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Make the Market Great Again: A Portfolio Prospectus


Investments

Professor Beaudin

Fall 2016

PJ Tessier, Sean Gannon & Steven Moutsoulas


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Investment Strategy

Our group primarily used a fundamental investment strategy. Before making an

investment we took a look into the companys financial statements and SEC Filings. We looked

for profitable companies that have shown growth. We believed the growth would continue,

making our investment worth more in the future. When using the fundamental approach, we also

looked into how well the company was doing relative to the industry it was in. If a small or mid

cap company showed large growth potential, they might take away market share from the

industry leader which would have price effects across the industry. This approach was easily

visible with our banking investments we typically chose more than two bulge bracket banks at a

time, so that if one was losing too much it would be made up by the gain from its competitors.

This was slightly more effective with the large losses by Wells Fargo & Co (WFC),

where their illegal operations dropped their stock price, but increased the customer base at other

similarly sized institutions. We implemented both an Active and Passive strategy. We selected a

few stocks that we decided to hold for most of the duration of the fund. Historically these

companies have shown steady growth resulting in an increasing stock price. The stocks that we

bought and then sold quickly were sold because we thought there was a higher chance of the

price dropping before we closed our fund. This approach was both helpful and not, where a slow

growth company may have a long period of losses, they can add up over time and are not always

the best investment decisions in the short term.

Unsure of how the presidential election would impact the stock market, we became

concerned with our holdings potentially dropping in value. We became increasingly concerned

after an unexpected Donald Trump victory. Our concerns lead us to sell a majority of our

holdings when the market opened on November 9th the day after the election. To comply with
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the rules of the challenge we purchased roughly two million dollars worth of stock on November

9th. We did not want to rush our decision making and invest the entire three million in one day.

The market was on an upward trend on November 9th and 10th so on November 11th we decided

to invest our remaining cash and took out approximately seven hundred thousand on margin.

With the market on an upward trend and the S&P 500 reaching new highs, we decided to

take money out on margin. By taking money out on margin it allowed us to maximize our gains

while the market was strong. Confident in the investments we had made after the election, we

decided to hold what we had in our portfolio until the end of the challenge. This decision to hold

our investments was largely based off the fact that we lost potential gains by buying back into

stocks we previously held, before we made the decision to sell a majority of our portfolio on the

9th. The losses we suffered from our decision will be broken down in detail later on. One

weakness we did see in our portfolio was our lack of diversification.

Our diversification was the topic of many discussions, especially with the political events

that have happened over the course of the fund. We wanted to be able to weight ourselves a bit

heavier in a high growth potential area, but not let our returns suffer from too much in one sector.

Where we lacked in sector diversification, we made up by diversifying industries. Because our

weight in Financials and Healthcare were so high, industry diversification was the only way we

could reduce unsystematic risk and still keep our desired investments. Within Financials, we

invested in insurance, real estate investment trusts, money center banks and slightly more

investments in banks and capital markets. The same can be said about our Healthcare

investments where we found investments in healthcare equipment and supplies, healthcare plans,

healthcare services, pharmaceuticals, generic drugs and a small amount in biotechnology12. Our

1 Diversification Data by Stock


2 Diversification Data by Sector
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decisions here were made to ensure that a loss in a specific industry, would be recovered by a

gain in another, in a sense hedging potential losses within the same sector. This approach was not

as necessary as we had hoped as market trends for the duration of our fund were very positive. It

did prove to be somewhat helpful when we made some decisions around the effects of the

election. During this time the market was slightly unstable due to market uncertainty.

Our investment strategy was also affected by our experience and knowledge of different

sectors. Through our education and work experience we have a more developed understanding of

the financial sector than say agricultural sector. This is not to say that we would rule out a sector

completely, but much more research went into our zero-experience sectors. In doing this we

were able to add to our investment knowledge and increase the probability of successful stock

picking. At a minimum, research had to be done, there were no investments in which we went in

blind only on a feeling.

Industry Overviews

Financial - The Financial Sector as a whole showed good growth over the past few

months, which is the main reason we decided to invest heavily Financials. Over the past three

months the Financial Sector has increased by seven and a half percent. The Financials Sector

accounted for forty-six percent of our total investments. Brexit took a toll on many Financial

stocks, but we saw this as an opportunity to buy at a discount. We found that although many

banks and financial services companies had excellent outlook, they were also priced below the

level we felt they were worth. With Brexit being a large contributor, we also believed the market

conditions during the first quarter of 2016 dropped prices to an ideal buyers market. We invested

heavily in a large number of retail banks, capital market groups, insurance companies, real estate
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and investment banks and tried to spread our inter-sector investments across a number of

industries.

Healthcare - We had the second most amount of our portfolio invested in Healthcare. The

Healthcare Sector is generally a very safe investment due to the necessity of health care. With the

increasing number of baby boomers aging the healthcare market is only expected to get bigger.

Healthcare also could see deregulation in the near future which could help increase future

revenues. There is also large amounts of innovation and investment in the Healthcare Sector

supporting long term growth. Healthcare segment has decreased by about six percent during the

last three turbulent months. The healthcare market overall was quickly declining in the weeks

until the beginning of November when it sharply increased only to decrease again. The election

definitely had a strong impact on the Healthcare market.

Technology - We also had many investments in the Technology Sector. Technology is a very large

and diverse market segment. Our portfolio contained stocks ranging from hardware

manufacturers such as GoPro and AMD to Aspen Technology which creates software and

business solutions. More specifically, the software segment has grown nearly five percent in the

past year and semiconductors have had a huge increase of more than twenty-five percent.

Unfortunately, other computer hardware has decreased about a percentage in the last year.

Consumer Discretionary - 5.63% of our investments fell into the consumer discretionary

sector. With online retailers taking over brick and mortar stores and the desire for consumers to

spend money for convenience, we felt consumer discretionary would be largely popular.

Although we did not place any significant investments in Amazon.com, Inc. (AMZN) their

dominance of the online retail market was something we looked for in other industries. We
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looked for companies that although not necessary, provided services that added convenience to

customers lives.

Portfolio Summary:

Number of Trades: 95

Portfolio Dollar Return: $289,580.52

Portfolio Percentage Return: 9.65%

Portfolio EAR: 70.28%

S&P 500 EAR: 10.66%

Fund Diversification3: Appendix

The chart referenced indicates our allocation based on initial investment throughout the duration

of the fund. We were heavily invested into Financials, but we always had some of our

investments in varying sectors. We found that even though Brexit brought huge losses in the

summer, Financials, especially investment banks, still had excellent earnings. Despite a weak

first and second quarter, especially in the volatile market, mergers and acquisitions were

projected to return back to the level of deal flow 2015 had in both quarters three and four. Two

other heavily weighted sectors were Technology and Healthcare. Much of our technology

investing started with the inception of the fund, as semiconductors had been beating earnings

consistently. This led to the gains we saw in both NVIDIA (NVDA) and Advanced Micro

Devices (AMD). Healthcare was a key sector for us. Large Healthcare companies that have

showed strong financials historically caught our attention. With large profit margins, and few

competitors, our healthcare investments such as UnitedHealth Group (UNH) and St. Jude

Medical Inc. (STJ), were profitable investments. In order to keep ourselves from taking on too

3 Portfolio Sector Allocation


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much unsystematic risk, we tried to best diversify ourselves outside of our heavily weighted

sectors, proving to be an effective strategy in the end.

We would like to touch on our experience with materials. This sector represented the

smallest part of our investments totaling only 1.05% of our allocation. We felt as though we did

not have the resources necessary to produce a useful opinion on the materials market. With large

macro and micro economic trends at play, we lack both the education and experience to

successfully pick a stock. We only purchased one stock in this sector, which we sold at a loss, but

would from then on, stay in sectors where we felt like we had the largest grasp of trends. We

believe this can be attributed to our success as our investment decisions were also based on our

knowledge and experience with the industry.

Portfolio, S&P 5004 & Competitors5:

As the graph reflects, our returns exceeded the S&P 500 from the fifth day forward.

Analysis of this information shows an interesting pattern, where our down days showed losses at

similar rates to the market, and our up days were significantly amplified. We believe this to be

because of cutting our losses quickly as well as buying on margin, to maximize portfolio return.

Another of our concerns was our competitors performance. Not only did we have a

benchmark of the S&P 500, but we also kept track of competing funds returns to ensure that you

would be getting the best return on your investment. The chart located in Appendix 4, is a

comprehensive visual of our top four competing funds returns. We worked our way to the top

performing fund by day twelve, and only lost that title for two of the following 33 days. At Make

the Market Great Again, we work for you, our investors, and to keep a sustainable fund, we work

to keep your money with us and not bringing it to our competitors. Something we noticed from

4 Returns: Portfolio vs. S&P 500


5 Returns: Portfolio vs. Competitors
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analyzing this data, was that our down days were not as significant as competing funds, and our

up days were amplified. We attribute this to our style of diversification, while not as

fundamental, proved successful over time.

SWOT Analysis:

Strengths: Weaknesses:
Research into investments Diversification
Sector industry diversification Speculative investing
Speculating on politics

Opportunities: Threats:
Strong market conditions Volatile effects of potential regulation changes
Recovering market from volatile start to 2016 Market uncertainty
and Brexit losses Politics
Strong performance from certain sectors
Presidential candidates

To discuss our SWOT Analysis in greater detail we would like to go further in depth on the

effects of politics on our investment strategy and performance. While we viewed our speculation

on politics as somewhat of a weakness, we also saw the outcome of the election as both an

opportunity and threat. With republican candidates such as Donald Trump seeing regulation as an

unnecessary evil, his election would be a great chance to capitalize on our Financial Sector

investments. This was strengthened by Trumps proposed changes to the Dodd-Frank Wall Street

Reform and Consumer Protection Act, our outlook for a Trump election was for strong financial

performance, especially within capital markets and banks. Not all of Trumps proposals would

help us though. We found a significant threat within Healthcare as the reform of the Affordable

Care Act would leave the sector under a large amount of uncertainty. If some aspects were

retained, such as the individual mandate, it would allow for profits to remain, with more

individuals in need of insurance. If the individual mandate was eliminated, it would decrease the

total amount of insured individuals and therefore decrease profits.


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Hillary Clinton, with her proposed continuation of the reform set in place by the Obama

administration, was seen by us as having opposite effects of a Trump Election. With Clinton

supporting the Dodd-Frank act, and proposing more Wall Street reform, we saw Financials as

going into a period of uncertainty until her plans were fully described. This meant our bank

heavy portfolio would need to make an adjustment to avoid any related losses. While we saw

Financials as suffering, we also saw a strength in Healthcare. Clintons approval and incremental

changes to the Affordable Care Act would keep Healthcare mandates in place and expand the

customer base the Healthcare Sector has been profiting from.

