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F303: Group Project 1

StockTrak Investment Simulation


Section 24494
Team 12 - 2:30-3:45
Wesley Bowman
Tyler Rosser
Saksham Bhatia
Akash Miriyala
Ryan Mersch

A
1

B
Transaction

C
Ticker

D
Company Name

E
Industry

2/27/15 Buy

MRK

Merck & Co., Inc.

Drug Manufacturer

3
4
5
6
7

2/27/15
2/27/15
2/27/15
2/27/15
2/27/15

Buy
Buy
Buy
Buy
Buy

H
LFUS
BUD
ILMN
CPK

Hyatt Hotels Corporation


Littelfuse, Inc.
Anheuser-Busch InBev
Illumina, Inc
Chesapeake Utilities Corporation

Lodging
Electronics Wholesale
Brewery
Biotechnology
Natural Gas Distr.

8
9
10
11

2/27/15
2/27/15
2/27/15
2/27/15

Buy
Buy
Buy
Buy

DXJ
MRH
QADA
JBLU

WisdomTree Japan Hedged Equity ETF


Montpelier Re Holdings Ltd.
QAD Inc.
JetBlue Airways Corporation

Japan Stock
Insurance
Enterprise Software
Airlines

12
13

3/5/15 Short
3/10/15 Short

NFLX
SHLD

Netflix
Sears Holding Corporation

Services
Retail

14
15
16
17
18
19
20
21
22
23
24

3/11/15
3/17/15
3/18/15
3/18/15
3/18/15
4/2/15
4/2/15
4/8/15
4/9/15
4/9/15
4/9/15

HZNP
BSX
SHLD
B-GS-3.625-07022016
CGNX
OVTI
TEVA
GE1517D23
ILMN
B-T-6.250-15082023
B-T-4.25-15082015

Horizon Pharma
Boston Scientific
Sears Holding Corporation
Goldman Sachs 3.625% Feb 2015
Cognex Corporation
OmniVision Technologies
Teva Pharmaceuticals
General Electric
Illumina, Inc
T-Bond 6.25% August 15, 2023
T-Note 4.25% August 15, 2015

Pharmaceuticals
Medical Technology
Retail
Corporate
Testing & Measuring
Semiconductors
Pharmaceuticals
Industrial Conglomerate
Biotechnology
Treasury
Treasury

RT
NFLX

Ruby Tuesday Inc.


Netflix

25
26

Buy
Stop Buy
Cover
Buy
Buy
Buy
Buy
Buy to Open
Sell
Buy
Buy

4/9/15 Short
4/9/15 Cover

F
G
Price Purchased #of Shares
$58.72

340

$60.97
$100.90
$127.35
$195.46
$47.54

330
200
160
100
420

$53.93
$36.28
$21.50
$17.41

375
550
925
1150

$465.48
$36.74

-100
-1000

$22.27
$17.69
$39.47
$1,022.66
$49.23
$26.83
$63.82
$4.70
$185.50
$1,337.10
$1,029.20

1000
1750
1000
10
1000
1300
650
100
100
25
25

Restaurants
Services

$6.46
$441.00

-4400
100

$2.90
$22.56
$3.76
$1.20
$3.20
$67.31
$24.83
$72.08
$2.95
$36.97
$163.32

10000
1500
40
-40
30
400
1000
100
-30
100
100

$5.13
$51.35
$97.13
$57.47
$93.87
$9.16

-100
50
20
-330
-200
1500

$7.16
$61.63
$4.25
$2.10
$25.00

4400
5000
-40
75
-925

27
28
29
30
31
32
33
34
35
36
37

4/9/15
4/9/15
4/10/15
4/10/15
4/10/15
4/10/15
4/10/15
4/14/15
4/14/15
4/16/15
4/16/15

Buy to Open
Buy
Buy to Open
Sell to Open
Buy to Open
Buy
Buy
Buy
Sell to Close
Buy
Buy

BITA1515E60
NVDA
KMI1615A40
KMI1615A45
MDCO1517G29
WPC
Depo
RYCEY
MDCO1517G29
GM
IBM

Bitauto
Nvidia
Kinder Morgan Inc.
Kinder Morgan Inc.
The Medicines Company
W.P. Carey Inc.
Depomed Inc.
Rolls Royce
The Medicines Company
General Motors
International Business Machines Corp.

