This report will be discussing various aspects of the semester-long Investopedia simulator that I have undertaken. You begin with a starting fund of $1,000,000, with the requirement of a minimum of 5 trades and a 12-week trading period. However, I opted to do weekly trades as I saw this as an opportunity to test my abilities in choosing profitable stock by examining and analyzing real-life scenarios such as the decline of the travel industry. Covid-19 severely impacted the stock market, and what made this simulation even more interesting was seeing if your predictions regarding the effect of the pandemic on stock prices were accurate or not. I have attempted to create a diversified portfolio by purchasing a variety of stocks in different industries, but I was not completely able to diversify away systematic risk, hence, my account value at the end of simulation was slightly lower than the initial account value I started with. Figure 1: Profit/loss of Account. Profit/Loss $1,050,000.00 Account Value $1,000,000.00 $950,000.00 $900,000.00 $850,000.00 $800,000.00 $750,000.00 Date 2 As can be seen in the above chart, I started the simulation quite steadily, with my portfolio reaching its highest value on the 16th of September at $1,012,340. After the tip of the iceberg, came the downward slope. Throughout the following couple of weeks, my account began to constantly decrease in value until it reached the lowest point, with the account value being $861,093 at the beginning of October. However, the account value began gradually increasing until the end of the simulation, to end with an account value of $980,958. (figure 1.2) My goal like any other trader was to achieve an abnormal return from the purchase and then the sale of the assets in my portfolio. Moreover, I set a goal at the beginning of the simulation to try and achieve a diversified portfolio, therefore, I always aimed to have at least 15 stocks in my portfolio from companies from different industries and different sizes. However, I realized that my goals need to change after a massive dip in account value between the 12th-14th of October. My goals shifted from making a profit, to cover my losses. Along with the change in goals, my focus on the stocks that I was looking to buy changed. At first, I displayed bullish behavior as I was hopeful for an overall upward trajectory for the medical industry, with the possibility of the production of a vaccine. Additionally, I was expecting an unlikely quick recovery in the airline industry which did not happen, hence, the aforementioned resulted in the changing of my goals from making a profit to minimizing loss as I then decided to play it safe and purchase reliable stocks such as TSLA, and GOOGL. In terms of trading strategy, I did not have one, to begin with. Upon doing some stock market research and learning about how the stock market works, I learned that the most important thing is to have a diversified portfolio. Hence, I built my portfolio based on the diversification of systematic risk and the thriving medical industry, which is dealing with a pandemic. However, if I was to repeat the simulation, I would have spent much more time 3 applying technical and fundamental analysis techniques to the stocks that I would be purchasing to formulate a decisive trading strategy. My inexperienced opinion on the stock market along with a variety of cognitive biases that impaired my decision making, made me believe that purchasing a variety of Pharmaceuticals was the perfect way to start the simulation. My strategy at first revolved around the Pharmaceutical industry, as I believed that the pandemic would result in major investments in the pharmaceutical industry, along with the possibility of the manufacturing and distribution of the vaccine before the end of the simulation. My initial purchases consisted of stocks from the automotive, airline, and pharmaceutical industries. The purchase of Tesla stock was a no brainer, this is due to Tesla being on track at that period to overtake Wall Street's earning expectation, while the stock's price has been rapidly increasing since March. Additionally, upon doing some extra research I stumbled upon what is known as defensive stocks, and their uncyclical nature. As in the industry is not very much affected by the change in economic conditions. Therefore, I believed it was integral that my portfolio consists of such stock, hence, I also purchased 500 Dollar General stocks, which continued to rise until the end of the simulation. The beginning of my downfall came as a result of purchasing approximately $160,000 of Delta Airline stocks, which was very rash of me as it did not recover as well as I predicted. After spending roughly $340,000 in pharmaceutical stock such as AstraZeneca (AZN) and Abiomed (ABMD) only to lose $120,000 in account value by the 2nd week of October, I decided I needed to change my initial strategy and take a safer and more reliable approach to the stocks I purchase. However, due to the optimistic person I am, I did not sell the pharma stock, but decided to hold, as I believed its performance will improve sooner, or later. 