With opportunities and threats from both candidates, we decided to eliminate as much

risk as we could prior to election day, then restart when the president elect was announced. While

our Financial heavy portfolio would have been better kept invested through the unanticipated

election of Trump, we were able to mitigate losses in our Healthcare investments at that time and

quickly rejoin the profitability of other sectors.

One weakness we would also like to address is market uncertainty. In addition to

American politics, the effects of Brexit are still largely unseen. With the United Kingdom still

legally part of the European Union, that relationship can be changed any day if Article 50 is

triggered. We did not place too much stress on this decision as it is likely it will not be signed for

another year if at all. However, with American politics as our lesson, we began to watch more

aggressively as to minimize losses. On top of politics is the proposed rate hike by the Federal

Reserve. With ultimately no decision to change, we still had to be weary of the possible raise in

federal funds rate as it would have somewhat of an impact on our bank heavy portfolio.

Top Gainers

Canadian Solar Incorporated (CSIQ)- Technology, Semiconductor Equipment and Materials


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Canadian Solar Incorporated (CSIQ) was one of our biggest gains. CSIQ is classified in

the Technology Sector and semiconductor equipment and materials industry. Canadian Solars

headquarters is located in Guelph Canada. CSIQ develops, and manufactures solar powered

equipment. Most of CSIQs revenue comes from large solar projects. These projects range from

the rooftops of schools, and businesses to solar fields. We decided to invest in CSIQ because of

the growing renewable energy field. All around the world there has been an increase in the

renewable energy market.

CSIQ is a small cap stock with a market capitalization of $861 million. On September

26th we purchased 5,000 shares of Canadian Solar Incorporated for $12.66 per share. The

purchase was around the 52 week low of $11.72. The 52 week high is $29.83. On October 13th

we sold the 5,000 shares for $15.19 resulting in a gain of $12,650. The total return on investment

of 19.95% including commissions.

CSIQ does not have an economic moat, and runs the risk of competition taking future

business or developing superior technology. Some of CSIQs competitors include Solar City

(SCTY), Sun Run (RUN), and Vivint Solar Incorporated (VSLR). CSIQs competition generates

revenue by providing a solar option to power homes. While a majority of CSIQs revenue is

generated from large scale projects. CSIQ does offer solar panels for homes, but that is a small

part of its business. We liked the fact that CSIQ was involved with solar projects instead of

trying to put solar panels on homes like the competition. CSIQs involvement with large scale

projects factored into our decision to invest in CSIQ instead of its competitors.

CSIQ has a Beta of 2.42, it is a volatile stock that has a lot of risk associated. A Beta of

2.42 is high in general, and is also quite high for the semiconductor and semiconductor &

equipment industry that has an average Beta of 1.22. Given the volatile nature of CSIQ we
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decided to sell when the price had jumped up knowing it could potential drop just as quickly.

After we sold CSIQ it began to drop and has continued to over the past month and a half. At one

point it dropped below the previous 52 week low of $11.72 to reach a new low of $10.25. On

November 18th CSIQs stock price was 11.58. If we held CSIQ for the length of the challenge

we would have suffered a $5,400 loss.

As part of our fundamental analysis we looked into the amount debt CSIQ had

outstanding. We found that CSIQ had a concerning amount of debt. With a Debt/Equity ratio of

275.42% CSIQ is well above the industry average of 39.39%. The high amount of debt did not

turn us away from CSIQ because we know that the debt is being used to fund the large solar

projects. The large projects can take years to build and are very costly. Without debt CSIQ would

not be able to fund new projects. There has been an increase from 284 million to 774 million in

long term debt. There is a total of 1.64 billion in current debt.

The above chart shows CSIQs Net income over the past five years. NI 2015 is on the left

and 2011 on the right. In 2011 and 2012 CSIQ had a negative net income. Since then the net

income has been positive including the first three quarters of 2016. The three biggest revenue

generating countries that for CSIQ were the United States with over 900 Million, Canada with

around 750 Million, Japan with around 580 Million. CSIQ has been generating more revenue

from the United States over the past few years. The United States projects have proved to be

CSIQs largest source of revenue, in 2013 CSIQ reported 215 Million in revenue from the United

States, 604 Million in 2014 and 903 Million in 2015. Although CSIQ has had success in

developed countries, CSIQ has been looking to increase its involvement with developing
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countries including Africa, Brazil, and India. With the positive net income generated from

completed projects in recent years, we do not anticipate another negative net income year.

Berkshire Hathaway Inc. (BRK.A), (BRK.B) Financial, Diversified Financial Services

We purchased four shares of BRK.A at $216,750. With a market capitilization of

$355.51B, BRK.A is by far the largest company in its industry, where the average is just $5.76B.

A 5-Year Average P/E of 14.92 and a Trailing 12 Month P/E of 13.94 puts the company in the

middle of the industry where sentiment shows expected moderate risk and return. First six month

earnings are up from 2015 about 15% from $9,340M to $10,739M. A one year annualized Beta

of 0.78 which provides a solid earning potential, with less volatility. Although it may not return

more than the market, since we are excluding ETFs and mutual funds, this will likely return

better than the cash interest. EPS Growth is roughly average within the industry, with the past 5

years showing 13.05% and the TTM vs. Prior TTM at 41.84%. The decision to choose this stock

came from the solid financials, as well as indicators such as the Parabolic SAR and the Bollinger

Band, both showing a likely buy sentiment.