Internet Services
Semiconductors
Oil & Gas Supply & Storage
Oil & Gas Supply & Storage
Pharmaceuticals
Real Estate Investment Trust
Pharmaceuticals
Airline Manufacturing
Pharmaceuticals
Automotive
IT Services

38
39
40
41
42
43

4/16/15
4/16/15
4/16/15
4/17/15
4/17/15
4/17/15

Short
Limit Buy
Limit Buy
Sell
Sell
Buy

S
SWI
IPGP
H
LFUS
NWBO

Sprint Corp.
SolarWinds Inc.
IPG Photonics Corporation
Hyatt Hotels Corporation
Littelfuse, Inc.
Northwest Biotherapeutics, Inc

Telecommunications
Enterprise Software
Electrical Components
Lodging
Electronics Wholesale
Pharmaceuticals

44
45
46
47
48

4/17/15
4/17/15
4/17/15
4/17/15
4/17/15

Cover
Buy
Sell to Close
Buy to Open
Sell

RT
CL/J6
KMI1615A40
DATA1515E105
QADA

Ruby Tuesday Inc.


Crude Oil April 16
Kinder Morgan Inc.
Tableau Software Inc
QAD Inc.

49
50
51

4/17/15 Short
4/17/15 Buy
4/17/15 Sell

52
53
54

4/17/15 Buy
4/17/15 Sell
4/17/15 Cover

BestRestaurants
Transactions
Futures
Oil & Gas Supply & Storage
Enterprise Software
Enterprise Software

H
Total Paid

Mega-cap stock with low P/E, some bea


$19,964.80 introducing replacements and deep pipe
Lower P/E as compared to rivals, increa
$20,120.10 streamline ops by selling underperformi
$20,180.00 Supplies many tech and auto giants, aw
$20,376.00 Mega-cap stock, safe bet for a longer te
$19,546.00 Best genetic sequencing technology on
$19,966.80 Small cap stock, room for growth, natur
Japanese stocks earnings are outpacin
$20,223.75 in Jan and Feb, they were up in March,
$19,954.00 Trades at a relatively low P/E, low beta
$19,887.50 Like a mini SAP or Oracle, growing clou
$20,021.50 While airlines get butchered, JetBlue ha
Changing competitive environment may
-$46,548.00 potential to fall significantly = high gain
-$36,740.00 Poor management, high debt, Sears is
Positive results from clinical trials, smal
$22,270.00 profit margins are negative due to outflo
$30,957.50 Receieved FDA approval of new device
$39,470.00 Sell to limit further downside risk
$10,226.60 Shorter maturity
$49,230.00 Industrial automation technology is ahe
$34,879.00 Manufactures optic technology, like ima
$41,483.00 Strong financials, company expresses i
$470.00 Put Option
$18,550.00 Sell to limit further downside risk, down
$33,427.50 Longer maturity
$25,730.00 Shorter maturity
Earnings on Friday, April 10th. Expected
-$28,424.00 negative margins, and lack of growth. H
$44,100.00 Close out the position, take profits
Call options, strike price of 60, bought 1
$29,000.00 company is hot lately
$33,840.00 Undervalued, hot sector in the the tech
$150.40 Call spread
-$48.00 Call spread
$96.00 Call Option
$26,924.00 REITs should begin to rise as home buy
$24,830.00 Strong margins, trades at low PE
$7,208.00 Stable financials, should allow for short
-$88.50 Sell to limit further downside risk, could
$3,697.00 Mature company, stable performance, b
$16,332.00 Mature company, stable performance
Generally the weaker of telecom giants
-$513.00 stock has hovered between 4 and 5 in p
$2,567.50 Limit order at 51.77, strong margins, low
$1,942.60 Limit order at 97.99, slightly volatile, bu
-$18,965.10 Sell to limit further downside risk
-$18,774.00 Sell to limit further downside risk
$13,740.00 Having a good year, purchased with ho
Volatile stock in a declining industry, ex
$31,504.00 positive numbers
$308,150.00 Crude oil won't rise to levels we've seen
-$170.00 This was part of call spread strategy, pr
$157.50 Call options, a hot company in its secto
-$23,125.00 Sell to limit further downside risk
Had a lackluster quarter, relatively over
-$22,701.00 AT&T
$34,391.00 Low beta, good margins, looking to dive
-$19,305.20 Sell to limit further downside risk
Low beta, good margins, looking to dive
$22,330.00 than Realty Income Corp
-$19,684.80 Sell to limit further downside risk
-$425.00 Put Option

Short NFLX While we believe Netflix to be a strong company, it seemed to be


overvalued
hovering
lower year on year margins,
of 144.81, and
T
AT&T Inc. around $480. WithTelecommunications
$32.43 a PE -700
Income Corp
Commerical REITs
$49.13
700
aOMRK
slew of subparRealty
original
releases,
we
felt
Netflix
to
be
overvalued.
We
shorted
100
Merck & Co., Inc.
Drug Manufacturer
$56.78
-340
th
th
shares
on March
5 at $465, and covered
April 9 at $441 for a 5%
profit. 500
Our profits on
LTC
LTC Properties Inc
Healthcare REITs
$44.66
BUD short sale prove
Anheuser-Busch
InBev
Brewery Looking back, we $123.03
-160
the
our
expectations
correct.
could
have
shorted on
GE1517D23
General Electric
Industrial Conglomerate
$4.25
-100
th
st
March 6 at $480 and we would have covered April 1 around $413 for about 15%
return. We learned the importance of good timing on short sales; seeing our position on
April 1st we were greedy and held off covering. Even if we had covered the next day
April 2nd, at $415, we would have realized about 12% return.
http://www.thestreet.com/story/13072427/1/netflix-nflx-stock-falls-after-hbo-nowstreaming-service-announcement.html
Call Spread KMI With a fall in oil prices due to a massive oversupply, we speculated
an increased demand for oil storage. The linked article, on April 8th, discussed Kinder
Morgan and its businesses. They recognized a shift in the industry and announced a new

joint venture with an oil storage firm. Investors liked the adaptability shown by the firm.
We wanted to take a bet, but not get exposed to excessive downside. We decided to build
a bull call spread by going long on $40 calls, and short on $45 calls. While upside
potential is capped, the premium received on written calls mitigates the overall cost of the
strategy. Our expectation was correct, as the stock still hovers between $40 and $45. The
value of our long position starts at $15,000 and we closed it out at $16,990. The value of
the short position starts at $4,790, and although we didnt close it out, it is now valued at
$6,600. In total thatd be about a 19% return, again proving our expectations correct.
http://www.investopedia.com/stock-analysis/040815/kinder-morgan-growth-driver-noone-talks-about-kmi-enb-key.aspx
Buy HZNP On March 2nd, Horizon Pharma announced they exceeded earning
expectations in Q4 and they also increased sales and EBITDA projections for 2015. On
March 7th, they announced success in clinical trials decreasing the severity of rare bone
disease. We believe that 2015 drug expansions and current success in clinical trials of
pipeline drugs will keep the firm rolling and are reasons to buy stock. The stock had not
broken $16 ever, until late January 2015, and it has been climbing up since then. We
purchased 1000 shares at $22.27 and the stock is now trading at $30.82, netting a 38.4%
return. We learned the vast differences that are present when trading stocks in different
industries. Stocks in the pharmaceuticals industry are volatile (HZNP beta = 2.2), and
they hinge on clinical trial success, as it is really the only growth driver.
http://www.zacks.com/stock/news/166169/horizon-pharma-beats-on-q4-earnings-lifts2015-guidance?source=sa, http://www.marketwired.com/press-release/horizon-pharmaplc-announces-that-pre-clinical-data-show-treatment-with-interferon-gamma-nasdaqhznp-1998323.htm
Buy JBLU JetBlue Airways has always been managed more efficiently than other
airlines. While the entire industry benefitted from a drop in oil prices, we found this a
good timing to buy a strong company. We believe JetBlue is relatively undervalued as it
has a PE of 13 and shows positive unit revenues even when they are falling in general for
airlines. Unit revenues tell us how much revenue an airplane brings for each unit of
capacity, a critical measure for the airline industry. Compared to the price we paid of
$17.41 per share, the stock now trades at $19.42, almost a 12% profit.
http://news.investors.com/investing-stock-spotlight/022615-741093-can-low-fuel-costsboost-airline-stocks.htm
Buy MRH Montpelier Re Holdings is a Bermuda based insurance company that has
been on our watch list for a while. The stock has not broken about $36.50 since 2005, so
when we saw price levels approaching those levels after such a long time we saw an
opportunity to participate in the upside. The firm has a low beta of .55 and has been hot
for a long time as it has been re-approaching $36.50. We bought shares at $36.28 and it
now trades at $39.62, up about 9%. https://www.google.com/finance?
q=mrh&ei=rlZDVcDMJaHXsAe01IGoBQ
Worst Transactions

