Stock Track Simulation Sample

PART1- enthronization constitution bidding Purpose of Policy Statement The purpose of the Policy Statement is to create an agreement between XXXX, YYY, and ZZZ to collectively manage a treat $1,000,000 portfolio during the 2011 f some(prenominal) semester. It will define the enthronization objectives, st charge per unitgies, and pretends associated with this portfolio. Investment Objectives The objective of our pigeonholing is to seek capital appreciation of portfolio in three months.More over, given the microscopic happen tolerance of the police squad, our nominal return should exceeds the rate of inflation over some period of the time by dint of capital gains, and increase the purchase power of our group. The chosen benchmark to beat is the S&P index. Investment Strategies Our investment strategies are somewhere in between to maximize pass judgment returns and to minimize attempts. We use Market timing as wizard of our strategies to maximum our returns. The groc ery timing dodging is to making buy or parcel erupt decisions of financial assets by attempting to predict future market price movements.The farsightedness is metrical footd on an turn outlook of market or economic conditions resulting from technical or sound analysis. in like manner we an opposite strategy is to analysis base on deed of a particular financial asset. The start-up fund was divided up into six parts 10% cash, 5% mutual funds, 55% telephone lines, 30% bonds, and may vary by+/-5%. Given the short time frame, liquid is a concern and as such(prenominal)(prenominal) hanker-term speculative investments such as real estate, art and antiques, and collectibles will be avoided.Only those investments than can be traded on a short-term notice will be used. Taxes and affair costs will not be considered since this is a simulation. Investment peril On the grounds of strong risk aversion expressed within the team, risk bearing in excess of general market risk is n ot tolerated. Moreover, the team strives to mitigate the inevi circumvent share of market risk as such(prenominal) as possible. As to the weight assigned to to each one product line that is central to risk control, there is a cap of 25% of the fund that is available to each stock.No extra use of fund is exclusivelyowed on single stock fundament. PART2-Methodology 1. Well-Diversified & Best Risk- expire Trade-off Portfolios After we established the investment policy that specified our investment objectives, risk tolerance, all(prenominal)ocation of different types of securities in details, we then sought for the best selections of securities. Generally, our frontmost methodology was very honest nevertheless useful maintain an abstract level of portfolio diversification, and maximize the center return on our investment meanwhile limit the total risk.According to this elementary approach, firstly, we divided our bond investment into four portions equally in exchequer Bonds and different corporate bonds, which enjoyed good credits, rated above A, and operated stable and profitable in the long-run Table1 Bond Selections Coupon Rate/Maturity Rating T-Note 3. 75%/15-Feb-2013 AAA MetLife Inc. 5. 000%/15-Jun-2015 A Morgan Stanley 5. 250%/02-Feb-2012 A Merck & Co Inc. 4. 000%/30-Jun-2015 AA Secondly, with respect to the reserved pose for mutual funds, our team decided to only invest in dickens of them, taking up 5% of our whole portfolio value totally.The following table provides summary information on these two funds Table2 Mutual shop Selections Blackrock Aggressive Prepared P (BCAPX) Goldman Sachs Trust Equity Growth (GAPAX) fellowship Large Blend World Stock YTD Return -3. 94% -5. 30% Morningstar overall Rating Beta 1. 01 0. 96 Mean Annual Return 1. 02 1. 00 R-squared 96. 63 95. 10 Standard Deviation 20. 05 22. 64 Sharp proportionality 0. 0 0. 52 Treynor Ratio 10. 53 10. 21 Source www. yahoo. com/ pay www. reuters. com/fin ance All information are based on 3 years performance of the mutual funds Finally, we would invest into two major(ip) kinds of stocks with different risk-return trade-offs. We would buy and hold value stocks from surface-known, high-credited and strong buckrams with the attempt to veer our portfolio and gain a stable growth. On the other hand, we would also acquire some other growth stocks, which were generally characterized as higher-risky, non-US and more volatile, aiming at buying them low and selling them high to speculate or adventure the extraordinary gains in a comparatively short period.Due to the complex and of the essence(p) features for stock selection, we thereafter developed a all-inclusive procedure particularly, called a blend of Specific Analysis and Overall Analysis by our own, to foster us select our portfolio wisely. 