BRK.A has a hold on their industry and competition. We sold our position in BRK.A at

$218,500 giving a $7,000 or 0.81% return. This decision was made so we could better diversify

our fund and use the money to buy into BRK.B, Berkshire Hathaways other stock. The price

point for BRK.A denied us the ability to properly allocate capital into different sectors and

BRK.B gave us this opportunity. We bought back into the company, but this time, we bought

4500 shares at $150.56. This investment, held for 8 trading days was sold at $157.75 giving us a

$32,355 or 4.78% return. This was our largest dollar return on a single stock, and accounted for

17.73% of our portfolio at the time of sale. While this is a remarkably large investment, it was
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decreased from the 22% of our portfolio that BRK.A took up. Aside from the financials, we also

found value in the number of acquisitions being made by Berkshire Hathaway, especially in

manufacturing, which under Donald Trumps proposals is a strong sector for investments.

National Beverage Corporation (FIZZ)

National Beverage Corporation is a beverage manufacturer with a headquarters in Fort

Lauderdale, Florida. FIZZ falls under the consumer goods sector and beverages and soft drinks

industry. With a market capitalization of $2.26 Billion FIZZ is considered a mid size cap. The

beverages and soft drinks industry is very competitive with Coca- Cola Company (KO) and

PepsiCo Incorporated (PEP) dominating market share. In 2015 in the United States Coke had

42.5% of the market share, Pepsi had 27%, and National Beverage Corp. had 3%.

On October 3rd we purchased 6,000 shares of FIZZ for $44.26 per share. The purchase was

between the 52 week low of $32.35 and high of $64.73. On October 13th we sold the 6,000

shares for $48.53. The sale resulted in a $25,620 gain. The total return on investment including

commissions was 9.64%.

FIZZ has shown steady financials over the past 5 years with a surge in 2015. Sales

increased from $646 million in 2014 to $705 million in 2015. Net Income increased from $49

million in 2014 to $61 million in 2015. FIZZ has stated that a large part of the surge was due to

an increase in sales for their LaCroix Sparkling Water brand. FIZZ had a TTM revenue growth of

12.47% well above the industry average of .33%. FIZZ has shown its ability to increase its

market share, but we do not expect them to sustain this growth over a number of years. Coke and

Pepsis hold on the industry will most likely prevent FIZZ from making a larger impact in the

future. FIZZ uses very little debt; the last time they took out debt was in 2014. FIZZ has an EPS
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of $1.56 almost a dollar below the industry average of $2.50. With a beta of .91 FIZZ presented a

pretty low risk in general, however its beta is above the non-volatile beverage industry that has

an average beta of .78. Currently FIZZ has no long-term or current debt obligations. FIZZ has

also put $23 million into CAPEX this year nearly double the amount of $12 million for 2015.

This increase in CAPEX shows that FIZZ is looking to grow their business and attempt to take

more of the beverages and soft drinks market share. The strong financials were the reason we

decided to purchase FIZZ. We chose to sell because we were satisfied with the gain.

Regions Financial (RF) - Financials, Banks

Regions Financials headquarters is located in Alabama, their locations can be found

throughout the Southeastern United States. RF has a market capitalization 16.91 Billion putting it

in the 92nd percentile for the banking industry. RF is part of the S&P 500 and is classified as a

mid cap stock. RF has posted average growth over the past year, yet has seen its stock price

increase 73.7% from June 27th to December 2nd. With a TTM revenue growth at 6.7% above

industry average of 5.98%. Reading through a 3rd quarter earnings call transcript CEO Grayson

Hall highlighted RFs efforts to diversify how it generates revenue. Grayson noted that its capital

markets and wealth management sectors produced record quarterly earnings. A weakness we saw

was its below average EPS of $.85 putting them in the 25th percentile in the banking industry.

EPS growth has been increasing showing a TTM 23.19%, which is still below the industry

average. RF was a riskier stock to invest in for the banking industry with its Beta of 1.77

compared to the industry average of 1.29.

Although RFs financials were not overly impressive we did not identify and major

flaws, so we decided to purchase it for the following reasons. Its price had been rising steadily,
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the Financial Sector and the S&P 500 had been on an upward trend. Since RFs financials were

steady, and it fell into the Financial and S&P 500 we thought it had the potential to reach or

exceed its 52 week high at the time of 12.39. We purchased RF on November 9th, 10,000 shares

at $11.45 and sold it on November 18th for $13.26. The sale resulted in a gain of $18,100 with a

return on investment of 15.79%. Since the close of the challenge RFs price has continue to rise,

as of December 2nd it selling for $13.74, and has a new 52 week high of $13.90.

Nvidia Corporation (NVDA)- Information Technology, Semiconductors & Equipment

Nvidia Corporation is an American technology company focusing primarily on graphics

processing units but has recently been branching into automotive and artificial intelligence

markets. NVDA has a market capitalization of 47.32 Billion putting it in the 97th percentile for

its industry and is classified as a large cap stock. NVDAs beta is relatively high at 2.46 resulting

in it being more volatile, although it benefited us during the period that we held it as it had a very

high rate of return. Nvidia had an impressive 26.31% revenue growth in the past 12 months, and

an even larger increase in EPS of 79.63%. NVDA has a very low dividend yield, only the 3rd

percentile but it wasnt a concern for us in the few days we owned the stock during the beginning

of the game, or after the election when we reinvested. We found during research that NVDA had

recently released a popular line of products, and had been making business moves in automotive

technology that were resulting in higher revenues. We initially invested for only a few days and

sold quickly after a quick increase in stock price, that resulted in a gain of $22,350. When we

reinvested after the election we only purchased 300 shares, or 0.7% of our portfolio.