Buy H Hyatt Hotels Corporation announced the use of an asset-light strategy to


streamline operations to focus on more efficient areas. This is a strategy that may help the
stock in the long term. But the stock is volatile and has hovered around $60 since June of
2014. Since the duration of our portfolio isnt more than even a year, the time horizon is
quite short. The purchase of Hyatt stock would not pay profits anytime soon, but it could
possibly do so in a longer-term investment horizon. The mistake we made was
misunderstanding the opportunity to profit, we bought stock and had to sell it off for
about a 6% loss for fear wed lose more. We could have bought two in the money calls,
bought one out of money call, and sold two at the money calls to create a butterfly spread
around $60. It is a neutral strategy with limited risk and return.
http://seekingalpha.com/article/2915436-what-does-the-future-hold-for-hyatt-hotels
Short RT Making a blind bet, we shorted Ruby Tuesdays on April 9th, a day ahead of
the earnings announcement. With falling year on year margins and negative EPS we
didnt feel the restaurant company had a turnaround in them. However, they actually beat
EPS estimates and we had to take a loss on the bet. We learned that although a company
could be weak, its stock could still rise if it turns out not so be as weak as people thought.
http://www.streetinsider.com/Earnings/Ruby+Tuesday,+Inc.+(RT)
+Tops+Q3+EPS+by+3c,+Offers+FY15+Outlook/10446752.html
Buy GM General Motors is a big name firm that may be a good pick for diversification
in a long-term portfolio. However, there are not many short-term growth prospects with
decreases in quarterly sales being reported. We didnt recognize this at the time and saw a
slashing of car prices and hiking of dividend as good signs for short term growth.
http://seekingalpha.com/news/2425416-gm-lowers-price-on-spark-ev-with-boltupcoming, http://www.bidnessetc.com/39781-general-motors-company-gm-declaresimproved-quarterly-dividend/
Buy LFUS Littlefuse, Inc. We thought this was a valuable stock to own as the firm
supplies many tech and auto giants. The stock has hovered around $90 since January of
2014 and it hasnt fully broken past $100 yet. We did not take the time to notice year on
year decreases in margins. In addition, we didnt familiarize ourselves with the
performance of the stock by looking at its full history. https://www.google.com/finance?
q=NASDAQ:LFUS
Call Option BITA Strike at $60, it traded around $55 when we purchased the options.
Bitauto Holdings Limited is a Chinese provider of Internet content. We repeated our
mistake by not considering the condition of the company. Its stock has fallen from about
$96 in August of 2014 all the way to about $59 currently. We should have noticed the
year on year decreases of margins and sales. We learned not to be in so much of a rush to
diversify internationally, we must understand the state of the specific sector and industry
before making decisions.
Significant Events
Week of Feb 27th

