cSimulation Group Project

 
Objectives

• Apply the concepts you have learned and are learning in this course to form and
manage a portfolio of securities.
• Explore various sources of financial information including finance related web
Sites.
• Track the performance of the selected portfolio and the stock market over
time.
• Observe the effects of diversification.
• Test your short-term money management skills.
• Work as a team to make investment decisions and produce a comprehensive
report describing the portfolio management process and results.

Project Description

This project is a group project with initial funding of USD 1,000,000. Each group ( no more than 5 students) will use (mainly) the Stock-Trak Portfolio Simulation program (www.stocktrak.com) to manage and track the investment portfolio over 8 weeks period. The Stock-Trak acts like a discount broker and provides trading environment very similar to the real world. You will be charged commission for each trade. Total number of transactions is limited to 200 for the simulation period. Each team can invest in the US market.

• You will pick stocks, and then track the value of your portfolio and possibly rebalance your portfolio over the course of the semester. You should track the value of your portfolio at least once weekly and report stock prices, portfolio value and major indices (as well as the performance of a few mutual funds with objectives similar to yours) on a spreadsheet. You should also keep track of the main financial news events that affect the value of your portfolio over the investment period (using the Internet and/or any newspaper/magazine of your choice).
• All official rules of the Stock-Trak are applicable. Trades can be submitted via their web page. The web page has access by account number and password to review account activity, class rank as well as background resources for researching stocks, with price quotes and charts. Investment teams can only buy on cash and can’t sell securities short.
• The final portfolio must contain sufficient number of securities from equity investments (stocks mainly) for diversification to work.
• Your professor will register you and send you more information soon, however, for now try to visit the website and get familiar with it. You may also use the demo account. Please read the prepared guide for stock Trak.

•The starting date for the project is March 8, 2017 (Wednesday). The closing date of the
portfolio is May 5, 2017 (Friday). The written report will be due on May 21,
2017 and presentation on May 21, 2017.
Grounding Rules

You will need to select an investment objective carefully. We suggest that you take a look at some mutual fund descriptions available on the web. The Internet has a tremendous wealth of useful information: e.g., money.cnn.com, bloomberg.com, quicken.com.

The composition of your portfolio should reflect your investment objective, as well as your outlook on the current state of the economy and individual securities. You can rebalance your portfolio following news and/or market fluctuations, but we do not require that you rebalance your portfolio over the course of the semester. In any case, you will need to justify your trades (or the fact that you chose not to trade after the formation of the portfolio).

Your portfolio will consist of regularly traded US equities. I recommend that your portfolio contain 10 and 20 different stocks at a time. You will only buy on cash. There exist a number of services on the Internet that can help you monitor the value of your stocks (by creating your own personalized portfolio): quicken.com, money.cnn.com and many others.

I understand that the task of picking a portfolio may seem daunting at first, but there are a lot of free, helpful resources on the Internet:
• finance.yahoo.com (and surely many other places) has “stock screeners” that allow you to select stocks on the basis of criteria you choose.
• mutual funds descriptions with a lot of detail, including funds’ main holdings, are readily available on the Internet (for example on Fidelity.com).
• numerous places offer “top picks” lists.

Feel free to use all of these tools and information. This is not cheating, as long as you can justify your choice of holdings in your own words.

Requirements for evaluation

You will not be evaluated on the basis of your investment performance. The point of this project is not to demonstrate your abilities to beat the market (or make a fortune) over a few weeks. Rather, it is to: (i) acquaint you with the properties of security prices and how these react to news events; (ii) make you formulate a coherent investment strategy and pick securities accordingly.

You will be required to turn in:
• A short memo, of no more than 2 to 3 pages, should be submitted by March 15th. It should outline the group objectives and strategy as well as the initial holdings. It should be sent via e-mail or posted on blackboard. A late or missing memo will result in your project grade being reduced by 30%.
• Your holdings will be liquidated on Monday, May 8th.
• Your final paper should be submitted on May, 21st (must be handed in class and submitted on blackboard).

The initial portfolio selection memo should be typed, look professional, and be 1 to 3 pages long. It should include your investment objective, and the initial composition of your portfolio, with a concise and general (no need to discuss each stock in detail) justification. The description of your holdings should include the name of each security, number of shares held, and their dollar value in your portfolio.

I understand that, at the time when you initially form your portfolio, the course will just have started and most of you will likely not be very knowledgeable on the topic of investments. I will take this into account, but don’t use this as an excuse to forget all common sense. In particular, do not put all your eggs in the same basket!
Your final paper should be well-organized, concise, typed, double-spaced, and professional-looking. You shouldn’t need more than 10 to 15 pages (excluding appendices such as tables, graphs, and references). Your paper must include some quantitative analysis of the risk and return of your portfolio and some comparisons with one (or more) major stock indices and some mutual funds with similar objectives. At least two charts must be provided (one with the initial composition of your portfolio; and one with the evolution of the value of your portfolio over the investment period and some comparisons).
Use of a spreadsheet program such as Excel is highly recommended. Among other things, report should contain:

For each security,
• price level and change (performance)
• a measure of historical return. I suggest 5 years.
• a measure of the security’s risk , the standard deviation of returns.
I suggest 5 years of monthly data. You can obtain data from Yahoo
at http://quote.yahoo.com/
• the beta of each security
• Measure performance relative to the benchmark portfolio
• Use the Sharpe, Treynor and Jensen measures. You’ll need the beta, average
return and standard deviation of your portfolio and of the benchmark.
• During the semester we will learn new things about portfolio management and we will ask you
to apply them in your portfolio .

You are free to organize your work so as to make it as interesting as possible, however, you may think of the followings to be included in your report ( remember: you can always add more creative parts):
• Your investment objective
• The initial composition of your portfolio (with a detailed justification)
• Your additional trades if you decide to make any transactions (with justification)
• The main economic and financial news that affected the value of your portfolio
• Do you think you were consistent with your objective?
• What would you do differently based on what you learned from this course or the recommended readings?

Every two weeks your team will be required to show tier performance and give reasons of
good and bad performances. It should be a short presentation for each group (no more than 5 to 7 minutes for each group) in the following days:
First short presentation: 4th April
Second short presentation: 18th April
Third short presentation: 2nd May
Final Presentation for the full report all students in the group should take a part. I should be well organized and every student (within the group) should have a separate part of the overall submitted presentation slides. 21st May

Online Investment Help
The Financial Times
Bloomberg
Reuters
http://www.morningstar.com/
http://www.fool.com
http://finance.google.com/finance
http://www.barrons.com
http://seekingalpha.com/