GoPro (GPRO) - Consumer Goods, Photographic Equipment and Supplies


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GoPro is a technology company based in California that has a reputation for building

durable and high quality action sports cameras. Perhaps our largest gain came from GPRO,

which we bought 30,000 shares at $15.70 and sold at $16.30, a 3.82% gain ($18,000). One of our

main considerations when buying was the release of the Hero 5, a hand held camera that is

both cheaper than previous models and provides improved features. With athletes of all varieties

going to GPRO for their products, this release seemed like an excellent opportunity to buy in. A

market cap of $1.90B puts the company below average in the industry. P/E and EPS are

unavailable with the exception of last 5 year EPS growth of -0.78%. The one year annualized

beta of 2.16 is higher than the industry average and shows higher risk and reward compared to

competition. We did not make this pick using fundamental analysis, but rather technical analysis

using both the Parabolic SAR and Bollinger Band as indicators to buy. Our purchase was largely

motivated by the release of the Hero 5 and we sold shortly after the initial release. Our sell

prediction was correct as the price has fallen to $9.70 since then. Competitors include; TomTom

and Sony, but we feel GPRO still has an edge on them especially with their hold on the action

sports market.

Advanced Micro Devices (AMD) - Technology, Semiconductor - Broadline

Advanced Micro Devices, Inc. is a semiconductor company located in California. With

the semiconductor industry in full swing since the beginning of this summer, we began to do our

research into how we could get into it. Along with Nvidia (NVDA) we found that AMD was an

excellent choice for our fund. With few large competitors, and brand name recognized by both

casual computer users to the computer gaming community, our search had to be refined through

financials. With a high beta of 3.22 and a strong market, this was the first of our indicators to
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buy. EPS growth TTM vs. Prior TTM was at 41.53%, over the industry average, and putting

them in close to the 80th percentile within Broadline Semiconductors. Strong revenue changes of

23.19% this quarter vs. this quarter last year showed an increase in sales that was supported by a

high assets turnover of 1.27x TTM, putting AMD in the 91st percentile and more than doubling

the industry average. AMD has been aggressively trying to grow their company with debt and

posted a debt to equity ratio for the last quarter annualized of 423.90% far above the industry

average. We took this as both a pro and con. As they look to expand and take market share from

their competitors, they are also liable for a high level of debt. Ultimately our decision was to buy

35,000 shares at $6.38 per share. We sold AMD at $6.76 per share creating a 5.96% ($13,300)

gain. This was one stock that in hindsight, we should have held on to. Our sell decision was

based on some repetitive down days and a price history of large gains followed by large falls. If

we had held our position until the end, we could have made a 36.52% ($81,550) gain in perhaps

our worst timed sell. Without dwelling on what could have been, AMD proved to be an

extremely profitable investment.

Biggest Losers

Novo Nordisk (NVO)- Health Care, Pharmaceuticals

Novo Nordisk is a pharmaceutical company based out of Denmark. NVO generates a

majority of its revenue from diabetes and obesity medications. With a market capitalization of

$65.87 Billion it is considered a large cap stock and its market cap is in the ninety-sixth

percentile in the pharmaceutical industry. NVOs major competitors include Sanofi (SNY), Eli

Lilly (LLY), and Merck and Co. (MRK) all with large market caps and involved with diabetes

medication. Diabetes medication such as insulin is needed by patients to function properly. The
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number of patients with diabetes is projected to increase in the future. With a higher demand for

insulin and diabetes related devices pharmaceutical companies are likely to profit.

It has been difficult for NVO to develop a competitive advantage over its competitors, it

has been working on distributing a new a diabetes drug Xultophy which has just been approved

by the FDA on November 21st. Existing competition will continue to try to develop new

products to separate themselves from NVO, but no new companies have recently emerged. It is

unlikely that any new major competitors will emerge because insulin has not been patented for

years, yet no generic version has been made available. High barriers to entry have kept the

insulin market safe from new competitors for a long time.

We purchased 4,000 shares of NVO on October 27th for $41.15 per share and sold it for

$34.12. This sale resulted in a $28,120 loss and a total return of -17.1% . The 17.1% loss was our

largest loss percentage wise in our portfolio. When we sold NVO it was at a new 52 week low

dropping below the previous low of $35.66 at the time we purchased it.

The above charts show NVOs sales and net income over the past 5 years. This

information was part of the information used in our fundamental analysis. NVO showed strong

financial growth over the past 5 years with sales and net income increasing from 2011 to 2012,
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2012-2013, 2014-2015, and only a slight decline from 2013-2014. The chart below represents

NVOs net income from the end of 2015 to the most recent quarter in 2016. NVO has shown an

increase in net income since the end of 2015. NVO had impressive EPS Growth Trailing Twelve

Month (TTM) of 15.43%, and a TTM Revenue Growth of 5.98%. NVO was well above the

industry average TTM EPS of -3.19%. In relation to Revenue Growth NVO was just above the

industry average of 5.65%. NVO operates with an extremely low debt to equity ratio of a little

over 1% and has no long term debt. NVOs beta is 1.37 above the industry average of .84.