NASDAQ nears a new high this week of about 5,132 with a record set all the way back in
March of 2005. The index tends to trade higher on a forward P/E basis than the S&P 500,
but with a forward P/E of 18.2, which is below its ratio of 20.4, 10 years ago. Janet Yellen
also speaks on Tuesday which pushes fear in investors because they believe the only
direction interest rates can go is up from their near bottom rates. This scare by the Fed
pushed part of our portfolio down due to uneasiness of investors regarding the
anticipation of increased interest rates.
Week of March 6th
IU alum, Mark Cuban, blogged on Thursday stating that, If we thought it was stupid to
invest in public Internet websites that had no chance of succeeding back then, its worse
today. However, several disagree with Cuban arguing that, the bubble today is much
more consolidated than the bubble in the late 90s, which was a mom-and-pop bubble.
The primary difference is that this bubble comprises wealthy people living mostly in San
Francisco and New York. This statement by Cuban pushed overconfident tech investors
to double check their investments in start-up tech companies which can push valuations
downward.
Quantitative easing takes full effect in the euroland producing negative interest rates in
some countries. Bill Gross said in his monthly investment outlook that the universe of
negative-yielding notes and bonds in Euroland now totals nearly $2 trillion, and that
not even thin gruel is being offered to investors. He said investors should own highquality bonds and low P/E, high-quality stocks if you want to stay out of the doghouse.
Due to QE in the Eurozone, the value of the US dollar increases nearly 3.7% from last
month. QE in Europe pushes more foreign investors to invest in US securities which is
clearly shown in parts of our portfolio from this week. This event specifically helped our
larger, more stable companies
Week of March 13th
Apple holds a conference where they unveil the new iWatch and they officially join the
Dow Exchange. Stock price initially falls due to lack of innovation of the new products
determined by analysts and critics. The Department of Commerce said on Thursday that
U.S. retail sales declined 0.6% during February which hurt some major retail chains. This
announcement helped our short sale of Sears who is slowly going into bankruptcy.
Week of March 20th
U.S. stocks rose sharply Wednesday after the Federal Reserve signaled a more dovish
approach to raising interest rates than investors had expected. Stocks leaped, with the
Dow Jones Industrial Average gaining nearly 200 points in the minutes following the
Feds release of its post-meeting statement. The Dow Jones Industrial Average closed up
227.11 points, or 1.3%, at 18076.19, after earlier being down more than 100 points. The
S&P 500 rose 25.22 points, or 1.2%, to 2099.50. The Nasdaq Composite added 45.39
points, or 0.9%, to 4982.83, earlier hitting 5000.
Week of March 27th

The largest deal YTD was released this week (Kraft and Heinz) for a staggering 70
billion dollars. This deal which is set to take place later this year will consolidate the food
industry raising some Anti-Trust issues, however, analysts expect the deal to go through.
This deal helps the US markets because it shows that deal making and investment is still
active. Tragically, this week the Germanwings flight crashed into the French Alps killing
many people which sent some airline industries to decline. This article goes to show that
small events across the globe give way to changes in market prices globally. Our stake in
JetBlue Airlines took a hit from this event due to uneasiness of investors in the airline
industry.
Week of April 3rd
Nearly 10 industries released earnings this week with an average decline in the first
quarter of nearly 3%. Five out of the 10 industries saw a decline of greater than 5% and
one of the best performing industries, the financial banking industry, saw an increase of
about 11% in the first quarter of 2015. Our stake in Goldman Sachs was benefitted by
their earnings release due to beaten analyst expectations. The Department of Labor said
on Friday that the U.S. economy added 126,000 jobs during March, which was the
slowest growth of the workforce in 15 months. The national unemployment rate remained
5.5%.
Week of April 10th
Royal Dutch Shell said on Wednesday it had agreed to acquire BG Group for roughly $70
billion in cash and stock. The deal was first reported by the Wall Street Journal on
Tuesday. The offer price represented 52% premium to BG Groups trading range over 90
days through Tuesday. This acquisition announcement benefits our long future stake in
crude oil. The S&P 500 Index is up only 1.6% this year through Tuesday, but many
market analysts are continuing to raise the alarm over high valuations for stocks. The
index trades for 17.5 times weighted aggregate 2015 earnings estimates, among analysts
polled by FactSet.
Week of April 17th
There were three high-profile initial public offerings priced on Wednesday, all at the top
of their estimated ranges: Etsy Inc. ETSY, -5.44% an online marketplace, priced its IPO
at $16 a share. The stock opened at $31 on Thursday and closed at $30. Vendors on the
companys website were given an opportunity to participate in the offering. Virtu
Financial Inc. VIRT, +2.02% priced its offering at $19 a share. The stock opened at $23 a
share on Thursday and closed at $22.18. Party City Holdco Inc. PRTY, -0.14% priced its
IPO at $17 a share. The stock opened at $20.50 on Thursday and closed at $20.70.
Week of April 24th
Released on 4/23, Microsoft said sales in the third quarter ended March 31 rose nearly
6.5% from a year earlier to $21.7 billion, in part thanks to the inclusion of sales from
Nokia Corp.s mobile-phone business, which Microsoft didnt own a year ago. That beat
Wall Street expectations even though a strong U.S. dollar dragged down sales.

