portfolio game each student in the class will enroll and participate in a portfolio simulation game....

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Portfolio Game • Each student in the class will enroll and participate in a portfolio simulation game. • The rules and requirements for this exercise are listed at the end of the syllabus. • This portion of the course is worth 15% of the final grade.

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Page 1: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Portfolio Game

• Each student in the class will enroll and participate in a portfolio simulation game.

• The rules and requirements for this exercise are listed at the end of the syllabus.

• This portion of the course is worth 15% of the final grade.

Page 2: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Portfolio Simulation Game

• Game begins with the second week of the course and ends 13 weeks later. – For TAP students this means it continues through the concentration

courses.– For the first course, the trades are restricted to equity investments.

After the first course all the available investment assets of the game are available.

• The rules are fairly simple. You are going to build a portfolio. You have an initial amount of $100,000. You must make a minimum of 3 trades per week and submit a report explaining the rationale for the action. – You cannot invest more than 10% of your money in any one

company.

Page 3: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

• Game grading:• Pre-game strategy paper (due week 2) 12%• Performance 30%• Weekly reports (4) 28%• End of game report and discussion 30%

Page 4: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Weekly Game Reports

• Discuss the trades of the week– Prepare current portfolio beginning and ending

values for each investment. – Use the word document template for the format– Include in the rationale for the trade.

• Note: have to sell, need a trade, etc are not valid reasons

• You must provide information about why you are doing the transaction.

Page 5: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Game Performance

• The top performing portfolio will receive 100%, 2nd place 95%, 3rd place 90%, and all others 85%. – 50% real returns; 50% sharpe ratio

• I will also be playing the game as a passive investor (no trading).

• Anyone that outperforms the instructor’s portfolio receives a 5% bonus.

Page 6: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Pre-game strategy paper/report

• Prepare a short paper describing an investment strategy that you propose to follow. – It is understood that you may not have a solid

understanding of what a strategy is. – It is also understood that this vision could change.

• This document should be 1 or 2 paragraphs. You should include what you hope to learn from such a game.

Page 7: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

End of game report and presentation

• No formal presentation in this class• We will discuss the following

– How has your strategy changed– Any great revelations?– Performance so far?

– Provide at least 2 graphs or illustrations of your progress

• Worst move? (do not name companies)• Best move? (do not name companies)

• Short 2 page explanation of the above.

Page 8: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Getting Started in OTISSetting Up an Initial Investment in OTIS

Page 9: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Wharton OTIS

• OTIS is a trading simulator that allows you to gain real world experience investing in various securities and managing a portfolio.

• In OTIS you “execute” buy and sell orders. The orders “clear” at actual market prices in real time (15 to 20 minute delay) with trading fees assessed.

• Analytical and performance sections permit you to analyze results.

Page 10: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Registration Process (continued)

• Go to www.aw-bc.com/wharton and click on the OTIS logo.

• Next double click on the register button located under first time user. Follow screen instructions to register.

– The instructor will supply a simulation number.

Page 11: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

How to Use OTIS over the Course

• Beginning of the course – Invest in stocks based on your view of the economy and your risk / return preferences. – Try one or more of the following advanced

features: margin trading, short selling, limit or stop orders.

• End of term – Assess investment strategy and performance over the term using OTIS performance and history sections.

Page 12: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Guidelines for Equity Purchases

This portion of the portfolio may include direct or indirect purchase of stocks from the following categories:– U.S. and International Equities– Exchange Traded Funds and Equity Mutual Funds.

Page 13: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Guidelines for Fixed Income and Derivative Asset Purchases

This portion of the portfolio may include any or all of the following:– Government Securities– Corporate Bonds and Bond Mutual Funds. – Futures and Option Contracts

Page 14: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Example OTIS Template –Domestic Stock Purchase

• OTIS Template:

Pick Order Type:

Buy

Sell

Sell Short

Buy To Cover

Enter Symbol: WMT

Symbol lookup

Enter Number of Shares: 140

Pick Execution Type:

Market

Limit

Stop

Stop Limit

Order Length:

GTC

Day

Page 15: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Determine the Investment Objective

• As a “manager” you need to determine and state your primary goal. Common goals in investing are:– Preservation of capital (Avoid or minimize capital

loss.)– Income generation (Earn regular income via

interest and dividends)– Capital appreciation (Seek capital gains. Qualify

as to how aggressively seek capital gain.)

Page 16: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Value and Growth Styles

• The value style of investing seeks to identify stocks that are currently undervalued in the market. Such stocks may be priced “below average” relative to some measure such as earnings, cash flow, or book value.

• The growth style emphasizes stocks that are likely to show relatively large and / or rapid price appreciation. Such stocks are thought to be reasonably priced given high expected earnings growth.

Page 17: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

OTIS Power

Point Slides

Screening Tools for Stocks

• There are various screening tools available on financial web sites. For example, you can screen for mutual funds that are international. Or, you can screen for mutual funds that specialize in small capitalization stocks.

• Try screening using one of these tools. For example, on www.morningstar.com select tools and then Basic Screener. Then you are able to run a screen for either stocks or mutual funds.

Page 18: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

OTIS Analytics

• The following items are some of the evaluation metrics found under the Analytics tab.

• Gain/Loss Report-Closed Positions.– Discuss reason / motivation for closing position.

• Gain/Loss Report-Open Positions. – Discuss major factors behind gains / losses to date on

open positions. • Portfolio Holdings Graph.

– Especially helpful if sectors have been assigned. Select different dates to show changes in portfolio weights.

Page 19: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

OTIS Performance

• Historical Rankings.– Check two or three dates to show volatility in

performance over time. Analyze why portfolio has tended to return more or less than the benchmark or the class average.

• View Sharpe Ratio. – Assess your portfolio’s return relative to its risk as

measured by the Sharp ratio.• Portfolio Value and Portfolio Change Graph.

– Analyze correlation /deviations between your portfolio and the benchmark or class average.

Page 20: Portfolio Game Each student in the class will enroll and participate in a portfolio simulation game. The rules and requirements for this exercise are listed

Note on the Sharpe Ratio

• The Sharpe ratio compares the excess return on your portfolio (relative to the risk free rate) to the risk of your portfolio as measured by the standard deviation of returns.

• The higher is the Sharpe ratio the better is the return relative to the amount of risk. A portfolio may have a high return but rank low in terms of the Sharpe ratio due to high risk.

• See OTIS “How is the Sharpe ratio calculated” for the mathematical definition.