Despite its financial stability NVOs stock has been dropping in the past year. On

September 1st of 2016 NVO announced the CEO Lars Rebien Sorensen would be stepping

down. NVO was selling at $46.34 at close on September 1st. This was unexpected as he was

expected to stay through his contract ending in 2019. After Sorensens announcement NVOs

stock price continued to decline steadily until October 28th, when NVO announced that it was

cutting its earnings and sales forecast for the fourth quarter. On October 27th we purchased NVO

for $41.15 and one day later the price dropped down to $35.66 decreasing by 23% since our

purchase. Given the short nature of the challenge, we decided to cut our losses a week later after

the price continued to fall. We made the right decision selling NVO when we did. We would

have lost even more if we held it until the end of the challenge, NVO closed at $32.42 on

November 18th. Despite the change in management and declining stock price in 2016 we saw

potential in NVO as it was approaching its 52 week low and stand by our decision.
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General Electric (GE)- Industrials, Industrial Conglomerates6

General Electric is a household name involved with several different segments. It is

global company and is one of the worlds largest companies. It has a market capitalization of

277.25 Billion categorizing it as a mega cap stock. Its largest revenue segment is from aviation

which brought in 24.2 Billion in 2015 and made up 20.7% of its total revenues. Despite having

above average revenue growth of 4% over the past 12 months GE has struggled over the past 5

years at -5.03% well below the 5 year industry average of 1.43%. Another ratio GE is lagging in

compared to competitors is capital spending over the past 5 years. GE has posted a -5.7% growth

in capital spending below the industry average of 10.72%.

In 2015 GE announced it would be disbanding its financial segment GE Capital. GE

Capital sold for around 23 Billion a large majority purchased by Wells Fargo and Blackstone. GE

Capital brought in around 8.2% of total revenues, the reason management decided to sell it was

to focus on growing the industrial segment. GE will be able to use some of the money from the

sale of its Capital segment to boost revenues and increase capital spending. EPS has seen a large

increase over the past year with an outstanding TTM of 234.62% compared to the industry

average of 68.36%. EPS growth is likely to increase, but probably at a lower rate than its TTM.

EPS is most likely going to increase because of GEs plan to buy back a total of 50 Billion

dollars worth of stock by 2018, as well as payout 40 Billion dollars worth of dividends.

In addition to our fundamental analysis, we decided purchase GE because of its non-

volatile nature. With a beta of 1.10 we saw GE is an investment that could potentially offer a

return and minimize a large loss if the price were to decrease. Being in first place at the time of

our purchase of GE on October 31st we saw GE as a nice place to hold some of our money

without a lot of risk. We had originally planned to hold GE for the length of the challenge, but

6 General Electric Revenue Breakdown


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decided to sell it along with many other stocks on November 9th. Our October 31st purchase

was for 10,000 shares at $29.40 and we sold it on November 9th for $29.22. The sale resulted in

a loss of $1,800 with a return on investment of -.62%. If we had stuck to our original strategy to

hold GE we would have sold it for $30.67 on November 18th, resulting in a $12,700 gain and a

return on investment of 4.31%.

Emotional Investing

Our portfolio missed out on some large gains because of our decision to sell a majority of

our portfolio on November 9th. Instead of following our strategy and standing behind the stocks

in our portfolio we panicked. The uncertainty of the impact the election results would have on

the market caused us to sell. This decision was very emotional, and being emotional while

investing can be troublesome to performance. We ended up buying back into some stocks that we

had sold on November 9th. Our decision resulted in reduced gains for Wells Fargo, Bank of

America and a loss for UnitedHealth Group. We also lost money on General Electric which we

originally bought with the intent to hold for the entire length of the challenge. Our emotional

decision ended up hurting our portfolio in the end.

Wells Fargo & Company (WFC) Financials, Banks

Wells Fargo & Company is the fourth largest bank in the United States with assets of

1.75 Trillion, and is also part of the S&P 500 index. WFC has a market capitalization of 269.09

Billion and is considered a mega cap stock. WFCs market cap is in the 99th percentile in the

banking industry. Banks have known to be volatile in times of uncertainty, but have proven

themselves to recover from low points relatively quickly. One of the contributing factors was the

Parabolic SAR, showing a buy mentality. The TTM P/E of 11.09 and a 5 year average P/E of

10.99 are both on the lower end for the industry indicating less volatility compared to Wells
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Fargos competitors. EPS Growth over the past 5 years is excellent at 13.27% but over the TTM

vs. Prior TTM EPS Growth is poor at -2.66%, buying at a low was a main reason for purchasing

this stock. A one year annualized Beta of 1.16, is lower than the industry average but still over 1,

indicating a potential to beat the benchmark that is the S&P 500.

Wells Fargo has had a rough year with the recent scandal being exposed. This brought the

company's stock down, forced the resignation of CEO, John Stumpf and resulted in the firing of

5,300 employees. Although a non-trustworthy company may seem like a poor buy, the financial

crisis of 2008-2009, was caused in part by banks and they have still posted large returns since

then. We do not expect Wells Fargo to be wiped out by its competition, as one of the largest

banks in the world, Wells Fargo has a name brand and had an excellent reputation preceding this

incident. Since the incident Wells Fargos stock price has rebounded after dropping almost 14%

from the end of August to early October. Wells Fargo is currently selling at 53.58 and had its

highest close of 2016 on December 1st at 54.34.