2. Specific Fundamental Analysis When choosing the value stocks, we generally applied the fundamental analysis including different kinds o f analyses for sectors, firms particular proposition electric potentials, cash melds, earnings, and dividends. This procedure had approximate four steps To begin with, we would plenty the sector and firms overall ability because we were buying a business, not a stock.Generally, corporates in prosperous industries and growing stages would bidly hold up our prior conside balancen. An principal(prenominal) indicator to show whether a corporate has potential ability was the historical prices of its stock. Therefore, a long-run descend stock price usually implied the decline of the firm, which largely against our favor. Then we needed more fundamental analysis for a firms earning ability in depth, such as earning per share that shows how good earning support its shareholders benefits and the P/E proportionality that indicates how investors expect its future earning power.General speaking, we preferred earning growth at least 7% annually and P/E ratios at the lowest 10% of all ju stice securities when selecting the growth stocks. After viewing a firms possible return, we next looked into another important factor-the risks along with the firm. Basically we would like to know the firms Beta that measures how much the systematic risk affects the firms stock and the leverage ratio that discloses its financial stableness and stress. Thus we were looking for firms having low Beta and D/E ratio of no more than 1.Finally, we would use the discounted cash flow model to convey out the reasonable market value for the firms stock and to see whether it is incorrectly undervalued by the market. The following table provided the summary of our memory-oriented equity securities Table3 Stock Selections Google Inc. (GOOG) New Oriental Education & Technology Group Inc. EDU) 3. Overall Performance Analysis After well knowing the firms and their stocks we chosen from the comprehensive selection procedure, we took one more step to mix then unneurotic and see how much our p ortfolios overall proposition fits our objectives and expectations. We decided to compound all equity securities, bonds and mutual funds, which we would like to hold for a relatively long time span and calculate the overall expected rate of return and risk using Capital Asset Pricing exemplar (CAPM). 4.Tracking and Monitoring Process magical spell the efficient market hypothesis (EMH) claimed that the stock prices were reflecting all relevant news and information and always showing the constitutional value of the company, valuing a stock was just a vain attempt. Our team members, however, were more inclined to believe that the EMH was honestly set up in the academic wonderland. Thus, beside the stock valuation analysis addressed above, we also make the agreement that paying attention to some(prenominal) whole market and firm specific news on daily basis and making appropriate adjustments harmonise to the news in time.In addition, we would keep tracking and recording our portfo lios overall performance and rating on a week basis meanwhile monitoring the growth stocks specific performance on daily basis because day-time monitoring and trading could enable us to avoid the big loss due to the high volatility of them and cracking the best time to gain the extraordinary profits. PART3-Microanalysis of the Market During this stock simulation, our group has learned that its quite instrumental to analyze and, if possible, follow the market trend for the sake of wise investment.Hence, microanalysis of the market is equally, and sometimes more important as the number analysis. Since the stock simulation only lasted for three months, out group mainly did the short-term analysis. Depending on our analysis, worlds financial market has become more volatile and unpredictable for the short run, principally because the global deliverance grows sluggishly and involves more risky events. Several reasons are illustrated as follows. The euro regulate debt crisis is the num ber one big headache. The debt problem in Europe has become persistent and pervasive. Greece experienced the most serious situation.Simply, Greece has borrowed much more money than they can pay back. Italy is in better financial shape, but still risky since investors continued demand high wager rate of its bond. Other countries, such as Spain and even France, the second largest euro regulate economy, surrender also been under pressure as investors question the creditworthiness of any euro zone government. Consequently, the global stocks, especially European and American Stocks have caught the euro zone flu. Investors have become super lovesome around each dapple of information associated with the term, euro zone.Our group has recorded that the Dow Jones Industry Average index fluctuated more often than not following the euro zone policy changes. It soared rapidly when European Union denote the Greek rescue plan and plumped immediately when the Greek government announce the Greek referendum the next day. Markets always want short, sharp, simple solutions. said bobfloat Janjuah, fixed income analyst at Nomura Securities (The eurozone, 2011). In addition, the future of U. S. economy is ambiguous. U. S. has been through a tough time since the subprime mortgage crisis. Analysts share different slur of views about whether U.S. is experiencing a recovery or recession. First, the macroeconomic data tells an unclear story. The growth rate of real GDP (As illustrated by the figure below) in the third quarter is 2. 