Term_project_Group15_Bautista_Baker_Busacca_Chen_Cress

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Indian River State College *

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Economics

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Feb 20, 2024

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This report will be discussing various aspects of the semester-long Investopedia simulator that we have undertaken. Our group started this simulated investment game on September 11 this year. Since our group has a total investment capital of 1 million and has invested in 6 different stocks, after a brief discussion, our group unanimously decided that each stock will be allocated equally to $166,666 as the initial investment capital . After about 10 weeks of business period, as of November 25th, our group's current total account value is $992,711 (figure 1). In other words, we lost a total of $7288.64. We have attempted to create a diversified portfolio by purchasing a variety of stocks in different industries, but we were not completely able to diversify away systematic risk, hence, our account value at the end of simulation was slightly lower than the initial account value we started with. At the beginning of the semester, our goal like any other trader was to achieve a maximum return from the purchase and then the sale of the assets in our portfolio. However, we realized that our goals need to change after a massive dip in account value between the

16th-30th of October. So we changed our trading goals in time, from maximizing profits to minimizing losses as much as possible. In terms of trading strategy, upon doing some stock market research and learning about how the stock market works, we learned that the most important thing is to have a diversified portfolio. So, our trading strategy is to allocate funds equally at the beginning and invest in the stocks we are optimistic about. After a period of time, we will compare the return results with each other and discuss the return efficiency. Then we draw conclusions and find stocks with better returns and future development, and then we sell stocks with lower returns and buy stocks with higher returns. For example, at the beginning, we analyzed and observed the trend of Costco's stock. Since we are about to enter holidays such as Thanksgiving and Christmas, we predict that Costco's stock will trend higher in the second half of the year. So we bought Costco stock. After we saw that Costco stock did bring good returns, we sold off some stocks with low returns and continued to pursue Costco stocks. Our initial purchases consisted of stocks from the Automobile (Ford), retail stores (Costco), and software company industries (Sale force). The reason why we purchased Ford stock was due to Ford being on track at that period to overtake Wall Street's earning expectation, while the stock's price has been rapidly increasing since June. The reason why we choose Costco and Sale force is because we predict that they will have more markets in the second half of the year, in other words, their stock prices will rise. After this, we also picked Eli Lilly and Visa stocks because we are optimistic about the future development trend of pharmaceutical companies and financial services companies.

As can be seen in the above chart, we started the simulation quite steadily, In the first week, our portfolio reached its highest value on the 11th of September at $1,003,600. In other words, our net income was $3,600. But over the next few weeks, as the prices of some of the stocks we invested in continued to fall, our total account value became $954,417. After October 2nd, we changed our trading strategy. That is, selling some stocks with inefficient returns (Ford, Procter & Gamble) and continuing to buy stocks with known high returns (Costco). By doing this, we briefly reversed the downward trend, but after October 16th, we were once again down. Throughout the following couple of weeks, our account began to constantly decrease in value until it reached the lowest point, with the account value being $917973. So we repeated the above steps again and bought stocks with high returns, the account value began gradually increasing until the end of the simulation, to end with an account value of $992711. And we can also see that our total standard deviation is $22815.72 (figure 2)

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In order to understand the weekly return of each stock and our total investment, we used websites such as Yahoo Finance [1] to find the value of each stock in different weeks, and then multiplied this value by the number of stocks we simulated investing to get the total value of every week. And make corresponding line charts based on these values to observe the rising or falling trend of each stock. From figure 3 and figure 5, we can see that the returns of most stocks are relatively stable in most business periods, except Ford and Lily. Ford's stock price maintained an upward trend until October 16. Lily experienced a small decline on October 2, but quickly recovered after that. At the beginning, our portfolio was 741 shares of Salesforce stock with $214 per share,

300 shares of Costco stock with $555 per share, 10,300 shares of Ford stock with $12.4 per share, and 290 shares of Lily stock with $490 per share. 1080 PG shares with $152 per share, and 690 Visa shares with $240 per share. Throughout the simulation, We have held 6 different stocks in the automotive, technological, retail, and pharmaceutical industry. By looking at Figures 3 and 5, it's easy to see which stocks are good for my portfolio and which are not. The best-performing stock among them is Costco, whose stock price rose from the initial price of $555 to $591. Although it has experienced a small decline, its stock price has increased with the arrival of holidays such as Thanksgiving and Christmas. The worst-performing stock was Ford, whose stock price went from $12.42 to $10.4. After detailed comparison and discussion, our ranking is as follows: The first place is Siyu who bought Costco shares, and the second place is William who bought Visa’s shares. The third place is Cyrus who bought Lily shares, the fourth place is Beatriz who bought Salesforce shares, and the fifth place is Shane who bought Ford Motor and Procter & Gamble shares. The biggest winner in this game was Siyu, who had a net profit of $12,627, while the biggest loser was Shane, who had a loss of $31,929. The reason why there is such a big gap between the two people is that they have different estimates of the future market. With major holidays like Thanksgiving and Christmas in the second half of the year, the stock prices of retailers like Costco should continue to rise. Due to recent inflation and interest rate hikes in

the United States, problems have arisen in the U.S. automobile industry, and the stocks of related companies have declined accordingly. Many businesses had to lay off workers to stay afloat, which also led to the famous 2023 United Auto Workers strike. [2] Based on the above discussion, we can draw a reliable conclusion. The main reason for most investment losses is that most people have wrong estimates of future market trends and unexpected situations. Take Ford's stock as an example. Due to factors such as inflation and interest rate increases in the United States, the U.S. automobile industry has regressed, which has caused a large number of automobile industry stocks to decline. In addition, we have also learned many lessons, that is, we should not put our eggs in one basket and invest them separately. In the early stage of investment, we should only invest part of the funds. After the market trend gradually becomes obvious, so we can make further decisions. If the market situation is good, then we can increase investment. If the stock trend is not good, then we can consider other stocks. In addition, we have learned an array of investment tools and techniques that I will be able to utilize in the future in my endeavors in the stock market. This simulation helped us learn that it is essential to do thorough research before trading. We are now able to apply

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technical analysis techniques such as Yahoo Finance charts to look into historical price information and detect patterns or trends. We can use fundamental analysis and discount values of future expected cash flows to get an accurate idea regarding the pricing of stocks. However, the most important thing is we learned to be self-critical and reflective. Because you may not realize that your cognitive biases, such as herd mentality, confirmation bias, and overconfidence, can affect the integrity of your decision-making. Even though our account is now worth less than our initial investment, we are not disappointed. We are glad that we were able to learn from our mistakes and now realize that building a versatile and well thought out trading strategy is the key to success. Resource: [1] https://finance.yahoo.com/ [2] https://en.wikipedia.org/wiki/2023_United_Auto_Workers_strike , wikipedia, 09/18/2023,

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