We bought WFC on two separate occasions in October and sold both on November 9th.

The first purchase was on October 6th, 4,000 shares at $45.30, and the second on October 7th,

6000 shares at $45.28. We purchased our shares two days after the 52-week low of $43.55 in

expectation of a rebound on top of other factors. We sold all 10,000 shares on November 9th for

$44.75 resulting in a $5,380 loss and a return on investment of -1.2%. On November 11th we

repurchased WFC, 6,000 shares at $51.15. Learning from our previous mistake we decided to

hold WFC for the remainder of the challenge. We sold the 6,000 shares at $52.82 making

$10,020 and return on investment of 3.26% from this sale. In total we netted $4,640 from all

WFC transactions with a total return on investment of .6%. If we had held our original

investments into WFC from November 6th and 7th until November 18th we would have made
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$75,320 with a return on investment of 16.6%. Selling WFC when we did proved to be a costly

mistake as we lost out on what would have been a great return.

Bank of America Corporation (BAC) - Financials, Banks

Bank of America Corporation is the second largest in the United States with assets of

2.15 Trillion, and is part of the S&P 500 index. BAC has a market capitalization of 214.53

Billion it is considered a Mega cap stock. BAC is in the 99th percentile in the banking industry.

BAC is also the parent company of Merrill Lynch that serves as its wealth management division.

BAC acquired Merrill Lynch during the financial crisis of 2008. BAC largest source of revenue

come from loans and leases, its second largest is investment and broker services. BAC is a well-

established bank that has had a very strong balance sheet over the years. Their main competitors

include the other large banks in the United States, JPMorgan Chase & Co. (JPM), Citigroup (C),

Wells Fargo & Co. (WFC), Bank of New York Mellon Corporation (BNY). BAC had a TTM

revenue growth of 1.35% below the industry average of 5.93%. It is not surprising that BAC is

not posting above average growths in revenue because it is already so large and successful. As of

September 30th 2016 BAC had generated $93.53 Billion in revenue putting them in the 99th

percentile for the banking industry. Given the large numbers BAC posts in revenue we viewed

the 1.35% growth as a positive. In addition to BACs strong financials we believed BAC was

currently selling at a discount when we first purchased it. BAC has a beta of 1.78 above the

industry average of 1.32 presenting itself as a moderately risky stock for its industry.

We first purchased BAC on November 7th, 25,000 shares at $16.87. BACs stock price

had been increasing since the beginning of the year, and with no negative news about the
24

company we believed it could potentially reach the 52 week high at the time of $18.99. We sold

BAC two days after purchasing it as part of our November 9th decision for a price of $17.60. We

made $18,250 from the sale with a return on investment of 4.32%. A solid return for just two

days, but the return could have been greater if we held it until November 18th. Given the success

of the Financial sector after the election we decided to purchase BAC again on November 11th.

This time we purchased 15,000 shares for $18.77, which was around the 52 week high at the

time and sold it on November 18th for $20.00. This sale resulted in a gain of $18,450 and a

return on investment of 6.55%. Overall BAC was a very successful stock for us we netted a total

gain of $36,700 with a return on investment of 5.2%. If we had held our original investment from

November 7th until November 18th we would have made $78,250 with a return on investment of

18.55%. Although we were happy with the gain we had made from buying into BAC on two

separate occasions we realize the gain would have been over twice as large if we had never sold

our original investment.

Unitedhealth Group Incorporated (UNH) - Health Care, Health Care Providers & Services

The graph below represents market share for Health Care Providers in the United States in 2015.
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UnitedHealth Group Inc. (UNH) is the United States largest health care provider, and is

part of the S&P 500 index. In 2015 UNH had 11.4% of the Health Care Providers & Services

market share in the United States. UNH has a market capitalization of 152.99 Billion and is

considered a large cap stock. UNHs market capitalization is the largest in its industry, 144.02

Billion more than the industry average of 8.97 Billion. UNH leads the industry in total revenues

and has had excellent revenue growth over the past five years. UNH has a TTM revenue growth

of 23.11% this is above the industry average of 12.63%. Being at the top of the industry a

23.11% revenue increase is impressive. In the footnotes of the 10-K we discovered that the

increase in revenue was due to the number of individuals insured and a hike in premium rates. If

UNH continues to raise premiums, then people could start switching which would cause their

revenues to drop. In 2015 premiums accounted for 80% of the revenue generated by UNH.

UNHs community and state plans have seen increases in the number of people and revenues

from 2013 to 2015. The community and state plans do not include Medicare they are solely

based off Medicaid and other government assistance programs. In 2015 22% of all revenues were

generated from the community and state plans. It is clear that government funds such as
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Medicare and Medicaid have significant contributions to the Health Care Providers & Services

Industry. With the president elect Donald Trump wanting to make major changes to the Health

Care Industry it will be interesting to see if UNH can remain as profitable.

