ECN440 GameReport-Mittal_Aashwin

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School

Toronto Metropolitan University *

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440

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Finance

Date

Feb 20, 2024

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pdf

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Uploaded by BailiffFrogMaster879

Online Stock Market Game Aashwin Mittal 501217144 Toronto Metropolitan University ECN-440 Teresa Fung March 10, 2023

Abstract The game was quite competitive and even though I couldn't secure a good portfolio at the end it still learned a lot about how to trade. To be completely honest I didn't like the idea that we had to change our portfolio every week according to different strategies because I think strategies like balanced don’t work very well overall. As Warren Buffet says "Wide diversification is only required when investors do not understand what they are doing”. I believe this quote to heart and think that a personal stock portfolio needs to be diversified to help minimize the inherent risk of holding only one stock or only stocks from one particular industry. However, some investors may actually become over-diversified while trading. Diversification is important but it only ever works during long term trading. Same goes for conservative strategy because you get stocks that are stable and grow over time but are more probable to grow.Don’t get me wrong conservative is actually a good strategy to trade with if you just want to make a little money over a long period. So if I compare strategies with others I would rather pick speculative. So if your research is on point, speculative strategy would benefit you more than any other strategy. But considering the point of this game was learning about different ways to invest, it was a really good exercise. As an investor I can't blame the market for my overall loss but the rapid and unpredictable decline of the market during the 3rd week completely frustrated me but somehow I still managed to trade in the 4th week after the tremendous loss in week 3. Overall Week 2 was the most unprofitable. The loss in the first 14 days and the last 14 days was almost identical considering the high volatility of the market during the second and third weeks.

Online Stock Market Game In the stock market there’s a famous quote given by Peter Lynch “know what you own and know why you own it”. Following this statement only, for the last four weeks I have been trading online with virtual money. This game pushes us on a whole other level in different aspects of not only trading but real life activities like challenging our research ability, managing funds et cetera. The only downside to it was that in only one month we had to improve our portfolios without any major knowledge about stocks and trading. Another famous quote from nobel prize winning economist Paul Samuelson "Investing should be more like watching paint dry or watching grass grow” which loosely translated means that capital increase while trading is a slow process and nobody gets rich from trading overnight. Trading During the four weeks the market was very unpredictable and unstable. For each week I followed different strategies namely speculative, conservative, sector-specific and balanced.For each trade that I made,I researched the share’s detailed quote which includes charts, P/E ratios and also what the company’s financial position was at that time. Before the trade ,I also checked the analyst ratings as well to get a good idea of what the professionals think is the right move at the time. Week 1. For the first week I picked the speculative strategy and traded stocks which had a risk of rising a lot or falling even more. I began the trading by risking the money on AMZN(Amazon.com Inc) just by reading the charts and with lack of information so it backfired. But other stocks I bought like SBUX(Starbucks) noticed a sudden fall from its equilibrium value from $108 to $104. It was a good steal to get starbucks at a lower price aiming to sell it at a

higher price. At the same time I bought MCD( Mcdonalds),EA(Electronic Arts Inc) and MSFT(Microsoft Corporation).The reason for buying Mcdonalds was because it was following a good profit trend. People may think that MCD was more of a consistent stock but it was quite risky to buy it because analyst ratings were against buying them. But Mcdonalds had been completely outpacing the market so it looked like a fair trade. Looking at MSFT it holds a strong position in the technical sector and the share prices plunged by 20%. EA’s annual earning growth was more than that of its competitors and had exceeded the expectations of wall street. Then I found out CMG(Chipotle Mexican Grill) stock which was gaining its price steadily from the beginning of 2023 and had risen 18% in the last year. I predicted that it had reached its boom state and the panic would start soon. The reason for predicting that CMG had reached its highest point was because at the time its financial position was declining because it had not reached its quota of earnings that the Wall Street expected.I bought shares of BAC(Bank of America Corporation) which was a difficult ask because of it’s increase in the last year.It was doubtful that this stock keep its momentum making it a double edged sword.The reason of buying it was that the bank had increasing loan rates and an increasing net profit rate making it a good buy.DIS was the most riskiest stock in my portfolio for week 1. Disney had been steadily declining in 2022 and analysts were against disney because it had reached its original value which it had in 2016.But its companies(Disney+) were really turning the charts on its profits which made it a risky trade.POOL corp was a very firm trade and the only growth stock in my portfolio and the company has expanded its cash flow by 61% .IBM is at the center of IT sector and the share price had fallen down by 11% in the last year making this a good time to buy . At the end of the week I covered CMG at a profit and sold the other stocks with an overall loss. Week 2. For the second week of trading I went with sector specific strategy and picked the communication services sector to trade in. It looked like a promising sector with a lot of good trading options.I kept some options from week 1 because they belonged to the sector i was investing in and didn't think that they were worth selling after just a week.These stocks were EA,IBM and DIS. I began the week on 13th February by buying the nine shares of META(Meta Platforms inc) because of its increasing trend, good P/E ratio and positive financial position . Also bought CMCSA(Comcast Corporation) after it announced cash dividends of 0.29. Then I bought 15 shares of NTES(NetEase Inc) after discovering that the company had gained gaming licenses from Chinese regulators.Then I bought GOOG(Google) considering that the stock had been recovering to its former glory in 2023. However at this point the market started declining at a constant but slow pace which was not noticeable at first and I had to end my second week at a loss as well. Warren Buffet once said that the stock market is a device to transfer money from the impatient to the patient meaning that if you are confident in what you have bought then you just have to be patient and wait for the results. So I sold the stocks that I had still kept some of them in my inventory because they were at a loss at that time and there was no point in selling them so I decided to wait to see the outcome of those stocks. Week 3. For the third week of investing I picked the balanced strategy to do my trading. There is a famous saying that goes, don't put all your eggs in one basket so I picked various sectors to invest in. Diversifying your stocks reduces the risk of overall portfolio loss. So I began trading by buying MA(Mastercard) because the revenue generated by soaring at the time and profitability was even higher. I continued to but Visa which goes hand and hand with Mastercard as both are the 2 pillars of the financial service world.Analytical rating suggested that Visa was a

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