4 While doing some stock market research, I noticed a trend where than been a large increase in the value of tech industry stock. Which makes sense due to increased utilization of technological application and software, as a result of the pandemic and inability to physically meet. I diverted my focus to the tech industry while also keeping an eye on the pharmaceutical industry. I purchased stock such as Zoom (ZM), Google (GOOGL), and Spotify (SPOT). Zoom's stock has been surging since the beginning of the pandemic due to the increased need for video communication personally, jobwise, and academically. Moreover, it is always safe to assume that GOOGL stock will perform well, therefore, I believed that adding it to my portfolio was integral. The purchase of Spotify stock came from some personal research, as with the release of new podcasts on the music platform such as the Joe Rogan Experience, Spotify's stock experienced a major in price, reaching up to a 60% increase, which is the equivalent of adding $20 billion to the company's value. The change in strategy slightly helped at first, but then I was surprised once the account value has dipped again to $863,700 by October 1st. In my opinion, my portfolio was not yet diversified enough, therefore, was easily affected by systematic risk. Hence, during the 1st week of November, I purchased large amounts of AAPL and WMT stock, to hedge the systematic risk of my portfolio. Additionally, it was during this time that positive news that we're on the verge of the successful manufacturing of a feasible vaccine, therefore, I purchased stocks of Pfizer (PFE), Benitic Biopharma (BNTC), and Moderna (MRNA). After this latest purchase, my account value displayed a quick increase, reaching approximately $960,000. I then focused on offloading undesired Pharma stock such as REGN and ABMD, as I now considered them to be a lost cause. My portfolio then seemed to be gradually increasing up until the end of the simulation, to cap off at an account value of 5 $980,000. I believe that if given one more, I would have crossed the one million mark, as Pfizer has just announced the manufacturing and international distribution of a vaccine. Throughout the simulation, I have held 17 different stocks in the automotive, technological, retail, music, and pharmaceutical industry. However, it was easy to see which stocks benefited my portfolio and which did not by looking at figure 1.1. GOOGL was the best performing stock in my portfolio, as I purchased 100 stocks for a price of $1573/stock and later sold it for $1740. I decided that having Google stock in my portfolio was essential, this is due to their main source of revenue being digital ads, and with the world being in lockdown; I assumed that their ad revenue will significantly increase. Additionally, Tesla stock performed exquisitely. I purchased their stock for a total cash value of $340,000 then later sold them for approximately $370,000. The reasoning behind the addition of Tesla stock to my portfolio was nothing complex or intricate, I simply believed that their momentum would continue along with a huge number of investors that believed the same. Moving on, Dollar General was a fine choice of stock to purchase due to it being a discount retailer, as I did not expect the pandemic will affect the stock price adversely, quite the contrary, as by the end of the simulation the price of the stock has increased by $14/ stock, while I was holding 500 stocks in my portfolio. The following pharmaceutical stocks performed exceptionally well: ZLAB, ABMD, and MRNA. However, MRNA was the best performing stock, with a total capital gain of $15/stock. While ZLAB and ABMD stock prices increased by $7 and $6 respectively. I purchased the aforementioned pharmaceutical stock due to the ongoing pandemic; I believe that with all that is going on, you must expect increased business activity in the healthcare industry, along with the possibility of a vaccine makes the pharmaceutical stock, a lucrative investment. Furthermore, after a turbulent period, Delta Airlines managed to hold on to its gain and was sold for approximately $38/share, 6 while it was bought for $34/share. I excepted an increase