YORK UNIVERSITY
STOCK-TRAK REPORT
ADMS 3531 N W2012
Eugene Myslinsky
208083420
3/27/2012
Stock-Track Report
Eugene Myslinsky - 208083420
For the past three months we have been participating in a Stock-Trak Simulation exercise to
experience what it takes to trade in the stock market. In this report, we will explain which strategies I
chose to follow, which investments were the most and least successful to my portfolio and lastly, what
advice we would give those who are looking to trade with real money.
Investment Strategy and Selection
The strategy I employed for our Stock-Trak simulation was to diversify our portfolio among
different sectors, various stocks with relatively low risk, and stocks which were positively/negatively
correlated with other securities in our portfolio. My goal was to make a gain of 10% return on our
overall. The policies put in place to achieve my 10% goal are as follow:
a) Trading with the exchange trend: Mathematical analysis has shown that equity price changes
are mostly random with a small trend component, this is an important pillar of knowledge as
this is the only strategy which will give positive results in the long run (usually seen within 4
weeks)
b) Cut losses: When faced with a stock that has been underperforming beyond reasonable doubt
and expectations it must be cut off in order to protect the return on my portfolio.
c) Long Positions are kept until they stop performing well: I’ll hold onto our long or short positions
as long as they consistently provide us with a favourable ROI.
d) Manage Risk: Asset allocation and diversification are of great importance in this area as they are
the key contributors to the mitigation of risk. Diversifying the type of assets I invest into allows
us to eliminate unique risk from the investment and market risk can also be decreased by
investing into foreign markets.
The asset allocation policy that I chose to follow in the beginning consisted of roughly half of my
portfolio value in futures commodities and the other half split between energy, technology, retail and
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financial. I only invested in the U.S. market due to the lack of information and unfamiliarity with markets
other than the U.S. and Canadian ones. I wanted to diversify my portfolio with bonds; however the
meagre return that they offered did not entice us at the time as we felt that the money could be used
for more profitable investments.
My Best and Worse Investments
Best and worst Equities in our portfolio
CLNE (Multiple Trades)
Clean Energy Fuel Corporation, a firm that finances, builds and develops renewable gas fuelling
stations all across Canada and the US had released their earnings report the month prior; the resulting
report triggered an enormous amount of volume traded over the next two days with a sharp increase in
price in the first day which continued to hold an upward trend consistent with the index. However; I was
feeling slightly sceptical in buying the stock as StreetRatings had rated the stock as “Hold”; instead I kept
our eye on it and finally decided that a long position was right for this stock. It earned 27% in 3 weeks.
This was partially due to the negotiations with the U.S. government for possible contracts to
create renewable gas stations all across the United States which would have given the company
preferential government treatment and expected earnings. However; analysts were beginning to
speculate that the stock was overvalued as they expected only a $0.17 increase in EPS while the stock
price was still soaring 30% above the correct value. In turn I shorted the stock and made a small profit.
DGAZ (MMF) Inversely Linked to the S&P Natural Gas Index Excess Return
This was a younger stock that had just increased it’s price by 100% in 4 weeks. When I looked at
the S&P Index I could see that natural gas and heating oil were dropping; as were the futures for heating
oil and natural gas. These price changes came during a period of warm weather during the winter in
Canada/U.S.; however I thought that the stock would drop as the energy prices went up. The opposite
happened and I lost $3000 only to watch it drop significantly at a later date.
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Advice to people trading with real money & lessons learned
1. Performing fundamental and technical analysis is necessary. You must explore different channels
where information relevant to the stocks in your portfolio exist, however, be vigilant of the sources
you choose to follow when making decisions pertaining to your portfolio; make sure they are
credible among the financial community. Also, news associated to publically traded stocks can be
released before the market open and if you do not consistently analyze new information your
portfolio has the potential to incur a significant loss in a short period of time.
2. Beta, which is a measure of systemic risk, is a good indicator of how volatile a stock is relative to the
market and it is a significant measurement to focus on when trading because the higher the beta,
the greater the risk you gain in your portfolio. It is also important to make sure you allocate a lot of
your money into commodities; their betas are usually low which is a good thing, especially if you are
a risk-adverse investor. Conversely, higher beta stocks may be more volatile but they have the
potential to generate higher returns then stocks with lower betas.
3. Make sure you invest all of your available cash/income because a dollar today is worth more than a
dollar tomorrow because today’s dollar has the potential to gain interest. There are many options
when it comes to trading but it all depends on the goals and objectives you have established for
your portfolio. For example, if your goals are short-term you could choose to invest in a moneymarket fund where you would have quick access to your money if necessary and the risk associated
to the overall investment is low.
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4. I tried to be a risk-averse investor but I regret not diversifying my portfolios into other securities
such as mutual funds earlier on, although it was difficult to find a mutual fund that generated a
higher return than stocks in 3month periods. A well-diversified portfolio can often yield higher
returns while bearing lower risk than the individual investments. Diversification could be used to
decrease your level of systemic or unique risk by purchasing different securities in the same
industry, in different foreign markets, or by purchasing securities which are negatively correlated.
5. Be aware of the risks associated to purchasing a security. For example, if you are making a long-term
investment you might be vulnerable to interest-rate risk, which is basically the chance that the
interest rate might fall while you remain invested in the asset.
6. If you are going to trade you should decide, before investing a single dollar, what your expectations
are for your portfolio in terms of returns and what your threshold for risk is as an investor. Establish
goals that are measurable, attainable, and are aligned with a specific time horizon such as, a 15%
return in 3-months. It is crucial to remain committed to the goals and objectives you have set for
yourself so that you do not succumb to a gambler’s fallacy. It is also important to evaluate your
portfolio every so often and to change your objectives according to your preferences. For example,
if you are close to retirement you may choose to transfer you assets into stocks/mutual funds with
lower risk exposure.
7. Hedging: When faced with a long position stock that had begun to perform poorly my immediate
response was to sell and cut our losses which in turn did more harm than good. For example; I was
overeager in regards to letting my shares of LQMT go right before they started increasing again. If I
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had sat on my initial long position and utilized options to hedge the unique risk away for this stock
we would have not made a loss.
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Appendix A:
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