Investment Challenge
Workshop
Tuesday March 13th 2012
Disclaimer
The following information is not intended to be
personal financial advice or recommendations
to buy or sell any security. It is for purposes of
the GFIN Investment Challenge trading
simulation only.
GFIN Investment Challenge Spring 2012
• What is it?
– A fundraiser for GFIN
• What are the prizes?
– Entry fees split up among GFIN and top three portfolio
managers.
– Example: 30 people participating
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Entire collection pot: 30x$10 = $300
50% to GFIN: $150
25% to first place: $75
15% to second place: $45
10% to third place: $30
Basic Terminology: Trading
• Exchange
–Ex. New York Stock Exchange (NYSE)
• Ticker symbol
–Ex. NYSE:WMT
Basic Terminology: Trading
• Stock
– Certificate that represents a claim on the
company’s assets and earnings.
• Bond
– A loan granted to an entity in exchange for a
fixed amount of interest.
• ETF (Exchange Traded Fund)
– A composition of many stocks, bonds or
both, but trades under one symbol.
Basic Terminology: Trading
• Buying on margin (borrowing to invest)
–Offers the potential for greater reward by
taking on more risk.
• Trading long vs. trading short
• Order types
–market
–limit
Real world examples:
1. Buying on margin
2. Selling short on margin
Buying on Margin
• Long position on shares of Target (TGT)
• Buy 10,000 shares @ $57.75 per share
= $577,500 (total value of position)
• Cash required to initiate this position: 50% of total
value of position
= $288,750
• The other half is borrowed from your broker and a
monthly interest charge is applied.
• This is called “buying on margin.”
• $288,750 (cash) + $288,750 (borrowed) = $577,500
Selling short on Margin
• Short position on shares of Yelp Inc. (YELP)
• Sell short 15,000 shares @ $22.85
= $342,750 (cash deposited into account
from short sale)
• Extra cash required as collateral to initiate
this position is 50% of the value of the
shares sold short.
= $171,375
How Investopedia handles margin
• Buying Power: The total value of your cash and
margin accounts that can be used to trade stocks.
• Buying Power is Calculated as: =cash + (Long Stocks x
50%) - (Shorted Stocks x 150%)
• Negative buying power indicates that no further
trading can be performed and that margin call will
occur.
• Possible to have negative cash
Fundamental
Analysis
Fundamental Analysis for Exxon Mobil
Data taken from Google Finance
Price to Book calculation for Exxon Mobil
Book Price per share =
total assets – total liabilities
shares outstanding
Price to Book ratio =
stock price
book price per share
$331,052,000 – $176,656,000
4,734,000
= $32.61 book price per share
$85.41 (share price)
$32.61 (book price per share)
= 2.62 P/B ratio
Technical
Analysis
Exxon Mobil 1 year chart
Selling pressure
β = 0.5
Short term trend turning up
Selling pressure
Investopedia.com
How to make your first trade
After logging into your Simulator account, click on the "Trade" tab near the top of the screen.
In the Trade screen, type in ‘WMT' in the Symbol field and ‘100' in the
Quantity field, leaving all other fields at their default settings, as shown here:
Putting it all together
• Trading strategies and techniques:
– Strategies:
• 1. High beta (β>1.2)
– Good for volatile market
• 2. Low beta (β<0.8)
– Lower risk, less movement in the stock
• 3. Trade the trend
– Go with the market trend
• 4. Contrarian
– Go against the market trend
– Techniques:
• Narrow diversification (choosing 10 or less securities)
– High risk (putting all your eggs in one basket)
• Broad diversification (choosing more than 10 securities)
– Lowers the risk of one bad stock ruining the whole portfolio
References
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www.google.com/finance
www.investopedia.com/university
www.stockcharts.com
www.seekingalpha.com
www.go.uic.edu/gfin
Definitions
• Market Capitalization – share price multiplied by the number of
shares outstanding.
• P/E ratio – stock price per share divided by earnings per share
• P/B ratio – stock price per share divided by book value per share
• Profit Margin % – net income divided by revenue
• Total debt/Assets % – total debt divided by total assets
• 10 yr. EPS growth – earnings per share growth expressed as %
increase over the past 10 years
• Dividend- actual $ per share and % yield
• Moving average - 200 day, 50 day
• Daily Volume – the actual number of shares traded per day
• Beta - Measure of volatility as compared to the S&P 500
• RSI Indicator- Relative strength indicator
• MACD indicator – momentum indicator