaining would be very little or even worse, a loss out of them. The return on investment
was at averagely -9.32%. This implies a loss of 9.32% on the amount injected in these shares.
It is also important to note that shares in Accordia Gold Trust did not perform well. The
20000 shares purchased on the first day of trading (10 JANUARY 2020) were sold off on 6
APRIL 2020 with a slight drop in price. This resulted in loss of S$ 947.4 and a return of -
6.897%.
General portfolio performance