would occur as the travel industry would start recovering after the worldwide lockdowns came to an end. Lastly, Western Digital Corporation (WDC) is the final good performing stock. Where it experienced a $4 increase in its stock price between September and November. I purchased WDC stock as a means of diversifying my portfolio. When examining their historical information, I noticed a trend whereas every week the stock reaches a new high, therefore, was exhibiting bullish behavior. The worst performing stock on my portfolio was surprisingly, Zoom. Their stock price decreased from $559/stock to $414/stock by the time I sold it, which caused a loss of approximately $73,000. The reasoning behind the purchase of Zoom was due to the massive increase in users, while also having an upward momentum. However, I believed I jumped on the bandwagon too late and the price quickly declined from thereon. The next worst performing stock was Walmart as their stock suffered a $27 decrease, which resulted in a capital loss of approximately $27,000. I purchased Walmart as it is known to be a defensive stock, which does not get affected by changing economic conditions, due to them selling consumer staples. Yet, the stock price decreased even towards the holiday season. Qurate Retail (QRTEB) was another stock that gave my portfolio a huge blow, as my portfolio suffered a capital loss of around $22,000. The reasoning behind it was that they have just experienced a serious decrease in stock price, and I believed that it could not go any lower. In our final chapter, I realized that this was a simple case of Gambler's Fallacy. The next worst performing stock was Walmart as it suffered a $27 decrease, which resulted in a capital loss of $17,000. I purchased Walmart as it is known to be a defensive stock, which does not get affected by changing economic conditions, due to them selling consumer staples. Yet, the stock price decreased even towards the holiday season. Spotify (SPOT) was another disappointment, despite the significant increase in the stock price as a result 7 of the integration of the Joe Rogan Experience, I believe I held on to it for too long. I purchased a total of 500 Spotify stock for approximately $263/stock, which was later on sold $251 each. The following Pharmaceutical stocks performed badly: AZN, REGN, PFE, and BNTC. The losses from these stocks canceled out any capital gain I have received from the profitable Pharma stock. REGN suffered the largest decrease in price at $11/stock. While the other experienced an average decrease in price of $1.5/stock. I bought these stocks on the same basis as the other Pharma stocks, as I expected them to perform increasingly well based on my research. Finally, AAPL was supposed to be one of the star assets in my portfolio, as they have a loyal customer base that constantly buys their latest products. The stock price decreased slightly to $117.59/stock at the date of sale, from $118. I feel privileged to have taken a class that allows us to experience that true nature of the stock market, and hopefully will continue using the simulator throughout the years. After completing this course, I can look back at the decisions that I have made and learn from them. There were a variety of factors that enabled me to achieve profit, such as I keep myself up to date with the latest stock market news, therefore, I was able to purchase Tesla stock early on and make a significant capital gain. Moreover, I recalled learning about diversification in this class, hence, I knew that I should not throw all my eggs in one basket. Additionally, upon doing my research I learned of something that is known as defensive stocks, which are stocks that are not impacted by the overall state of the stock market. Therefore, I purchased stock such as Dollar General and Walmart which sell consumer staples. I believe that critical thinking is also a factor that is integral in achieving an abnormal return, as I was able to make a connection between reallife and the stock market. Thus, I focused a large part of my attention on Pharmaceutical stocks which I believe would have even increased further if the simulation had not ended. Likewise, I 8 noticed that the further we progressed into the course material, the more I was able to understand the stock market. On the other hand, some factors negatively affected my performance in this simulation. The largest factor was my inexperience, as in the first few weeks of the simulation I did not conduct enough research to be able to make a sound decision. For example, once Spotify stock began to rapidly increase, I believed that this momentum continues and held on too long onto the assets, therefore, ended up losing money on Spotify while it should have been a very successful stock transaction. Additionally, I purchased Qurate Retail stock right after they received a massive blow in their stock price, believing it could only go up from there. However, it continued to decrease and resulted in a loss of $22,400. I learned that I had multiple cognitive biases, such as herd mentality, confirmation bias, and overconfidence. All in all, there haven't been a lot of negative factors, yet I believe that after completing this course I am better prepared in dealing with the stock market and that the biggest factors that resulted in my loss was my lack of experience and to some extent, knowledge of the stock market. When it comes to my trading strategy, it is fairly easy to see how faulty it was. I should have spent much more time planning my trades, rather than simply conducting some research and jumping into the market. I believe that I spent quite heavily on Pharma stock based solely on the hunch that the ongoing pandemic and the necessity of a vaccine will increase the prices of Pharmaceutical company stocks. It was good and bad, some stocks proved my prediction to be correct, but was canceled out by the losses that the other Pharma Stock incurred. Afterward, I decided to change my approach and shift some of my focus to other industries such as the automotive industry, tech industry, and retail industry. This change in strategy enabled me to create large profits in my trading, as I made approximately $75,000 from Tesla stock and a 9 capital gain of $25,000 from Google stock which brought me back to an account value of $980,000. Moreover, if I had another chance at this simulation, I would have purchased ETFs as it was expected of the index to begin rebounding to pre-covid levels. In conclusion, I 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 me learn that it is essential to do thorough research before trading. I am now able to apply technical analysis techniques such as candlestick charts and support & resistance to look into historical price information and detect patterns and/or trends. I can use fundamental analysis and discount values of future expected cash flows to get an accurate idea regarding the pricing of stocks. I also learned that it is important to be able to critique yourself and take a step back, as you may be unaware of the cognitive biases that are impacting the integrity of your decision making. With this being my first interaction of any sort with the stock market, the trading simulator provided me with the cornerstones that I would require to have as an investor one day and will continue to build upon it. I am not disappointed that my account value is lower than what I began with. However, I am happy that I have learned from my mistakes, and now realize that establishing a versatile and well thought of trading strategy is the key to success. 10 Figure 1.1: Profit/loss of each stock in my portfolio. Stock Quantity Purchase Price Sale Price Capital Gain/Loss TSLA (Tesla) 750 $402.81 $503.50 $75,517.50 DG (Dollar General) 500 $196.97 $211.36 $7,195.00 DAL (Delta airlines) 5,000 $33.97 $37.80 $19,150.00 QRTEB (Qurate retail) 5,000 $14.00 $9.52 -$22,400.00 AZN (AstraZeneca) 2,000 $54.94 $53.57 -$2,740.00 WDC (western digital corp) 600 $38.45 $42.78 $2,598.00 ABMD (Abiomed INC) 900 $263.91 $269.80 $5,301.00 ZM (Zoom) 500 $559.82 $414.05 -$72,885.00 GOOGL (Alphabet Inc) 150 $1,573.00 $1,740.00 $25,050.00 REGN (Regeron Pharma) 150 $580.00 $568.92 -$1,662.00 SPOT (Spotify) 500 $263.71 $251.00 -$6,355.00 AAPL (Apple) 1,350 $118.00 $117.59 -$553.50 WMT (Walmart) 1,000 $144.36 $117.59 -$26,770.00 PFE (Pfizer) 1,000 $38.28 $36.60 -$1,680.00 BNTC (Benetic) 10,000 $3.05 $2.88 -$1,700.00 MRNA (Moderna) 500 $85.18 $100.77 $7,795.00 ZLAB (Zai Lab) 500 $98.00 $104.99 $3,495.00 11 Figure 1.2: Weekly Account Balance Week Account Balance 1 2 3 4 5 6 7 8 9 10 11 12 13 $1,000,000.00 $983,195.00 $1,012,340.00 $969,569.00 $965,749.00 $963,219.00 $881,229.00 $969,348.50 $974,996.00 $887,163.50 $903,129.00 $955,656.50 $980,958.50 DATE TRADE TYPE SYMBOL QUANTITY TARGET PRICE PRICE COMMISSION TOTAL CASH VALUE ACCOUNT VALUE 2/12/2021 11:44 AM Stock: Sell at Market CSCO 600 $47.09 $28,254.00 $999,678.50 2/12/2021 11:43 AM Stock: Buy at Market COHR 50 $260.98 $13,049.00 $999,717.00 2/12/2021 11:42 AM Stock: Buy at Market ENPH 100 $202.60 $20,260.00 $999,717.00 2/5/2021 9:58 AM Stock: Buy at Market Open IBM 500 $121.00 $60,500.00 $999,994.00 2/5/2021 9:58 AM Stock: Buy at Market Open CSCO 600 $47.57 $28,542.00 $1,000,000.00 Showing 26-30 of 30 items
Purchase answer to see full attachment