Hey there! I'm Shanif - a young professional with a background in technology and a passion for investing and trading. I've been developing software since 1997 and have been trading options profitably since 2008.
I have a BS in Computer Science and Systems & Information Engineering, and recently earned my MBA, focusing on Quantitative Finance and Entrepreneurship. These days, I focus on generating high returns with options trading and building up a successful mobile software business.
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What goes into a stock’s price?
This is the third article in my guide to stocks. In this article, I show you what goes into a stock’s price, and why prices can change so dramatically. For the second article, which discussed how stock trading works, click here.
The wild and seemingly random fluctuations in the market may make you think that a stock’s price is nothing more than a lottery number, but you’d be surprised at just how much goes into determining a stock’s price at any given point.
A stock’s price has to start somewhere, and that somewhere lies in the IPO process that I told you about back in part 1. Do you remember how I said that when a company wants to sell shares of itself to the public, it usually hires an investment bank to do the dirty work? Well, part of that dirty work is determining what a stock’s initial price should be. This, in itself, is a difficult process.
Initial due diligence and research
Consider the fact that, in an IPO, the investment bank will buy all of the newly issued shares in a company, and will then re-sell those shares to the public. In doing so, the bank has to make sure that it prices the shares low enough that it can find buyers on the first day, but not so low that it loses money in the transaction. In order to find just the right price for this new company’s stock, the bank goes through a long period of due diligence.
It meticulously pours through the company’s records to see what its sales figures look like, how much money it’s making, what the growth figures look like, who the customers are, what the expenses are, and a variety of other factors that can let the bank predict the company’s future performance. Once it has all of this information, the bank can create a model to determine the market value of the company – or what it will be worth once its shares are sold.
There are a variety of models used to determine a company’s market value, but most of them will basically take the company’s earnings numbers, predict how fast they’ll grow, discount these future profits back to present day value, and come up with a number that represents the company’s true worth.
Once the bank has done this background work, it contacts potential buyers around the world to have pre-sales meetings, answer questions about the new company, and gauge the level of interest in the company’s newly offered shares.
After it has all this information, the bank combines its estimates about the true value of the company with its knowledge of buyer interest in the new shares (and, at times, contracts that guarantee the sale of shares) to determine the number and price of shares in the new company.
Once it does so, it will create and buy all of these shares from the company in preparation for the IPO. At this point, the company now has a bloated bank account and the bank has millions of shares that it’s ready to sell to the public on day 1.
With these new shares ready, and the bank already having contracted with one of the major exchanges I told you about in part 2, trading in the new company is good to go. On day 1, the bank will sell its shares to the public. If it did its job well, it will have excited enough buyers to quickly and fervently scoop up shares in the new company, making itself a hefty profit.
But how do buyers know if they’re getting a good deal or not?
Well, a lot of that has to do with buyers’ own analysis and research, as well as any analysis and research that the investment bank has provided. When a company first goes public, there’s not a lot of information for analysts to go on – they can check sales figures, growth prospects, customer base – essentially the same things that the bank had to check when first coming up with a price. With this information, buyers can create their own model of a company and can determine if it is currently a good buy.
At the beginning, it can be difficult to tell whether a new company’s shares are a good purchase or not. No one really knows where the stock is going to go, so buying at the start can be risky. That’s why many investors tend to wait until a company has traded for some time before they decide to get in. After a bit of history, investors will have more information and can improve their estimates for the company’s future performance.
So how will they use this information to influence stock prices? Go to the next page to find out.View comments →
I manage, implement, and utilize big data, business intelligence, automated analytics, and large scale technology at TapCommerce to help companies retain and acquire their best mobile customers, increasing their ROI on investment in mobile technologies.
