FIN 3312 Stocktrack Final Report PDF

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Summary

This is the final project of this course, this is worth 35% of your final grade, I got an A for this report/project and the semester....

Description

Assignment objective: Our portfolio management assignment is intended to provide you with hands-on learning about investing to complement our lecture discussions. As you probably know, we will use the StockTrak simulation as the basis for our work. Investing is not a game When you read the StockTrak literature, you will see that other students at other colleges and universities use the simulation competitively. At those institutions, the students who receive the highest return are the winners (of something). In our class, our objective is to enable our money to grow to meet our personal financial goals. As such, we are dealing with reality rather than playing a computer game. In this project, I would like you to pretend that this is your money. In life, we will face financial goals that we must plan to meet. Our investments work for us to lighten our financial load. Rather than asking you to identify your personal financial goals and your investment horizon (the period between now and when you must pay cash to meet your financial goals), I have identified the time periods (in percentages) for the financial goals that you are investing to achieve (see “Allocation of personal goals” on page 2). Keep in mind that our class only runs for a few months. During your life, you will be making investments that will pay for short-term goals, medium-term goals and long-term goals. Please manage your investments with that in mind. Students tend to find investing in StockTrak to be a game, but you will find that investing your real money is serious stuff! Explaining the “why’s” A student told me that this project is the “why’s” project (not wise) because I require you to explain each of your steps as you go along. Consider the following questions as examples of some of the questions that we must answer: ● How did you create your economic point of view for the present and the future? ● How did you select your asset allocation to match your investment goals and your economic expectations? ● Based on the past, what is your expected rate of return on investment for your portfolio and what is the standard deviation of investment return? ● Why did you purchase certain securities or mutual funds? You must explain how you made your decision (explained further below). As you create your investment strategy and make investments as part of this project, be sure to explain the basis for your decisions.

Stocktrack Final Report

TABLE OF CONTENTS

SECTION 1: STRATEGY AND ECONOMICS SECTION ........................................ 3 GOALS 1.1 ........................................................................................................................ 3 ECONOMIC AND CONTEXTUAL ASSESSMENT OF THE FUTURE 1.2..................................... 3 SECTION 2: SECURITIES SECTION ......................................................................... 4 DIVERSIFICATION AND ASSET ALLOCATION 2.1 ................................................................ 4 INVESTMENTS 2.2 ............................................................................................................. 5 Equities 2.2. a............................................................................................................... 5 Bonds 2.2. b.................................................................................................................. 7 Mutual Funds and ETF’s 2.2.c..................................................................................... 7 INVESTMENT SOLD 2.3 ..................................................................................................... 9 SECTION 3: PERFORMANCE AND EVALUATION ............................................... 9 INVESTMENT PERFORMANCE 3.1 ...................................................................................... 9 REFLECTIONS AND CONCLUSIONS 3.2 ............................................................................. 11

2 1. STRATEGY AND ECONOMICS SECTION

1.1. Goals:

My investment goals were set to make me a successful investor in a real and time-based manner. In my hypothetical future, I divided my goals into short, medium, and long term. Some of my hypothetical goals would be to buy a car and rent an apartment for myself within the next 2 years, travel to Asia — I want to visit Tokyo, South Korea, Hong Kong, and the Philippines within the next seven years — and support my parents as they will be around seventy years old and without retirement benefits. Fifteen percent of my assets would be allocated towards achieving my short term goals such as buying a car and renting an apartment. Forty percent of my assets would be placed towards my mid-term goal — traveling around Asia. Finally, forty-five percent of my assets would be destined for my long-term goal, retirement.

1.2. Economic and Contextual Assessment of the Future:

This assignment started during the government shutdown from December 22, 2018 to January 25, 2019. As the longest U.S. government shutdown in history that lasted nearly 5 weeks, it is likely to reduce quarterly economic growth by 0.13 percentage points for every week that it lasted. However, investors’ confidence was restored once federal employees returned to work and received their paychecks. As a result, trade resumed, bringing the economy back up again. The unemployment rate went down to 4.0 % although the data do not seem to be too accurate. Unemployment statistics do not take into account discouraged workers, place part-time and full-

3 time employees in the same category, and consider people with low wages as any other employee with an average salary. Jobs are likely to grow in healthcare, technology, and construction industries. Therefore, it would be smart to start investing in these market segments. Furthermore, crude oil and steel market show volatility in their prices, and their monetary value keeps rising while escalating trade war with China poses a risk that could affect the global economy. If tariffs are increased, both China and US exports may go down in the future.

