FIN 4504 Trading Simulation Written Assignment

Compared to my peers, I was extremely conservative in my market presence only

conducting four trades in total since the end of April. The companies I chose to invest into were

Netflix Inc, Globant S.A., Apple Inc, and General Electric Co. Generally, all these stocks

performed well in the short span in which I invested into them while Netflix vastly outperformed

all other securities in its performance during the three-month period. With ten shares of the stock

being held at the moment, it is currently sitting at a market value of $4,257.80, the largest market

value in my entire portfolio. The initial price I paid for my shares sat at $399.29 and now it

currently sits at $425.78 as of Friday, July 28th I believe reason as to why this stock performed

so well should be credited to the various changed the company implemented into its business

model. Changes that would drive more users to subscribe to Netflix and success of multiple

shows have really had a positive effect on the company for past year. The elimination of

password sharing and other pricing changes helped Netflix improve it subscriber count

substantially and was one of the main reasons I stated in my explanation of why I decided to

invest into this stock. Due to the previous success in recent quarters, there was little to no risk in

this stock as well and seeing now how well it performed in this period, I believe it would have

been wise to continue to trade with Netflix and hold stock for the future.

Both the Apple Inc and Globant S.A. stocks were purchased based on recent influences in

the technological market and were seen as opportunities to capitalize on emergence of new

technologies such as A.I Apple Inc introduced and Globant S.A. were already dominating the

field in. The use of A.I in the past year has been a hot topic due to its nature in multiple fields. In

different mediums it can be seen as a tool to replicate many things but in the technological field,

it can be described as something similar to the introduction of the internet. Naturally, a giant in

this field such as apple would be the first to look at to capitalize new innovations for future ideas

and releases which is why I decided it would be wise to take a position with the company. The

same can be said for Globant as they have always worked in with software such as A.I and have

worked in tandem with major entities such as Amazon and Microsoft. Both of these positions did

yield a degree of risk as Apple had seen its fair share of lows in the past year with its

underwhelming performance in Q4 of last year and the beginning of this year but has seen a

steady upwards trend with a 12.83% change in price and a high of 196.63 since their yearly expo

this year and its quarterly results in march.

Lastly, my security which was a short for the General Electric Co. Performed very

averagely as I took an extremely safe position with the stock. I initially took a short position with

this stock believing it would not perform as well as it had been due to competition such as ITT

and IAC performing exceptionally better than it had been during that period. Although they

garnered a dividend yield of 0.28% annually, General Electric Co for the most part has been

steady for majority of the second quarter maintaining a positive percentage change of 42.13% in

the past six months. It would have been wise to consider competitors analysis in recent quarters

before deciding upon this security for a short position.

In the end. I believe I have a small successful and safe portfolio with the securities I have

chosen. Some things I would change are the positions in which I took some stock such as the

short stock for the General Electric Co. position I took and some positions, I should have

invested more into such as Apple Inc to yield bigger profits as my portfolio is only yielding

0.21% in return for the trades I made but with a $6,252.40 for the positions I took, I believe my

portfolio is in a good spot.

Written Assignment: Portfolio Analysis

The fund ended the first quarter of the financial year from 1 February 2023 to 31 January 2024

with a value increase of 3.48%. On the reporting date, the fund had a market value of USD

1,034,795.70 The fund pursues an active investment approach, meaning the fund manager can

invest in any asset classes that appear to be attractive based on fundamental and technical analysis.

The portfolio consists of 25 equity positions, one option, U.S. government Treasury bonds, and

a remaining cash position.

Diversification played a crucial role in the fund’s investment strategy. The high levels

of diversification can be seen at a portfolio beta of 0.86. Besides equities (81.9% of portfolio

value), the capital was invested in bonds (9.7%), and options (cf Fig. 3). To maintain liquidity

to take advantage of emerging investment opportunities, the fund manager decided to keep 8.2

% of the fund’s value in a cash position. Furthermore, the investment approach spread risk

across different geographies as well as industries. The top five positions for equities were

Technology, Banking & Insurance, Pharmaceutical, Mining, and Telecommunications (cf Fig.

1). The fund invested in companies based in the United States, China, the United Kingdom,

Europe, and Israel (cf Fig. 2). However, as the fund invested only in companies that were listed

on U.S. stock exchanges, the portfolio value was not exposed to exchange rate risk. Therefore,

the fund manager did not exercise currency hedging.

The fund’s investments in the technology sector have performed particularly well. The

technology positions have returned 12.3% (cf Fig. 4). Perion Network, an Israel-based

digital marketing company has returned 37.4% in the first quarter. Microsoft and Alphabet have

returned 14.9% and 13.9% respectively. Investments in the consumer goods sector

(9.4% return) and the

telecommunications sector (6.5% return) have also been profitable. Small losses were realized in

the banking & insurance (-0.1%) and aerospace investments (-0.5%). The mining industry has

underperformed in the overall portfolio resulting in a loss of 10.0%.

As a ban on the social media platform Tik Tok by the U.S. government seems very likely, the fund

manager decided to buy a call option on Meta Platforms Inc.’s stock. Meta is a social media

technology company and a direct competitor of Tik Tok. If the U.S. government follows through,

Meta would directly profit from a ban on its competitor. The fund manager decided to increase the

potential profitability of this investment by using a call option in this case. So far, the call option’s

value has increased by 10.4%.