We first purchased UNH on November 8th, 3,000 shares at $143.35 as it was approaching

the 52 week high at the time of $146.57. We sold UNH one day later on November 9th for

$139.50, resulting in a loss of $11,550 and a return on investment of -2.69%. We had been

watching UNH keenly and saw that it had exceeded its 52 week high of $146.57 and decided to

buy back in. With the success UNH has been having we figured the 52 week high would

continue to increase. The purchase on November 11th was 2,000 shares at $146.72, we held

UNH until November 18th when it sold for $149.45. This sale resulted in a gain of $5,460 and a

return on investment of 1.85%. In total we netted a loss of 6,090 with a return on investment of

-.84%. This loss could have been avoided if we held our original investment. Our gain would

have been $18,300 with a return on investment of 4.25%. Currently UNH is selling for $160.73,

and a new 52 week high of 162.52 was also reached during the morning hours of December 2nd.

Citigroup Inc. (C) - Financial, Bank

Citigroup, one of the largest investment banks in the world, was one of our early and

successful investments. We purchased 8,000 shares of C for $49.20 per share and sold at $50.13

per share. A volatile start to 2016 and the mid-summer Brexit has forced the price down creating

two large lows this year on both February 11th ($34.52) and June 27th ($38.48). Using technical

analysis, looking at Parabolic SAR we believed our buy price to be ideal in a buyers market.

With a market cap of $138.52B, C has one of the largest equity values in the industry, only close

to other bulge bracket investment banks and financial services corporations. With a TTM P/E of
27

10.48 and a 5 year average P/E of 10.20, C is on the lower end of the industry. We took this as

being less risky compared to other similar investments as well as indicating they are doing well

financially compared to previous years. TTM vs. Prior TTM EPS Growth at 4.50% and a Last 5

Years EPS Growth of 9.14% both exceed the industry average. Projected EPS Growth for the

next year is also above average at 10.63%. The one year annualized beta of 1.80 also reflects the

relative risk compared to the S&P but also shows a large potential gain.

After selling our position in C, and anticipating a Hillary presidency, we decided to short

the bank for 5000 shares at $50.13 per share. This decision was made on the regulatory changes

that would be kept with a Democratic president who looked to keep many of laws put into place

by the Obama Administration. Our decision proved to be a poor one, when we covered our short

the day after the election for $50.30 causing a -0.34% (-$850) loss. While this short was

unsuccessful, we turned our money back to long positions in financials shortly after selling. We

considered this investment to be a lapse in judgement and an emotional decision. We feel we

overestimated the effects of a Hillary presidency and would have been better off if we had not

shorted banks as we did. The share price for C has risen to $56.02 after the election causing a

significant missed investment opportunity.

Market and Economic Conditions

While evaluating the economic condition, we looked at specifically the United States

because most of the stocks we have purchased and plan on purchasing are from the United States

and operate primarily within the United States. Overall, the United States economy has been

growing steadily since the recession in 2007 and 2008. Currently the United states economy is

20% of the world economy and the largest economy of any country. The United States has a high

GDP per capita relative to the size of our economy and population. There hasn't been negative
28

growth in GDP since the beginning of 2014. Inflation has been kept at a healthy low level in the

past few years, and the high levels of debt arent cause for concern during the short term.

Recently the United States presidential election shocked much of the world and has already had

significant impacts on the market.

Although we are primarily purchasing stocks in the United States, the health of the

worlds economy is just as important. The UN expects that the global market will continue to

grow, but at a lesser rate than recently. The world GDP grew by only 2.4% in 2015 after being

forecasted growth of 2.8%. Outlook is positive for the future as forecasted growth is 2.9% and

3.2% for 06 and 2017 respectively. The positive expectations will go hand in hand with

willingness of companies to invest their profits and spur further economic growth.

The world political landscape is much less predictable. Incidents such as Great Britain

voting to leaving the European Union, instability in the Middle East, and worldwide terrorism

threats have increased uncertainty for the international economy. Recently Europe is making

positive but slow growth, while Africa, Latin America, Pacific and Asia are developing more

negatively with an exception of China which has had incredible high growth rates recently.

We had large investments into the United States finance industry accounting for 46% of

our portfolio weight. We held stocks Wells Fargo, Citigroup, Bank of America, and Berkshire

Hathaway among others. Large finance companies and banks have been steady since recovering

after the recession in 2007. The S&P Financials has fluctuated, but had little change from a year

prior.

Currently, the United States Federal Reserve has a very low interest rate of only .5%.

Historically, the interest rates are more than ten times higher on average. The interest rates have

been at historic low levels ever since the financial crisis in 2007. There is little indication that the
29

Federal Reserve will make drastic increases in the interest rate in the foreseeable future. It is

likely that there will be gradual changes over time but it isnt cause for immediate concern. The

low rates are currently encouraging more investment from large corporations that we are more

prone to invest with.

Ethical Decision

We are confident in our abilities to take your money and produce a return above our

benchmark Throughout our time investing we treated every transaction like it was our own

money We understand that your trust in our ability to invest your money appropriately is

paramount in the success and growth of our investment fund. Every investment that we decided

to invest in was carefully thought and alternatives were considered. Our decisions helped us

outperform the S&P considerably. Because of these reasons we would have no problem

recommending our portfolio to anybody looking for a solid investment. We would like to

recommend this fund only to people who are willing to take on large amounts of risk. Our style

of investing can produce losses in the short term, so if you are not financially stable enough us to

hold onto your money, we recommend you look elsewhere.


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Appendix:
1. Diversification Data by Stock:
31

2. Diversification Data by Sector:

3. Portfolio Sector Allocation


32

4. Returns: Portfolio vs. S&P 500


33

5. Returns: Portfolio vs. Competitors


34

6. General Electric Revenue Breakdown