2. SECURITIES SECTION

2.1. Diversification and Asset Allocation:

I want my asset allocation to match my goals mentioned above. Hence, I decided to allocate 15% of my capital in large-cap equities. Although they bear the highest risk, they can provide me with the highest rate of return in a shorter period of time, which will allow me to buy a car and rent an apartment. I would also allocate part of that capital in safe securities, which are extremely liquid, but not volatile, compared to other types of securities. Lastly, I would place 40% of my capital in mid-cap equities and bonds. These types of investment are less volatile, but, generally, bring a lower ROI rate than stocks. That is why I decided to invest in them when I travel to Asia, where I plan to stay from several months to a few years. I believe the two asset allocations will bring me a safe rate of return without being too risky or too conservative in the medium term. Finally, I am going to invest 45% of my capital in small-cap equities and mutual funds. These types of assets are very volatile and lack liquidity, but I can take the risk as this will help me with my long-term goal, which is to support my parents and myself after retirement. After reaching my second goal

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—my trip to Asia— I will start investing more in mutual funds and government bonds. At this stage of my life and mature enough, I cannot afford to lose money by being a risky investor, so I trust that these types of securities will provide me with high liquidity assets and safe earnings overall. My asset allocation by industry can be seen in the pie chart below, displaying my investment in industries where I believe they will grow or continue to thrive in the upcoming years.

2.2. Investments: a) Equities ● Pfizer Inc. An innovative company with a great research team that often comes up with new drugs and vaccines, each one brings revenue of approximately one billion dollars annually. Its last research on gene therapy biotech could treat liver disease in the future. ● Microsoft Corp. Recently, the company released the final update of Windows 10 and expects a high revenue of $32.5 billion and net income of $8.4 for its Q2 of 2019.

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● Apple Inc. I believe that its large market share in technology will continue thriving. Besides, it keeps raising investors’ confidence by showing initiative to yield new products. ● Estee Lauder Companies Inc. The company HAS had robust growth in its online business and RAISED profits in 2018’s last quarter. ● Salesforce.com, Inc. It is not only known for its expansion on digital globalization and sales cloud platform revenue, but for its salesforce that has collaborated with non-profit organizations to drive social impact through AI (artificial intelligence) for higher education students. ● Alphabet Inc. Class A. Focusing on technology, A hot sector to invest in the market, Alphabet is expected to have an even higher ROI rate, ACCORDING TO analysts at NASDAQ. ● SL Green Realty Corp. The economic output OF the company in real estate expanding as well as its dividends. I think it is good enough as a short term investment. ● Johnson & Johnson. The multinational company promises to bring new products to the market to fight lung cancer and myopia. In East Asian countries, more than 90% of their young population suffer from myopia which could later develop into glaucoma, cataracts, or other serious eye diseases. ● Merck and Co. Recently, its most popular drug against cancer, Keytruda, received more FDA approvals to continue investing heavily by investors. In addition, it has released high dividends for its investors (+3).

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b) Bonds I wanted to diversify my portfolio by buying not only (2) government but also (4) corporate bonds. They are highly liquid short-term bonds that will help me preserve my capital while keep investing. ● Goldman Sachs Group Inc - 3.625% - Jan 22, 2023; YTM 3.13% ● JPMorgan Chase & CO - 4.95% - Mar 25, 2020; YTM 3.42% ● JPMorgan Chase & CO - 4.625% - May 10, 2021; YTM 2.78% ● Deutsche Bank - 4.296% - May 24, 2028; YTM 5.92% ● United States Treasury 30-Year Bond 8.75% May 15, 2020; YTM 2.36% ● United States Treasury 10-Year Note 3.625% Feb 15, 2020; YTM 2.44% c) Mutual Funds and ETF’s *Italicized and bolded are the holdings that are included in other funds or stocks I WOULD own* ● SPDR Dow Jones Industrial Average ETF, DIA. This fund is managed by State Street Global Advisors. Its assets amount of $20,832.398 M and a volume of 4,244,859. The reason I chose this security is that it mimics the return of the Dow Jones indices. I purchased 210 shares of this fund for $259.03 each, its current price is $265.92. The top Fund holdings include Boeing Company, UnitedHealth Group Incorporated, 3M Company, Goldman Sachs Group Inc., McDonald's Corporation, Apple Inc., Home Depot Inc., Johnson & Johnson.

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● Vanguard Mid-Cap Growth ETF, VOT. This fund is managed passively by The Equity Index Group at Vanguard. IT Seeks to track the performance of the CRSP US Mid Cap Growth Index, which measures the investment return of mid-capitalization growth stocks. I invested in this fund because middle-of-road securities are relatively less exposed to international markets compared to large caps. It includes 182 stocks and has net assets of $12.75 billion and a volume of 118,896. I purchased 280 shares for $142.77 dollars; now it is worth slightly more by a few cents. Its largest holdings include Fiserv Inc., Edwards Lifesciences Corp., Red Hat Inc., Roper Technologies Inc., Autodesk Inc., Concho Resources Inc., Worldpay Inc., and Oneok.Inc. ● American Funds The Income Fund of America® Class A, AMECX. This mutual fund is designed to provide broad exposure to U.S. investment stocks and bonds. I chose to invest in it to take on a broad variety of corporate and government stocks as well as bonds, minimize the risk of my portfolio, and diversify asset allocation. This fund’s total assets are over $107 billion and it has a yield to maturity of 3.03%. I bought 2,717 shares for $22.08 each. Its top holdings include US Treasury Bills, Merck and Co Inc., Microsoft Corp., US Treasury Notes, CME Group Class A, Verizon Communications Inc., Pfizer Inc, and Coca Cola Co. ● Fidelity® Select Health Care Svcs Port, FSHCX. This fund is managed by Fidelity. Its goal is to invest at least 80% of assets in companies’ securities that mainly engaged in ownership or management of hospitals,