TapCommerce is the leader in mobile retargeting. We're trusted by the most successful mobile brands to deliver customers, revenue, and return on investment across mobile platforms. TapCommerce is a venture-backed mobile technology company headquartered in New York City's Union Square. Learn more at tapcommerce.com
• Design, architect, implement, test, and monitor the company’s core real-time demand-side platform, handling 40,000 requests per second. Implemented concurrent, multi-threaded Java code, enterprise grade application servers, and big data systems on the AWS cloud infrastructure
• Designed and implemented the analytical and technical process that enabled the company to advertise to mobile web users, enabling the company to increase its product offering and client base by 2x
• Optimize campaign performance through the use of statistical methods and machine learning algorithms
• Set and manage the company’s roadmap for expansion into features centered on data analytics
• Key driver of the company’s technical interview process, designing coding challenges, questions, and cooperative work sessions designed to determine a candidate’s technical aptitude and cultural fit
• Manage financial costs and create projections for the company’s technical infrastructure
• Drove thousands of dollars of weekly revenue by developing e-commerce capabilities for the company’s flagship app. Used Java and Objective-C to create a mobile app for displaying and selling products, integrated with a payment gateway, and managed software and server infrastructure used by hundreds of thousands of users every month
Founded an investment club focused on generating consistent, periodic income by using the aid of custom-developed analytic methodologies and computer programs to trade options
• Generated an average annualized return of 40%
• Coordinated the research and analysis efforts for myself and two partners
• Developed and automated several quantitative analysis algorithms that assist in the investment process by providing rankings of publicly traded companies based on financial fundamentals, listings of stocks with the highest options premiums, and predictions of stock movement based on trending and momentum criteria. Created the algorithms using the fundamental principles of weighted trade studies and later automated them using Ruby on Rails
• Created a website that enables the publication of investment articles and provides access to the aforementioned automated algorithms, a portfolio management tool, and educational resources
• Performed market research on publicly traded companies, focusing on industry standing, historical performance, competitive advantage, and future prospects
• Managed legal, financial, accounting, logistics, long-term strategy, and investment objectives
Software developer and member of founding teamoGolf
Member of the management team on an early stage startup that developed technology to provide data analytics and game management software for golfers.
• Created a website allowing golfers to review a comprehensive set of analytics about their game
• Developed financial projections and investor presentations, presented the new business and software at conferences, pitched to potential investors, and demoed the product to customers
• Developed strategy and marketing plans for growing the business
• Recruited new talent to assist with software development, marketing, and operations
AssociateBooz Allen Hamilton
Provided information and communications management solutions to public and private organizations as an IT consultant at a large, multi-national consulting organization.
• Managed timelines, resources, and a staff of up to 10 software developers and testers in the technical implementation of a project management application that allowed over 4,500 users on 500 projects to easily collaborate on key deliverables, organize project schedules, review budgets, and create financial projections. Coordinated the efforts of staff from multiple departments across the firm to implement a new development process that reduced the number of hours needed to create and test new software by more than 50%, eliminated the need for overtime work, and ensured the timely delivery of new functionality. Received a performance award for ensuring product quality, meeting deadlines, and effectively managing personnel
• Led and managed the technical implementation, logistics, timelines, and activities of myself and two other developers in the delivery of a web-based traffic simulation engine that provided a testbed for industry-specific application developers to test their proprietary algorithms. Received a performance award for “leading the team and ensuring critical deadlines were achieved without sacrificing quality.”
• Assisted in domain administration for a server farm consisting of SharePoint front-end web servers, Microsoft SQL Servers, domain controllers, and a SAN
• Lead developer for a Ruby on Rails and Flex-based application designed to automate the deployment of SOA-based military service offerings. Implemented a RESTful methodology for saving and delivering data to a Flex front end
• Participated in university recruiting and interview efforts for the firm. Provided recommendations that led to the hiring of approximately one-quarter of the total staff on sub-team, as well as the hiring of approximately 30 junior staff straight from college
• Progressively increased managerial responsibilities over the course of two promotions in three years
Software DeveloperWamily, LLC
Member of the management team on an early stage startup that developed web-based group communication, management, and coordination software.
• Worked with a team of web developers to create an Internet business centered on a website that would allow its users to easily manage and interact with their real-life groups in an online setting
• Developed widgets for communication and collaboration, permission models and security implementations, and user interfaces for site features
• Assisted in recruiting 500 alpha users and raising $20,000 in angel investments
• Participated in board meetings to determine long-term strategies
Intern Research AssistantBooz Allen Hamilton
Provided research and development support as a technology intern to a large, multi-national consulting firm.