Performance Assessment

Historical Daily Returns:


Date
2/25/2015
2/26/2015
2/27/2015
2/28/2015
3/1/2015
3/2/2015
3/3/2015
3/4/2015
3/5/2015
3/6/2015
3/7/2015
3/8/2015
3/9/2015
3/10/2015
3/11/2015
3/12/2015
3/13/2015
3/14/2015
3/15/2015
3/16/2015
3/17/2015
3/18/2015
3/19/2015
3/20/2015
3/21/2015
3/22/2015

Value
$1,000,000.0
0
$1,000,082.1
9
$998,723.59
$998,723.59
$998,723.59
$1,000,129.7
3
$999,575.56
$998,172.39
$998,679.98
$997,646.47
$997,646.47
$997,646.47
$999,891.73
$998,172.54
$998,372.71
$999,807.25
$1,002,820.9
6
$1,002,934.3
6
$1,002,934.3
6
$1,007,192.5
4
$1,006,245.8
8
$1,008,356.6
3
$1,009,392.4
6
$1,009,572.7
9
$1,009,534.0
6
$1,009,534.0
6

Average Daily Return:

Daily Return
%

Date

Value

Daily Return
%

3/23/2015 $1,008,505.48

-0.1019%

0.0082%

3/24/2015 $1,007,121.09

-0.1373%

-0.1358%
0.0000%
0.0000%

3/25/2015 $1,001,082.55
3/26/2015 $1,001,659.26
3/27/2015 $1,006,599.36

-0.5996%
0.0576%
0.4932%

0.1408%

3/28/2015 $1,006,603.00

0.0004%

-0.0554%
-0.1404%
0.0509%
-0.1035%
0.0000%
0.0000%
0.2251%
-0.1719%
0.0201%
0.1437%

3/29/2015
3/30/2015
3/31/2015
4/1/2015
4/2/2015
4/3/2015
4/4/2015
4/5/2015
4/6/2015
4/7/2015

$1,006,660.37
$1,012,079.99
$1,013,061.59
$1,009,938.61
$1,014,602.17
$1,014,653.30
$1,014,704.42
$1,014,755.55
$1,016,012.39
$1,015,577.58

0.0057%
0.5384%
0.0970%
-0.3083%
0.4618%
0.0050%
0.0050%
0.0050%
0.1239%
-0.0428%

0.3014%

4/8/2015 $1,019,335.57

0.3700%

0.0113%

4/9/2015 $1,017,366.44

-0.1932%

0.0000%

4/10/2015 $1,017,372.48

0.0006%

0.4246%

4/11/2015 $1,017,412.74

0.0040%

-0.0940%

4/12/2015 $1,017,453.01

0.0040%

0.2098%

4/13/2015 $1,007,701.44

-0.9584%

0.1027%

4/14/2015 $1,018,250.66

1.0469%

0.0179%

4/15/2015 $1,024,674.41

0.6309%

-0.0038%

4/16/2015 $1,015,430.38

-0.9021%

0.0000%

4/17/2015 $1,046,044.01

3.0148%

0.0896%

Standard Deviation:
Holding Period Return:

