Welcome to the world of investments!
The simulation can be accessed by first creating an account. Follow https://sites.google.com/site/wenyilouislu/LECTURES, click the link of Investment and Security Analysis, then press the register button. Once you register at the above site, you will have a brokerage account with an initial sum of $100,000 in fictitious money that you will use to trade stocks and mutual funds for the next three months. (Please note that you can be individual and work alone; or be assigned to a group of two to three members/maximum 4 students, who constitute a team.) Each individual or team should only register one brokerage account.
Before making the trades, you are required to research your companies and develop written rationales on why you select the company/mutual fund for investment. To make intelligent investment decisions, you need to do your homework. That is, research the companies, the funds, the stock performance, the industry, and analysts’ opinions or evaluations of a company that you may be interested in.
The stock price of the company that you choose must be $5.00 or higher in value. You should have the stock ticker symbol for your company to be able to buy or sell stock, For example, software giant Microsoft trades under the ticker symbol MSFT and Coca-Cola trades under the ticker symbol KO. Every time you buy or sell a stock, you will be charged a commission. You can trade any stock listed on the following stock exchanges: NYSE, NASDAQ, and AMEX.
As you follow your portfolio and those of your competitors, you should review market performance on a regular basis. Trading can be exciting and interesting. However, there will be terms that you encounter that you may not be familiar with. Please make sure to read online glossary to understand terms that may not be familiar to you.
Performance Report
The goal of this trading game is to beat benchmark S&P 500 or a passive $100,000 benchmark portfolio comprised of 50% U.S. equities (an "index fund"), 40% long term government bonds, and 10% cash (short term money market instruments).
The Benchmark Portfolio
The benchmark is a passive $100,000 portfolio of 50% equities, 40% bonds, and 10% cash.
Specifically, the portfolio consists of:
Details: try morningstar.com or Yahoo finance; enter ticker fusex or vustx for daily performance
At the end of the semester, each individual or team will prepare a final performance report that
1. tracks the week-to-week performance of their portfolio
2. analyzes the macroeconomic, financial market and stock-specific news events that may have affected the risk and return performance of their portfolios
3. evaluates statistically their relative and absolute performance using various tools and techniques.
Report: Use of a spreadsheet program such as Excel is highly recommended. Among other things, report should contain:
For each security,
1. price level and change (performance)
2. a measure of historical return. I suggest 3 years.
3. a measure of the security's risk -- if possible, the standard deviation of returns. I suggest 3 years of monthly data. You can obtain data from Yahoo at http://quote.yahoo.com/
4. the betas of each security
For the whole portfolio,
your goal is risk analysis and performance analysis:
1. Estimate the degree of diversification of your portfolio, using the tools of portfolio diversification. (One way is to obtain sector performance results from the various sector indexes at bigcharts.com) *optional
2. Find the portfolio beta
3. Find the portfolio expected return, using the T-bill rate as the risk-free rate, 7.2% as the market return and portfolio's weighted average beta
4. Measure the portfolio's excess return: the difference between the actual and the expected.
5. Measure absolute performance
6. Measure performance relative to S&P 500 or the benchmark portfolio
7. Use the Sharpe, Treynor and Jensen measures. You'll need the beta, average return and standard deviation of your portfolio and of the benchmark.
8. Identify the efficient frontier and discuss your results. In a table format, for each security, list the Expected return, Standard Deviation, and Variance. Enclose a correlation as well as covariance matrix of all the securities used. *optional
*optional for additional points
Below is a short description of your trading choices:
Buy
Buying means you are buying a stock expecting it to move higher in price.
Sell
Selling a stock means you want to close (liquidate) the long position you hold.
Sell Short
Selling a stock short means you are borrowing the stock from the broker and selling it at market expecting it to go lower. If it goes lower in price, you are making a profit, whereas, if it goes up in price while you have it short, you are losing money in that transaction. Using the Learn Trading tab will help you better understand all of these options.
Cover short
When you have sold a stock short, you can buy that stock at a later date to repay the broker. While you held the stock, if the price of your short position has gone down, you are making money. If it has gone up, you have a loss.
A WORD OF CAUTION: Although you can sell a stock short, and over the short position, it is highly advisable to focus on buying and selling stocks and avoiding the short selling of the stocks. Given the complexities involved in the stock market, this is a simple tip as you are learning.
Note that your grade is not related to the investment performance, but rather the quality of the analysis, logic and consistency of your selections and reports. You are expected to:
1. set investment goals
2. track your portfolio's performance, and that of the benchmark index or portfolio, each week. For additional points, I want you to use the benchmark portfolio provided by me.
3. prepare for classroom discussion of important events in the markets that may affect the risk or return performance
4. produce performance reports on schedule.
5. If there is any movement of more than one dollar or 5 percent in the stock’s price of these six companies, you should:
• Make a note in your journal
• Identify the reason for the price movement
o The overall market was up
o Company introduced a new product or analyst upgrade
Please do not hand in reams of computer output. Instead insure that the output that you chose to include is carefully edited to allow the reader to identify quickly your analysis and conclusions. Factors such as clarity and conciseness will be considered heavily in grading your work. In particular, explain carefully any technical material that you used. Always give a bottom line to your findings. The report will be no more than ten pages long (double-spaced, single-sided, 1-inch margin), not including various exhibits, figures and graphs to support the analysis (maximum 20 pages). Enclose a diskette with files in Word and Excel showing all your work neatly organized and documented. Make sure to add a header or footer containing your name to your Word and Excel files.
*Examples of students report from previous semesters are provided on my google site.
For team work, please score each of your group members (including yourself) on a scale from 1 to 5 (1 is poor and 5 is the best) in each of the following areas. This grading report is confidential, so be truthful. Also, be fair - remember, they will also be grading you. Enclose this grading of your group members with your final stock market performance report without fail
Online Investment Help
Try the following Web sites: