What is it?

The primary purpose of the project is to gain an understanding of the investment process by becoming an interested participant. You can buy, sell, buy on margin, and sell short all NYSE, AMEX, and NASDAQ stocks (common and preferred) that are trading at $5.00 or more, as well as mutual funds, government bonds, corporate bonds, futures, options, futures options, and index options. You can also trade foreign stocks listed on exchanges such as Toronto, London, Paris, Frankfurt, Tokyo, Hong Kong, Taiwan, Sydney, South Korea, Mexico City, and others. These foreign stocks will be quoted in their respective currencies and converted into U.S. Dollars based on the currency exchange rates. Domestic prices are quoted in real time.

What are the goals?

The investment strategy for the class will be to “provide reasonable short term growth of principal and income but with moderate risk.” This mandate is purposely vague and may be interpreted to suit your investment style.
Students will NOT be graded on the basis of their investment performance. Requirements for each student include: (1) tracking the performance of your portfolio each week through the semester; (2) being prepared for classroom discussion of macroeconomic, financial market, or other news events that might affect the risk and return of your portfolio; and (3) producing a comprehensive report analyzing the performance of your portfolio over the semester.
How do we trade? Trades are placed over the internet by logging into your account at www.stocktrak.com. Details on how to place trades may be found in the trading rules at www.stocktrak.com. Your account is limited to 200 trades for the semester; either market or limit orders for a minimum of 25 shares are allowed. There is also a position limit of no more than 25% of your portfolio invested in a single security.

How do we track our performance?

You may track your performance using Stock-Trak’s web site, which gives detailed information on your positions as well as an overall summary.

Specific Requirements:

1. Register your Stock-Trak account during the first week of class.

2. Initial report: Submit a one-page report on Thursday, January 14, briefly outlining what you hope to get out of this exercise and what tentative strategy you will pursue. For example, you might choose “conservative” focusing on blue-chip stocks and Treasury bonds, or “aggressive” focusing on technology or growth stocks and possibly some derivatives. Or perhaps you prefer a largely passive “buy and hold” strategy focusing on large index funds. Day-trading is also permissible.

3. Make at least one trade per week (this should not be a difficult requirement to fulfill). You are allowed a maximum of 200 trades. You are required to make at least one transaction in the stock market, one transaction in a mutual fund, and one transaction in the bond market over the course of the semester. You are also required to take at least one short position (see #5 below). You may experiment with futures and options if you wish.

4. Record the weekly total value of your portfolio each Friday. Note: Your initial portfolio value on Friday, January 15, is $1,000,000.

5. As referenced in #3 above, you are required to enter into at least one short position on or before Friday, January 22, and hold it at least until Friday, February 12. Be prepared to discuss in class how this position is performing. Your experience with this short position should also be specifically addressed in your final report.

6. Final Report: A comprehensive report will be due at the end of the semester detailing your trading activity and the performance of your portfolio over the 14 week period. Discussion and analysis in the report will consider the total return on the portfolio, risk characteristics, key market-wide or industry- or firm-specific events that influenced trading decisions and subsequent results. A brief chronicle of major events with their associated impact on trading decisions is recommended. If you make certain trades for purposes of experimentation rather than based on specific information, that is fine. You will NOT be graded on the basis of your investment performance. The report should be typed and should contain at least one graph showing the performance of your portfolio over time. For purposes of comparison, the S&P500 will be used as a benchmark portfolio. Include a table of your weekly portfolio values and weekly portfolio returns, as well as the weekly S&P500 index values and weekly S&P500 returns. Describe how your portfolio performed in relation to “the market”. Note: You will need to adjust for risk! Specifically, compute the Sharpe ratio of your portfolio as well as the Sharpe ratio for the S&P500 Index over this time period and comment. Other measures may be included as well. (You may assume a weekly risk-free rate of 0.06%). The final report will be due on Thursday, April 29.