Project Description: To track the performance of a hypothetical $100,000 investment portfolio over a 13 week period.
Burning Question
. . . will it be possible to earn a high score on this assignment if my portfolio loses money over the 13 week timeframe?
Answer:
Absolutely! Throughout the semester you will learn about the financial markets, risk and return and the basics of traditional investment classes. Each student will be evaluated on how well he/she can apply these newly learned concepts to their portfolio. Some trades may be profitable, others may not. This is a learning experience.
Journal Entry #1: Due Monday, January 28th: - 25 points
Step #1: State an Investment Goal: Name a financial goal that you would like to achieve. This goal can be short-term (< 2="" years),="" intermediate="" term="" (="">2 - 10 years).
Examples include: A.) Maintain principal amount of $50,000 for use as a down payment on a home in 5 years, B.) Accumulate investment income of $2,500 to be used as a down payment on a car by December 2019, C.) Pay-off Debt of $45,000 by May of 2023.
Step #2: Choose at least 10 assets: With a capital balance of $100,000 to start, each student will purchase at least 10 assets within the three traditional investment categories of Cash, Bonds, and Stocks. If you have a particular interest in an alternative asset such as cryptocurrency, gold etc, then you may include this asset class as well.
Cash
- may consist of CDs, Money Market Funds, and investment grade Commercial Paper.
Bonds
– may choose from municipal, treasury (U.S government), or corporate bonds. Mutual Funds may be used.
Stocks
– may choose from any capitalization (small cap, mid-cap, large cap) or industry type (tech, consumer goods, manufacturing etc.). Mutual Funds or ETFs may be used.
Step #3: Create an excel spreadsheet to track the following: # of shares/bonds, asset prices, asset value (# of shares multiplied by asset price), income received (dividends or interest), and holding period return (“HPR*”).
See attachment for suggested format. Please note that HPR is not a required calculation for journal entry #1. Excel chart MUST contain formulas to calculate asset value, HPR per asset and for the portfolio. Please include your investment goal on the excel spreadsheet.
* Holding Period Return Formula: ( (Ending Investment Value – Beg. Investment Value) + Income from Investment) / Beg. Investment Value
Income from investments, particularly dividends from equity shares can be found on yahoo.finance, the company’s website or any number of dividend tracking websites. A good one to use is:
http://www.simplysafedividends.com/ex-dividend-dates/.
TIP!
Besides tracking prices, follow your investments in the news. For instance, if you invest in Google . . . pay attention to when Google is in the news and what affect the news story has on its stock price. This will allow for better informed trading decisions.
Journal Entry #2 (
Due: Wednesday, February 20th
) and
Journal Entry #3 (
Due: Monday, March 25th
): each entry is worth 10 points
Step #1:
Make at least one trade
consisting of no less than 5% of the total portfolio value. In other words, sell at least one asset and purchase another. You may make more than one trade . . . just be warned that transaction fees add up (see journal entry #4).
Step #2:
Prepare a brief investment performance summary that includes:
1.) Why you chose to sell certain investment(s) and 2.) Why was the replacement asset(s) chosen
(ie. good news in their sector, thought to be undervalued given their P/E ratio relative to the market). In other words, justify your trade activity.
3.) Comment on how your portfolio performed during the weeks since inception vs. the market (S&P 500). Said differently, calculate HPR for your portfolio and compare it to the HPR of the S&P 500. State whether your portfolio performed on par, below or above the market.
Step #3:
This step applies to Journal Entry #3 only . . . instructor will evaluate whether asset allocation is suitable given the stated financial goal. In other words, is the financial goal conservative in nature (building cash to put as a down payment towards the purchase of a car in the next year), but the student’s portfolio is invested in all equities (i.e stocks)? Up to two points will be deducted for non-suitable asset allocation relative to financial goal.
Journal Entry #4: Due: Wednesday, May 1st
– Worth 20 points
· No trading is required for this last journal entry.
Step #1: Assess portfolio risk:
a. Find the beta for each individual common stock and calculate your portfolio’s weighted average beta. Is this beta above or below 1.00? What does this mean relative to the risk in the overall market?
b. Find the duration for each bond and calculate your portfolio’s weighted average duration. What does duration measure and given the current interest rate environment, how sensitive is your bond portfolio to a small change in interest rates?
Step #2: When calculating your final portfolio’s performance (HPR), please calculate it in two ways:
1st
way: ignore transaction fees as was done for entries 2 and 3.
2nd
way: include transaction fees. Assume 1% transaction fee for each trade made (entries 2, 3, 4) and deduct this amount from your total return (numerator). Ex: Traded 100 shares @ $25.00 per share = $2,500 *.01 (1% fee) = $25.00 fee.
No transaction fees should be assessed for initial purchases. In other words, only apply transactions fees to subsequent trades made in entries 2,3,4.
Fees for both selling and for buying should be included.
Step #3: If you were able to include alternative assets (ie. real estate, private equity, cryptocurrencies, commodities such as gold, wheat, corn) into the portfolio mix, which would you chose and why?
You may have to do some research here to answer the “why” part.
Step #4: If you could start this project over, what (if anything) would you do differently?
Suggested Sources:
Yahoo.com: Choose Finance, then Market Data, then Stocks or Bonds
Bloomberg.com: Market quotes and information
WSJ.com: Market information and financial news
Will you be crowned INVESTMENTS KING or QUEEN?After each entry date, the top three portfolios in terms of HPR will be announced and during week 16, an undisclosed prize will be awarded to the TOP performing portfolio.