• Provided a fully functional, database-backed web application for use by overseas military personnel in a shortened timeframe of 3 weeks as part of a 3-person development team
• Created a collaboration site that provided Navy leadership with near-real time critical information to streamline the decision making process in the Navy Gulf Coast Region in the aftermath of Hurricane Katrina
• Designed and created several web part solutions using APIs from Active Directory, Microsoft MapPoint, Microsoft PowerPoint, and Microsoft SharePoint
• Created a Macromedia flash proof-of-concept dashboard for a status reporting application integrated with SharePoint
Researcher and Lead DeveloperUniversity of Virginia
Developed software, created algorithms, and analyzed information management processes that would optimize the battery life on micro-sensor hardware devices as part of a university thesis project.
• Coordinated the efforts of a five-member team focused on developing an approach to optimize the use of resources on wireless sensor networks
• Designed, implemented, and maintained a simulation engine capable of simulating enemy solider movement and sensor network functionality in customized, loadable, user-defined scenarios. The application was written in C#, supported XML-based loadable scenario files, and utilized various optimization algorithms (such as Dijkstra’s algorithm and A*). The simulation engine provided users with an intuitive graphical user interface for simulation control as well as the ability to view and report on simulation progress
• Performed statistical and quantitative analysis on results to determine optimal resource allocation policy for the tested scenarios
• Lead author and presenter of a paper at the IEEE Systems and Information Engineering Design Symposium describing results
Researcher and DeveloperPersonal and Academic Projects
Developed a variety of software for a myriad of purposes on several different platforms and programming languages.
• Developed and tested a C# desktop weight management application using Access as the database backend, and later migrated it to the Internet using PHP and MySQL
• Lead developer on a team that created, documented, and tested robot control and communication software for the Evolution ER1 robot. The software allowed users to remotely control the robot by way of a specially created communications protocol
• Developed a prototype for an interactive Macromedia Flash map that retrieves external data and allows users to easily view them in a geographically organized format
• Created a discrete event queuing model simulation of a dining facility located on campus using Rockwell Arena, based on data gathered and interpreted by the project group
• Created a prototype Peer-to-Peer application based on the Gnutella search and communication protocol in Microsoft Visual Studio .NET using C# and TCP/IP socket programming
Branch ManagerCollege Works Painting
Participated in an internship designed to hone and cultivate the entrepreneurial skills of college students by allowing them to run their own local branch of a large, nationwide business.
• Operated a local house painting business, which generated over $15,000 worth of gross revenue in contracts with 25+ clients
• Responsible for sales, payroll, recruitment, operations, customer relations, and marketing
VolunteerAmerican Red Cross
Volunteered as a member of the executive management board of the youth community service organization of the Washington, D.C. chapter of the American Red Cross.
• Served as president (2001-2002), vice president (2000-2001), and member of a local youth community service organization as part of the National Capital Chapter of the American Red Cross
• Managed and coordinated the execution of various community service projects and their logistics, including fund-raising, logistics, marketing, and management of personnel
• Served as one of five United States youth representatives to the international Youth Exchange in 2000
• Received various formal volunteer recognitions
• Gained skills in leading multi-person projects, effective communication, and time management
Master of Business AdministrationNYU Stern School of Business
Completed two years of a rigorous MBA program at a top business school, focusing on acquiring the skills required to improve my trading activities and start a new business.
• Graduated with specializations in Quantitative Finance and Entrepreneurship and Innovation
• First Year Activities: Associate Vice President of Technology for the Stern Hedge Fund Association and Associate Vice President of Communications for the Entrepreneurs Exchange Club
• Member of the Technology and New Media Group and the Association for Investment Management and Research
• Completed one course on Doing Business in China at the Guanghua School of Management at Peking University
• Studied abroad at Bocconi University in Milan, Italy
Bachelor of ScienceUniversity of Virginia
Completed four years of study in the engineering school, focusing on acquiring software development, statistical analysis, modeling, simulation, and data analytic skills.
• Received a Bachelor of Science in Computer Science and double majored in Systems and Information Engineering
• Received a minor in Math
• Part of a team-oriented effort to improve resource usage in sensor networks. Main author of a paper published at the IEEE Systems and Information Engineering Design Symposium
• Graduated with distinction
• Achieved Dean's List in 3 different semesters
- Name: Shanif Dhanani
- Address: New York, NY, USA
- E-mail: firstname.lastname@example.org
- Phone: 703.477.1438