0.00521
(1,046,044.01 1,000,000) / 1,000,000 = 4.6044%

Performance Comparison with S&P 500


Historical Daily Returns for S&P 500:
Date

Value

2/25/2015
2/26/2015
2/27/2015
3/2/2015
3/3/2015
3/4/2015
3/5/2015
3/6/2015
3/9/2015
3/10/2015
3/11/2015
3/12/2015
3/13/2015
3/16/2015
3/17/2015
3/18/2015
3/19/2015
3/20/2015
3/23/2015

2113.86
2110.74
2104.5
2117.39
2107.78
2098.53
2101.04
2071.26
2079.43
2044.16
2040.24
2065.95
2053.4
2081.19
2074.28
2099.5
2089.27
2108.1
2104.42

Daily Return
%
-0.1397%
-0.2877%
0.6204%
-0.4459%
-0.4309%
0.1275%
-1.4095%
0.4024%
-1.6882%
-0.1838%
1.2681%
-0.5995%
1.3613%
-0.3241%
1.2238%
-0.4793%
0.9092%
-0.1666%

Average Daily Return:


(0.0325%)
Standard Deviation:
0.007624
Dividend Payout for Holding Period:

Date

Value

3/24/2015
3/25/2015
3/26/2015
3/27/2015
3/30/2015
3/31/2015
4/1/2015
4/2/2015
4/6/2015
4/7/2015
4/8/2015
4/9/2015
4/10/2015
4/13/2015
4/14/2015
4/15/2015
4/16/2015
4/17/2015

2091.5
2061.05
2056.15
2061.02
2086.24
2067.89
2059.69
2066.96
2080.62
2076.33
2081.9
2091.18
2102.06
2092.43
2095.84
2106.63
2104.99
2081.18

Daily Return
%
-0.6060%
-1.4480%
-0.2298%
0.2448%
1.2316%
-0.8716%
-0.3886%
0.3609%
0.6688%
-0.1983%
0.2762%
0.4537%
0.5282%
-0.4502%
0.1709%
0.5228%
-0.0699%
-1.1232%

(2% / 252) * 37 = 0.2937%

Sharpe Ratio Analysis


Portfolio Sharpe Ratio = (0.0896 0.001) / 0.00521 = 17.058
S&P 500 Sharpe Ratio = (-0.0325 0.001) / 0.007624 = (4.394)

Two- Month Holding Period Return


Portfolio Holding Period Return: (1,046,044.01 1,000,000) / 1,000,000 = 4.6044%
S&P 500 Holding Period Return: ((2081.18 2113.86) / 2113.86) + 0.2937 =
(1.2523%)

Explanation for Differences in Performance

The S&P 500 had a negative holding period return during the period in question. The
market as a whole has been performing at its highest levels ever for quite some time.
However, over the past two months of trading, the S&P 500 had a negative return.
According to the random walk theory, asset prices are just as likely to increase as they are
to decrease, so we should not be surprised to see a period of negative return, even in a
general bull market. The Sharpe ratio for the S&P 500 was negative due to the losses it
experienced.
Our portfolio preformed quite well during the two-month trading period. With a holding
period return of approximately 4.6%, our portfolio significantly outperformed the market.
This was due to a well-diversified strategy that including short-selling large quantities of
several stocks that decreased in value during the trading period. The Sharpe ratio for our
portfolio was high, 2.70 at the end of the trading period. As a whole, our portfolio ended
ranked number two in overall holding period return and number one in Sharpe ratio.
Portfolio returns are not the best measures of success in managing a portfolio; the Sharpe
ratio is better because it is a measure of reward per unit of risk. This means that our
portfolio gains the most return for the risk taken, meaning that we are taking good bets.
One could have high portfolio returns and a low Sharpe ratio, but this is just luck. Listed
below is a graph comparing the performance of our portfolio with the overall
performance of the S&P 500.

