FIN359 Investment and Trading Project
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Washington & Lee University *
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Group Project 1: Investment and Trading Project on StockTrak
I.
Introduction
The purpose of this project {game} is to gain “real-world” trading experience.
Assume that your group is
an investor who just inherited $1,000,000 and you want to invest the money in a diversified portfolio of
financial securities. Since you are new to investing and trading, you will first ‘warm up’ using a
simulation trading account on
Stocktrak
. Register and start trading on September 22
nd,
and trading
continues until November 10
th,
2023.
Stock-Trak allows you to apply your investment and trading strategy by giving you access to timely
research and allowing you to construct a trading portfolio for your investments and track its performance.
It will help you to familiarize yourself with the terminology used for order execution and trading, as well
as appreciate the role of information in price discovery.
The focus of the project will be for you to
actively invest and trade individual
equities
. However, you will also have the opportunity to invest and
trade other assets including: bonds, options, cryptos, currencies and funds.
Stock -Trak provides you with
a user-friendly website where you can place orders, view your account statements and trading summaries,
and of course, compete against other groups! On the home page, you will be able to view your group’s
results along with the class ranking. A useful guide is
here
.
To register your account, click
here
and sign up. Come up with a group name that reflects your investment
objectives.
Note: If you use AI tools to help you with any part of this trading project (security
selection, allocation, trading, rebalancing…etc), please make sure to indicate how you did it and the
website/tool/app/platform you used. If you use AI-assisted tools, please reflect on their usefulness in
the last part of the project.
II.
General Rules of Trading
Each group will have $1,000,000 in their simulation account.
Each group is required
to initially invest 50% of the portfolio in individual
equities. For the remaining
half, you can still trade individual equities but are also allowed to allocate this portion to trade bonds,
options, cryptos, currencies, funds…etc. (NOTE: StockTrak has limited bond offerings and prices are
not frequently updated).
Each group is required to trade a minimum of 20 securities in the first four weeks.
1
Step 1
Investment
Objectives
& Strategy
Step 2
Security
Selection
Step 3
Implement
Initial
Trading
Portfolio
Step 4
Monitor,
Evaluate &
Re-balance
Step 5
Investment
Performance
Assessment
Each group is required to make a minimum of 60 and a maximum of 100 transactions throughout the
trading period.
For every trade, make sure you include the trade notes
on why you are investing or disposing of the
security.
Include references to your information as part of the trade notes.
Make sure that by the end of the second week of trading that your cash balance does not exceed 20%
of your portfolio.
Short selling and trading on margin are allowed.
III.
Project Steps
Step 1: Investment Objectives & Strategy
Due September 18
th
2023
You should write down your investment objectives & strategy in 1-2 pages maximum that outline in brief
:
Investment Objectives:
Briefly describe the investor that your group represents. What is the investor’s
age, lifestyle, and risk tolerance
1
? What short-term and long-term needs does this investor want to
achieve through the investment portfolio?
Investment Strategy
:
Develop an investment strategy for selecting your investments that fits the
investment objectives. This can be a strategy you read about or a combination of strategies you
1 You might want to find out your own individual risk tolerance first and then decide what the risk tolerance of the
investor the group represents looks like. You can use this survey adapted from your
textbook
2
develop. You can find a summary of popular strategies in
Investopedia
. The strategy must outline the
following:
o
Asset Allocation:
How will you allocate your wealth between equities and other asset
classes?
Why does this allocation make sense?
o
Security Selection:
Equity: What criteria will you use to select individual stocks within the equity
portion of your portfolio?
Make sure that the criteria are aligned with your
investment strategy.
Other Asset Classes: What criteria will you use other asset classes that are part of
your portfolio?
o
Trading Strategy:
What rules will you use to buy and sell during this short-term horizon?
o
Risk Management
:
Discuss the potential risks you will face from investing in your
securities. How will you protect yourself from such risks?
o
Performance Benchmark
:
Select benchmark(s) for your portfolio. I recommend the
S&P500 as one of your benchmarks for the equity portion of your portfolio and any other
benchmark you think is relevant to your overall portfolio’s objectives.
Step 2: Security Selection
In this step, you will select the securities that will make up your initial portfolio and align with your
investment objectives and strategy. The initial security selection portfolio must have
at least 20
listed
securities.
One way to help you in your selection is to follow the below steps:
Initial Large Security Pool
:
Make a pool of securities that fit your investment strategy and that fit the
criteria you outlined in step 1.
Final Security Pool:
Evaluate the large security pool and make your final selections.
Justify how
each security selected matches your strategy and criteria. Include those justifications as trade
notes for every security you trade in Step 3. Reference relevant articles to support your choices.
Step 3: Implement Initial Portfolio
Starting September 22
nd
, 2023
Now is the time to invest in your selected securities. Before buying the securities, consider the following:
Security Weights:
How will you allocate your cash across the different securities?
Trade:
Now, you finally reached the point where you will trade your selected investments. Think
about whether you will place market or limit orders. When does each make sense?
Remember to
3
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include trade notes for every security you invest in and include references to articles or
sources supporting your trade.
Step 4: Monitor, Evaluate & Rebalance
Follow up on your portfolio’s performance and implement changes. What will be your trading strategy to
keep/dispose of your securities? How will you identify new securities to replace the ones you sell?
Remember to include trade notes for every security you sell or buy in subsequent trades throughout
the semester and sources supporting your trade.
Step 5: Investment
Performance Assessment and Reflection
Evaluate the portfolio’s overall performance from the start of trading till November 10
th
, 2023 (last day of
trading) as follows:
Analyze the overall portfolio’s return and risk
: Include risk-adjusted metrics like the Sharpe ratio,
alpha, and beta. You will learn more about how to do this over the next few weeks.
Analyze the performance against the selected benchmark(s)
: Discuss the reasons for differences
in performance.
Reflection:
Carry out a critical analysis of your investment strategy and reflect on your experience.
Make sure to address the following:
o
Investment Strategy and Asset Allocation:
Discuss any changes you would make to
improve your investment and asset allocation strategy to achieve the investment
objectives better.
o
Equity Portfolio Attribution Analysis:
Reflect on some of our class discussions around
optimal portfolio construction by focusing on a sample of your equity portfolio to
evaluate the following:
Security Selection:
Discuss what aspects of the security selection process could
have been improved and any changes to the criteria you used to select the
securities in the portfolio.
Portfolio Allocation:
Evaluate your equity allocation strategy. How did you
allocate (weigh) your capital across your stocks? From the allocation types we
discussed in class (price, market value, equal), what would have been a better
allocation strategy if any?
IV.
Grading Criteria (20%)
Due November 15
th
2023
4
You will need to share and reflect on your trading journey in a class debrief presentation and a written
report. Your grade will be determined as follows:
15%
will be on a
written report
(< 10 pages excluding Appendices) that discusses the above
requirements and is broken down into:
Step 1
Investment Strategy
(2%)
Step 2
Security Selection follows strategy
(2%)
Step 3
Implement Initial Trading Portfolio with Trade Notes with references (include in an
appendix)
(3%)
Step 4
Monitor, Evaluate, and rebalance following the rules of trade with trade notes
(2%)
Step 5
Performance Assessment and Reflection (include Excel appendix)
(5%)
Overall Report Organization
(1%)
1%
Following the General Rules of Trading
2%
Debrief presentation
of the project
during class on October 20
th
2022
.
2%
Performance
of the group against your benchmark.
5
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