9.7% of the portfolio value was invested in a risk-free asset. The Treasury bonds earned USD

1,240.89 in accrued interest.

During the first quarter, the fund had a short position in Bed, Bath & Beyond stock. As the company

announced that it will fail to meet its debt obligations and is looking for an investor, the fund

invested short at a stock price of USD 4.75. The position was closed for USD 1.54, earning the

fund a profitable return.

The overall fund performance of 3.48% was below the SPY ETF return of 5.70%. However, for

the first attempt at investing, I am happy with the fund's overall performance. Having learned about

bond valuation in class, I would have invested a larger portion of the portfolio in bonds. Due to

the current market environment, bonds seem like an attractive investment that could have

contributed well to the fund’s performance and further increased portfolio diversification.

Unfortunately, as the simulation closed early for me, I was unable to trade a limit order and the

futures trade. Nevertheless, I have learned a lot from the trading simulation as I could apply some

of the concepts I learned during the lectures in a real-world scenario.

Appendix

Fig. 1: Stock por/olio industry weights

Fig. 2: Stock por/olio geography weights

Fig. 3: Asset alloca=on

Fig. 4: Industry performance

Trading Simulation Written Assignment

This report will analyze the portfolio I led over the time of this spring semester 2023. For

annualization purposes, I will consider a 3-month period for the overall return of the portfolio.

In addition, I will focus on the benchmark performance, the overall composition of my portfolio,

and the trades made in terms of risk and return.

The first trade recorded for my portfolio was a long position in the stock of Bank of America on

January 13, the last recorded trade was a position in the future of Brent Crude Oil on April 14

and the end date was April 18. During this 3-month period, my portfolio had a return

percentage of 2.66%. This is compared to the SPY ETF which ended the same 3-month period

with a return percentage of 5.70%, meaning that the SPY ETF was around 2.15 times more

profitable than my portfolio over the same time period. Annualizing the return percentage over

the 3-month period, my portfolio would have a return percentage of 10.64% per year.

Looking at the overall composition of my portfolio, it consists mostly of big tech companies like

Apple, Google, and Amazon, two banks with Deutsche and Bank of America being completed by

Walt Disney, Proctor & Gamble, and two ETFs- IVV and ICLN. My strategy was to use the

beginning of the year rally of the tech companies which was caused by unexpectedly good

fourth-quarter reports of 2022 for Apple and Google. Therefore, I invested early in long

positions in which ultimately paid off the most with percentage returns of 21.10% and 16.45%.

On the other side, I was expecting the FED and the Central Bank of Europe to keep fighting

inflation and therefore raising interest rates for at least until mid-year which motivated me to

invest in long positions for DB and BofA. Instead of profiting from the interest rate risk, the

bank collapse of the Silicon Valley Bank caused bank stocks in the USA and also Europe to

drastically decrease causing a loss on both stocks of 13.08% for DB and 10.59% for BofA.

In addition, I was able to profit from a short-term increase in the crypto market, investing in a

long future of the company Coinbase and selling it 2 days later which brought a profit of more

than $20,000 from this trade.

The main source of my portfolio was unsystematic risk, as shown by the big profit through the

tech companies but also the big loss through the banking sector stocks. Rethinking the main

trades, I did over this period of time I would do some things differently with the knowledge I

gained throughout this course. First of all, I would diversify my portfolio much more so that the

overall performance of my portfolio would be less affected by single events of unsystematic

risk. As mentioned, my portfolio depended too much on specific sectors like the tech or bank

sector. Going back, I would include more different groups of equities, bonds, and also

commodities. Another point I would do better is to know when to sell a stock. Too many times I

was thinking that if a was losing money with an asset, I will wait until I get my money back to

sell it. On the opposite when I was profiting from an asset, I wanted more and kept it until the

price fell again and I missed the best time to sell it.

In conclusion, I believe that my profits and losses are mostly based on a combination of skill and

luck especially when it comes down to the execution of the trade. Many times, I think that I

analyzed the market situation correctly and that I had the right base idea about an asset and

how it will develop in the future. Ultimately, I was missing either the timing of when it is the

best time to buy and sell or how to find the best instrument to achieve the highest profit for my

desired trade.

Sources

https://www.stocktrak.com/account/portfoliosummary

Chen, James . "What Is Unsystematic Risk? Types and Measurements Explained." Investopedia,

22 Feb. 2023, www.investopedia.com/terms/u/unsystematicrisk.asp.

Gilson, Dave. "Many US Banks Face the Same Risks That Brought down Silicon Valley Bank."

Stanford Research, 21 Mar. 2023, siepr.stanford.edu/news/many-us-banks-face-same-risks-

brought-down-silicon-valley-bank

Chen, James. "Interest Rate Risk Definition and Impact on Bond Prices." Investopedia, 25 Sept.

2022, www.investopedia.com/terms/i/interestraterisk.asp.

Cote, Catherine. "HOW TO DIVERSIFY YOUR PORTFOLIO WITH ALTERNATIVE INVESTMENTS."

HBS, 28 Sept. 2021, online.hbs.edu/blog/post/how-to-diversify-your-portfolio.