(Photo Courtesy of StockTrak.com)

Critique of Strategy
Our general strategy was to build a diversified portfolio that could not only bring solid
returns during our trading periods, but one that is sustainable in the long term. We felt
that we did a good job of trading efficiently in order to build our portfolio to have a high
Sharpe ratio. We were able to do this by not making an excessive amount of trades.
Making too many trades will eat into you profits with commissions, but also expose your
portfolio to risk. We also were able to retain good reward for the risk we took by making
sure we had a good balance between high and low beta stocks, young and mature

companies, and also a good variation in industries represented. Our goal is to seek out
firms that are undervalued and have a sustainable competitive advantage. What did not
work too well were some of the transactions that were not as thought out, such as the
purchase of Littlefuse, Hyatt, or the shorting of Ruby Tuesdays. We needed to stay
disciplined to screening the stocks for good year on year growth in key indicators, and
also seeking stocks that are not on a multi-period slide or that are generally stagnant.
Some opportunities were forgone because we did not use the right investment instrument.
For example, instead of shorting Ruby Tuesdays before its earnings, we could have done
a straddle. This way we would profit if the stock moves a lot in any direction. Also, we
could have used neutral options strategies such as the butterfly and condor to predict the
stagnant behavior of some stocks like Hyatt Hotels. Finally, I believe we could have
benefitted from using more of the order types available, like in the example of Netflix,
we could have covered our short at a lower price. We could put a limit order in to cover
the sale whenever the stock price falls below about $415, this way if we were to miss the
stock price drop, our order would be automatically triggered for us to lock profits.
Transaction Costs
In terms of percent of the total portfolio value and considering the volume of transactions
made by our group, transaction costs proved to be relatively unimportant to our portfolio
performance. Transaction costs were configured on a fixed basis of $10 per transaction
and only 2 of the 53 transactions performed excluded the $10 cost because they were
dividend payments. This leaves us with transaction costs totaling $510, which is a very
small portion of our portfolio value as well as the dollar amount of our return on
investment. Considering our ROI was 4.6%, this means our opportunity cost of the
transaction costs is about $23.50 of forgone profits, which is only about .05% of our total
profit of $46,044.01. Although transaction costs proved to be relatively unimportant for
our group, for an active investor making daily trades of high volume, transaction costs
could potentially get high enough to make a material difference to their portfolio value
depending on the number of trades and dollar amount of the trades. Someone who trades
options may see transaction costs having greater impact due to options often requiring
more frequent trades and could typically be shorter-term investments.
Managing the Portfolio in the Future
As our trading period was short, we focused more on short-term stocks and less on long
term trading opportunity and bonds. By trading stocky heavily, our portfolio turned out to
be risky and going forward one of the aspects that we would manage is the riskiness of
the portfolio and focus equally on bonds. Bonds tend to be a relatively safer bet while
investing and they will help us diversify our portfolio risk as well. Finding the right
balance between each security of our portfolio will help us increase portfolio returns and
provide stability. Investing in bonds will provide us with a predictable stream of income
and also help smooth out a hit on the portfolio in case of an economic downtown/
recession in the market. Companies such as IBM and AT&T with relatively lower betas
are the ones that we would focus on in the long run. Due to the time constraint, we made
certain bets such as shorting Netflix (the stock price of which did drop in the short run),
but in the long run these are the type of securities that we would we pay close attention to
as the price of this security increased after the information about the stock had been fully

digested. Therefore, understanding macro news better is would be a primary goal. One of
our mistakes that we would not try to make in the future to better manage our portfolio is
to know when to sell the stock and have a limit on it. Our Netflix short sell could have
been much more profitable if we had figured out the right time to buy and sell it. But we
did not pay enough attention to the news coming out for the company and were not able
to sell for as high of a profit as we could have gotten. Overall, our team focused on
certain factors such as earnings per share, margins, and beta in order to discover
securities that we wanted to invest in. In the future, we would definitely expand our
factors taken into consideration in order to increase our expected rate of return on a
longer-term basis.