0%, higher than the previous two quarters. While compared to the previous year, we can see the U. S. economy has slowed down. Though the U. S. economy has jumped out of the mire in 2008, it remains unstable. While we focusing on the new-fangled year data, we can see no big signal of an up-coming lucubrate or bust. As showed below, the unemployment rate has remained above 9 percent.New jobs are created, but not sufficient. Average Hourly Earnin gs remains the same. CPI and PPI both declined on October, primarily due to the decline of energy price. In addition, the 2011 U. S. financial policy remains neutral. The market is unlikely to get further stimulus. Also we can forecast an increase in the rate of fiscal fasten at the federal level over the next period of time. Overall, U. S. economy still remains unsustainable and U. S. financial market is highly sensitive, which can be immediately shocked by each piece of up-coming information, whether positive or negative. Table4 United States Monthly Data Data Series Our Value association S&P500 Comparison with peers Google Kraft BRK-B BP 09/13/2011 529. 2 34. 23 68. 85 36. 45 09/20/2011 546. 63 34. 52 69. 72 38. 77 09/27/2011 539. 34 34. 93 72. 07 37. 94 10/4/2011 501. 90 32. 86 73. 17 35. 42 10/11/2011 543. 8 34. 40 73. 41 38. 36 10/18/2011 590. 51 35. 24 75. 07 41. 11 10/25/2011 583. 16 34. 93 75. 74 43. 52 11/1/2011 578. 65 34. 56 75. 52 42. 72 11/8/2011 6 12. 4 35. 48 78. 16 44. 70 11/15/2011 616. 56 35. 48 75. 93 43. 70 11/18/2011 594. 88 34. 77 75. 37 42. 48 Total Return 12. 34% 1. 58% 9. 47% 16. 54% Source www. google. com/financeFrom the table and graph above, we could clearly see that the best means in our portfolio was BP with a 16. 54% total return, while the worst one was Kraft with a total return of 1. 58% during the holding period. Among all of the four holding-oriented securities, the only one underperformed than the benchmark, namely S&P500, was Kraft. All other three stocks had much better return than the S&P500 of 3. 64%. Overall, these feel actually proved that our selection approach for holding-oriented stocks was successful. PART5-Conclusion What we did successfullyGenerally speaking, the first class we learned from this three-month stock simulation is how to select stocks and establish a portfolio wisely and systematically. From initially setting up the investment policy, we explored how to select and portion the individual securities, how to diversify our portfolio to minimize the risks, and how to find the best return-risk trade-off for our portfolio. with this procedure, we really needed to use all financial knowledge we have learned before, including fundamental analysis, ratio analysis, technical analysis, free cash flow analysis and so on.Another significant difference is that we did pay a draw poker attention to follow macroeconomic and financial news, as well as particular news about our securities. It brought us more quickly and sensitive observe ability to what happened all over the world than before. In addition, we did well on diversifying our portfolio and minimize the systematic risks. Since we established an investment policy in details that we strictly implemented, we had everything under control and didnt expose to any extraordinary risks out of our expectation.What we would improve in the future Unfortunately, we did beat the benchmark performance finally, although w e once did well and ranked better during the trading period. Firstly, we had to accept that sometimes we have delayed trading and tracking our portfolio, resulting in keen losses on some particular stocks. Besides, we had limited experience on daytime trading and using on-time information, so we sometimes encounter unlooked-for results. For example, we sold Apples stocks immediately after we got the news about its CEO, Steven Jobss death.However, as we all know, the Apples price wasnt affected a lot in the next trading date. In the way that was expected, unlike our holding-oriented stocks, our gambling-oriented stocks general performances were typically unsatisfied. Therefore, we concluded that wisely selecting stocks according to the macroeconomics and fundamental analysis and then holding them for a relatively long period would be the best way to gain profit from protection market.Interestingly, we also found that people might not that know themselves on risk tolerance. Whatev er from our investment policy or our trading strategy and results, our portfolio is somewhat risk-averse, so we well diversified our investment and always holding a relatively high level of bonds and mutual funds, as well as some excess cash. Interesting finding is that, however, our group members got all high-risk-tolerance ranking in the survey that we finished on class. Appendix1 Ratio enumeration Spreadsheet pic Appendix2 Class Ratings pic References The eurozone debt crisis just wont quit, remembrance from http//finance. yahoo. com/news/eurozone-debt-crisis-just-wont-211300837. html StanChart warns on Chinas local-government debt, retrospect from http//www. marketwatch. com/story/stanchart-warns-on-chinas-local-government-debt-2011-09-20 Data, retrospect from www. yahoo. com/finance Data, retrospect from www. reuters. com/finance Data, retrospect from www. google. com/finance