Part One (Portfolio Management): Each student will run two $500,000 portfolios (described below.) Trading will begin on Monday, Feb. 6th and end on Friday, April 14th (10-week trading period.) Each portfolio must be “active” no later than Friday, February 10th. In order to be considered active, a minimum of 6 transactions in the trading portfolio and 10 transaction in the mutual fund portfolio must be completed.

• Trading Account: One portfolio will be an active “trading” account. The goal of the first portfolio will be to accumulate the most wealth. Each person starts with 100 transactions (you may choose to buy an additional 100 for $12). In your trading account you must establish a minimum of 3 options positions, 3 futures positions, 1 short sale (of a stock), and a minimum of 40 total transactions (note – do NOT wait until the last week to conduct your options/futures trades.) You must have at least four weeks with at least 5 transactions for the week. You may trade stocks, options, futures, bonds, mutual funds, and international stocks.
• Mutual Fund Account: The second portfolio is limited to 20 transactions. For this portfolio, you must manage it with a specific objective in mind (similar to a mutual fund – an “approved” list of objectives is listed below). Your grade will be partially determined by how well your portfolio “fits” your objective. Please note that this is NOT a portfolio of mutual funds, but a portfolio of individual securities (stocks and/or bonds) managed to meet a specific objective. Since you only have 20 trades in this account, be careful to make sure you know what you want to do before you start trading.
• Approved Mutual Fund Objectives: Small-Cap Growth Fund, Small-Cap Value Fund, Large-Cap Growth Fund, Large-Cap Value Fund, Equity Income Fund, Balanced Fund, International Equity Fund, Bear Fund, Long/Short Hedge Fund (check with me if you are using this to make sure you understand the objective).
• Point Allocation (Trading Account Only) –
  • $600,001 or more 10 points
  • $525,001 - $600,000 8 points
  • $450,001 - $525,000 6 points
  • $375,001 - $450,000 4 points
  • $275,001 - $375,000 2 points
  • $275,000 or less 0 points
• Extra Credit Points (Trading Account Only) –
  • Highest portfolio value (each week – starting on Feb 17th) 2 points
  • Largest dollar change (each week – starting on Feb 17th) 2 points
  • The top 5 Portfolios Values (as of close on April 14th) 10 points
  • Higher portfolio value than the professor (as of close on April 14th) 5 points
  • (Max Extra Credit Points during project of 20 per person)
• Failure to meet the minimum trading requirements will result in a 25-point penalty on the project. Accounts that are not “active” by the close on Friday, Feb. 4th will be penalized 5 points per trading day until they have reached the minimum number of transactions.

  Part Two (Mutual Fund Objectives and Strategy):
  Each student will prepare a statement of his or her mutual fund objective (from the above list) and strategy for meeting that objective. The strategy should include a general statement of what characteristics you are looking for in the securities that you select and why you feel these characteristics are important. For each of the securities you purchase in the first two weeks, you should discuss why that security was selected for this portfolio. Attention should be paid to meeting your objective and (except for the long/short hedge fund) achieving adequate diversification. Finally, a summary table should include key details of each stock in the portfolio (company name, industry, ticker symbol, market capitalization, purchase price, shares purchased, and portfolio allocation, and any additional information you feel that a potential investor would like to be able to see at a glance.) This paper will be due Tuesday, February 21st and will be worth 50 points.

  Part Three (Trader's Log and Summary Analysis):

  • Traders Log – Each student will keep a log documenting your trading activity. The log should include a brief analysis of your weekly trading activity for each portfolio (what transactions did you make, what was the reasoning behind each transaction, what happened during the week that affected your portfolio, etc.) In addition, the value of each portfolio at the end of each trading day should be recorded along with the value of the DJIA, the S&P 500, and the NASDAQ Composite.
  • Summary Analysis – Each student will prepare a summary report on his or her Stock-trak experience. This will include both qualitative and quantitative analysis. You should discuss your trading strategies and their results. Highlight your best and worst trade and discuss each in depth (note that this may or may not be your biggest gain and biggest loss.) Also, you should compare your results with each of the three indices using the various performance indicators discussed in class (Sharpe Measure, Treynor Measure, and Jensen’s Alpha).
  • The Trader’s Log will be based on the Trading Account, not the Mutual Fund Account. However, you should calculate the performance measures and discuss your risk-adjusted return for both accounts in your summary analysis.
  • This will be due on Thursday, April 27th and will be worth 90 points.

  Miscellaneous Comments:
  Every component of this project is expected to be done in a professional manner and will be graded under those expectations. This means that grammar, spelling, and overall presentation will have an influence on the score. Note that these items are not a substitute for quality content, but a compliment to it. While luck will definitely play a part in the performance of your portfolio, it will play a very small part in your grade for this project.

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