8 nursing homes, health maintenance organizations, and other outfits

specialized in delivering health care services. I chose this security because Healthcare has been resilient through tough economic times, so I sensed the security had more room to grow. I bought 180 shares at $185.61 and it is

now worth $186.86 each share. Its largest holdings include

UnitedHealth Group Inc, Humana Inc, CVS Health Corp, Cigna Corp, Healthcare Inc, Anthem Inc, Centene Corp, and Express Scripts Holding Co.

2.3 Investments Sold: I sold 2 stocks of GOOG- Alphabet Class C because it does not have any voting rights. Instead. I purchased 60 stocks of GOOGL- Alphabet Class A, where each share does possess a voting right. On March 29, I sold each stock for $1168.78, having purchased them a month ago for $1,125. My capital gain was $87.56. I am aware I will not be taking advantage of my voting rights in this investment simulator, but I thought it would be useful to learn the concept since now. I also decided to sell 122 out of the 155 stocks I owe from Merck & Co. AS I have been observing the company’s revenue and prices for its stock, and they have been decreasing for the last two weeks due to the many challenges their products are facing. I sold my stocks for $78 but bought them for $80 each. I lost $244.

3. PERFORMANCE AND EVALUATION 3.1 Investment Performance Overall, I learned many terms and strategies that will help me to invest more wisely in the future. However, I wish I would have used the tactics learned in class more aggressively. Attending the

9 second finance class in college and unsure of how the markets really worked, my investment

strategy was very conservative the first half of the semester. As you can observe in the chart below, my rate of return was below 1, still going up but very slowly. By February 21, I had a return percentage of 0.04 BUT on February 15 was of 0.16. By March 25, it went up to 1.08. Finally, in mid-April, it was at 1.89, closely reaching 2%. However, Dow Jones, even with its volatile ups and downs, has managed to have an average return percentage of 5%. I could have had a greater return than them because I am choosing the best companies and I can sell their stocks at any time.

My goals are risky and investment horizon is not that far away, both I should have matched my investment performance. I am aware that I did not have any loss but I am poised to become a riskier investor in real life, now that I have finished this project.

10 3.2. Reflections and Conclusions:

I wish I had been more active in buying securities for my portfolio. I did not wait until the last minute to buy securities but I did have low confidence when purchasing them. I was not confident

enough on my asset allocation and the number of securities I purchased would do good. In the end, they performed more than good. Once I realized that my rate of return was growing, I started purchasing more of the same stocks, bonds, and mutual funds/ETF shares that I bought before, but at a greater length. This time, I risked more and my profits kept increasing. I think the purpose of this project was to prepare us to be successful investors or analysts in the future. Besides learning the theory, I practiced and applied the knowledge I learned in class into my portfolio. I am happy that I made mistakes in the simulator as I learn from them and be able to avoid them when I invest for later on.

I learned crucial tactics to diversify asset allocation and avoid risk. For half of the semester, I did not know that bonds could bring me high profits or that long term bonds can be very volatile even more than some small-cap stocks. I was not aware either that I do not need to have a lot money to start investing in mutual funds. When I look back at the start of the semester, I feel like I have progressed a lot, and to see my portfolio value increase makes me feel confident enough to start purchasing securities for myself in real life. Two of my goals are not too far away. I believe in my investment strategy and will act to meet my investment horizon on time.

Overall, I have become more financially literate and feel more assured on investing. I feel that this assignment will bring great benefits to my academic career but even more to my personal life.

11 Before completing this coursework, I did not have a plan or even stated goals for my future. Now, I know that my savings should not be sitting in the bank, and if allocated correctly, I could take advantage of the securities market and profit myself.

12 Works Cited

Journal, Wall Street. “The Wall Street Journal & Breaking News, Business, Financial and Economic News, World News, and Video.” The Wall Street Journal, Dow Jones & Company, www.wsj.com/.

“Morningstar | Independent Investment Research.” Morningstar.com, www.morningstar.com/.

“Yahoo Finance - Business Finance, Stock Market, Quotes, News.” Yahoo! Finance, Yahoo!, www.finance.yahoo.com/.

“Unwavering Loyalty to Our Clients.” What's the Right Emergency Fund Amount for You? | Vanguard, investor.vanguard.com/corporate-portal/.

FocusEconomics. “United States Economy - GDP, Inflation, CPI and Interest Rate.” FocusEconomics | Economic Forecasts from the World's Leading Economists, FocusEconomics, www.focus-economics.com/countries/united-states.

The Balance Small Business. “What Will the Economy Do in 2019 and Beyond?” TheBalance l US Economic Outlook for 2019 and Beyond, https://www.thebalance.com/us-economic-outlook 3305669

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