Angelica Lopez – 400002613

18th February, 2020

Week 1- Report

Introduction

The stock market is the ideal arena for investing funds and diversifying your

investment portfolio; essentially, it allows your money to work for you. Furthermore, the

stock market today refers to one of the major stock market indexes such as the Dow Jones

Industrial Average, NASDAQ Composite, and S&P 500. These indexes represent a section

of the stock market, and their performance is representative of the entire market. As the stock

market fluctuates daily, the stocks within the index either gain or lose value. These stock

prices move with changes in news, political events, economic reports and other factors.

Surely then, this movement represents a fundamental principle in finance “ market price

reflects information.”

Explanation of trades made

Over the course of a week, a billion dollars was invested in exchange traded funds

(ETFs) to construct a diversified portfolio comprised of U.S Large Cap. Stocks, Non-U.S

Stocks, Fixed Income, Commodities and Cash. Trading decisions were executed using

Yahoo Finance and Morning star for information such as the fund’s net assets, NAV, Yield,

YTD Daily return, Beta, and Expense ratio. Given that I am a novice in trading, these

parameters were used to engaged in Naïve diversification. For instance, stocks with a high

YTD Daily return and a low expense ratio were given preference over others in the selection

process. Overall, ten ETF’s were successfully purchased: SCHX, TQQQ, QLD, MGK, IWF,

VOO, TLT, AGG, GLD, AIU, PSI and two (Non US stocks) were unsuccessful: GCE and
PSI. These ETF’s represent trades in multiple indexes; namely: Dow Jones U.S. Large-Cap,

NASDAQ-100 Index, CRSP US Mega Cap Growth Index, Russell 1000® Growth Index,

Standard & Poor's 500 Index, Claymore CEF Index, Dynamic Semiconductor IntellidexSM

Index, ICE U.S. Treasury 20+ Year Bond Index , Bloomberg Barclays U.S. Aggregate Bond

Index, and Dow Jones-UBS Cocoa Subindex. Indeed, Portfolio diversification and risk

management were the primary goals in the process of constructing the optimum portfolio.

Lessons learn/ Insights gained

In the course of constructing my portfolio and observing the portfolio of my peers, valuable

lessons were learnt, and useful insights gained. I was able to appreciate the behavioral

finance concept of framing as the risks of each investment offsets the risks of others within

my portfolio; Although my Non-US Stock (PSI) was performing poorly, I was still able to

gain a favorable return in my portfolio because other stocks (primarily US Stocks) were

performing well. Inter alia, Portfolio Diversification was a predominant contributing factor

to the return that my portfolio yielded. Moreover, in the unsuccessful attempt of purchasing

Non-US ETFs (PSI and GCE) I learnt that if a fund does not have as many shares outstanding

in the open market, the trade will not process. Funds may also set a limit to the amount of

purchases that can be executed if they have a limited amount to offer. In observing one of

my peers portfolio activity, I also learnt that portfolio diversification is only lucrative to a

certain point; A trader had purchases over 60 ETFs yet, he/she remained at the lowest rank

with the lowest return. Amongst all the insights gained, the most important lesson learnt this

week is that ETF’s are advantageous in seeking to achieve portfolio diversification, risk

management and maintaining low cost; however, excessive diversification is pointless and

may lead to diminishing returns.