You Are Entitled to the Following Bonus Points

Stock Trak Project FIN 320 – Spring 2016 Dr. Yaqoub Baqer Alabdullah Congratulations! You have just been hired to create a new mutual fund. The objective of this mutual fund is to outperform the S&P 500. The mutual fund has an initial balance of $1,000,000 and margin is available. As manager of the mutual fund, you can buy or short stocks, mutual funds, and ETFs. The mutual fund will be created on February 7, 2016 and the funds will automatically be liquidated on May 1, 2016, so you only have a few weeks to earn your millions. Your final grade will be based on the quality of your analysis, and on your risk- adjusted total return. You are entitled to the following bonus points - First Place 10 Points added to the project - Out-perform the S&P 500 5 Points added to the project - Under-perform the S&P 500 0 Points deducted from the project The above points will be either added (or deducted) to the written portion of the project. The bonus points will be awarded based on your ranking at the end of the game. Your team should be compromised of 3-4 students. The decision-making and management of the portfolio should be joint decisions. You should try to assign different tasks for the various members. The economist of your team should be responsible for an analysis of current macro-economic and that are relevant. You might consider discussing current monetary policy, interest rates, inflation, business cycle conditions, GDP growth, currency exchange rate and any other macroeconomic subject that is relevant to value of the companies you choose. In addition, he/she will provide an analysis of stock market conditions including recent returns on stock market indexes and average valuation ratios such as P/E ratios of stock market indexes. Each analyst will be responsible for 2 sectors. He/she will provide an analysis of the industry, i.e., degree of competition, growth of industry-wide sales, profitability of competitors, life cycle stage of the industry, Porter’s five factors, and P/E ratios of competing companies. Then choose one stock from each industry (total of 2 stocks per student) to analyze. They will begin by a brief description of the company, its products and services, recent events that are relevant to the valuation of the company, and recent trends in sales and earnings. Valuation of each company must be done using DCF method (DDM or FCFF) and relative valuation using multiples such as

1 P/E, P/BV, P/Sales or any other appropriate multiple. Make sure to include financial analysis (ratios) and analysis of Investment Risks (Business, Financial, Systematic, Financial Statements) The group (through voting) will decide whether or not to buy/sell a stock in their portfolio. They must document all of their actions in an Excel sheet. Each position you take in an asset must be a maximum of 25% of your assets. Your first step is to consider all of the potential trading strategies. For example, the dogs of the Dow, a contrarian strategy, a momentum strategy, a low p/e ratio strategy, a low book value strategy or any other strategy. You can select multiple strategies for your mutual fund. Make sure to: - Outline your strategy and justify why you selected it. - Provide historical evidence of the performance of your strategy. - Provide evidence showing that mutual funds or portfolio managers use this strategy. - Write an investment policy statement for the type of investor who should invest in your mutual fund.

Develop an asset allocation. Given where we are in the business cycle, would you be under or overweight. Make sure to Invest for a diversified portfolio, instead of a series of trades with no rhyme or reason. Think of how will you identify undervalued stocks? What financial ratios will you use to screen stocks?

Each group must use the Sharpe, Treynor, and Jensen’s alpha performance measure to evaluate their performance. For purposes of comparison, the S&P500 will be used as a benchmark portfolio.

Your report should be professionally written, and leave little doubt that you clearly understand your trading activity. In conclusion, explain why your selections were made and how they fit into your investment goals. What are the key things you learned from your Stock-Trak experience? During the game, each group must: - Watch the videos which are available in Stock Trak. - Use different order types at least once during the trading competition (Limit order, limit sell, Stop orders) - Short a US stock at least once during the trading simulation.

2 - Trade at least 1 Asian stock and 2 European stocks. - Trade at least two mutual funds (1 closed-end, 1 open-end) - Make at least one trade per week - Perform a minimum of 20 trades during the semester. - Your account is limited to 200 trades for the semester - Cash must not exceed 20% of your portfolio at any time. We want you invested, not sitting on the sidelines. - Trade-Log: Keep a record of the rationale for each trade decision that you make during the simulation.

It is very important to remain informed regarding the current economic climate and political events occurring in the world and global marketplace. One very effective method is to watch CNBC and Bloomberg at market open and close, to read/sign up for web based ‘market-alert’ reports, and to browse relevant web sites and print media for information regarding economic/political news.

At the end of the semester, each group is going to present their results to the class. Peer Evaluation At the end of the semester, you will confidentially grade your fellow group members. Their grades should be based on the following criteria: - Did they do their share of the work throughout the semester? - Did the group member attend all group meetings? - Was the member prepared? - Did they share in the presentation responsibilities?

How do you get started? To register for this competition you need to go to: http://www.stocktrak.com/public/members/registrationstudents.aspx?p=fin320-spring16 You can register online with a credit card. You need to register your group by the next class. Your username should be in the following format: F320_Spring16_ X, where ‘X’ is your group number. Sources of Information

3  Yahoo Finance: finance.yahoo.com  MorningStar: www.morningstar.com  Financial Visualizations: www.finviz.com  ValueLine: http://www.valueline.com/  The street http://www.thestreet.com/  Seeking Alpha http://seekingalpha.com/  Reuters http://www.reuters.com/finance/stocks  Bloomberg http://www.bloomberg.com/markets/stocks/  iShares www.ishares.com  S&P 500 http://us.spindices.com/indices/equity/sp-500  Zacks http://www.zacks.com/  Charles Schwab  Fidelity