Ben Campbell DECA Stock Market Game Report 2016

EXECUTIVE SUMMARY

I.

Overview of Portfolio Performance 

Third place in the North Atlantic region.



Earned $36 197 in equity during the simulation.

My diverse portfolio delivered a 36.2% return during the three months of simulated investing. It successfully beat the S&P 500 by over 33% over that time period.

Through diversifying in various economic sectors, countries of origin and sizes of market capitalization, I was able to generate significant returns in the short time frame provided. My extensive technical and fundamental analysis also was integral to my success.

Research & Objectives My portfolio had great success due in large part to the extensive research that was conducted before placing any order. Using resources like Google Finance, NASDAQ, and print materials, I was able to analyze the technical aspects of each stock that I had hoped to invest in. By using indicators such as Bollinger Bands, the Relative Strength Index (RSI) and support/resistances for a stock, I was able to effectively make informed decisions on my investments during the simulation. Using this research along with past trends, allowed me to achieve my objectives: -

Increase portfolio value Mitigate risk through diversification in sectors and market cap.

Use fundamental and technical analysis to effectively conduct research

Investment Philosophy To maximize the potential for returns in the simulation I used the advice of Peter Lynch, “buy what you know, and know why you own it.” I only invested in companies that I was familiar with fundamentally, or ones I could understand further through technical analysis. Using a growth-value philosophy was also an important part of this strategy. Investing in various economic sectors and types of securities to reduce risk was integral to success. Diversity was the key aspect of my portfolio, holding stocks such as Blackberry – a local company with turnaround potential, and Delta Airlines - a trusted name in the world airline industry.

Strategy Success and Future Alterations While the market remained relatively flat throughout most of the simulation, I was able to use my strategy to yield high returns in a volatile market. With global markets still recovering from an August sell-off, the outlook for the remainder of 2015 was weak. The Paris terror attacks and record low crude oil meant that markets did not establish momentum in either direction to end the year. I countered these events with a strong portfolio that managed excellent results.

Although my portfolio generated high returns on investment, it could have been managed more effectively. It contained several investments with a great deal of risk that were unnecessary buys. The simulation also tested my patience, as I could have improved earnings with better timing when purchasing. Overall, my portfolio showed promise and success throughout the course of the simulation and my investment strategy was extremely effective.

1

II.

ANALYSIS OF PORTFOLIO PERFORMANCE Between September and December, my portfolio was able to thrive in an uncertain and

volatile market, achieving a $36 197.15 gain in equity in the period of the simulation. Over this time period, my portfolio also beat the S&P 500 by nearly 32 percent. My investments capitalized on a number of key events including a major August pullback from stocks, the dramatic fall in crude prices, and rising concerns of terrorism in the Middle East and Europe.

There was also on going speculation of the Federal Reserve increasing the key interest rate, due to consistent job growth and improving economic conditions. Volatility was still impeding on the performance of the market throughout September of 2015, but slowly tapered off later into October.

To add growth, I invested in SkyWest Airlines (fig.7) as an opportunity to capitalize on strong results in the airline industry, due to the dramatic fall of crude oil prices. In general, I could not predict the strength or weakness of the earnings, however factors in the industry and the economy such as crude prices led me to believe airlines would perform strong to end 2015.

As earnings season kicked off during October, I added stocks with strong outlooks for success to my portfolio, and judged them using the Relative Strength Index (RSI) and fundamental analysis of the company. Blackberry (fig 4.), Wyndham and Starbucks were all plays on strong outlook and potential for a big surprise in analyst earnings estimates. The market hit a low point in October with volatility peaking and I became mostly invested in stocks near the end of the sell-off in an attempt to capitalize on the bullish sentiment from investors.

Other key investments around the late days in October included SolarCity (fig 6), First Solar and American Airlines.

November proved to be a strong month for the United States dollar and the S&P 500, and I kept with the bullish traits in the market in my portfolio. Strong earnings from Wyndham, SolarCity and SkyWest were crucial to the increase in equity as the month progressed. As for missed earnings, Starbucks and Shake Shack failed to meet my expectations as both met 2

earnings per share estimates, but provided a weak outlook for the following quarter. My position in Starbucks grew rapidly, as it was expected to crush estimates for a 14th straight quarter, yet with the overall economy beginning to look flat, Starbucks did not post the results it had hoped for.

As December came, the outlook of the Federal Reserve to raise the key interest rate became more uncertain, and gold went back on the rise. As the month progressed, the market hit a high with many bullish stocks and sectors falling flat. Many companies with slow growth had P/E ratios that were in the mid-twenties, being overvalued in my mind, led me to the sale of several positions. After the Paris terror attacks and the diminished strength of the USD to close out November, gold became attractive to investors, and my portfolio benefited from the investment in Gold Miner’s ETF’s and sudden price shifts in KaloBios Pharmaceuticals.

Throughout the 3 months of simulated trading; crucial decision making, research and clear goals were essential to the overall success of my portfolio. Determining how to manage positions throughout the simulation was important as I traded throughout the last months of 2015. Earnings were providing most of the markets’ slow momentum during October and November and it was essential to make decisions with good judgement during times of volatility.

The establishment of clear goals was also important to my success, as they provided a pathway to success in the markets.

Notable Gains

Notables Losses

3

Significant Holdings (figure 1.)

Day Purchased*

Day Sold*

September 18th September 21st September 28th October 22nd October 23rd October 29th December 8th December 8th December 11th December 17th

November 9th October 16th December 1st October 23rd November 16th December 8th December 16th December 9th December 11th Held until end of game

Net Gain/Loss ($)

Stock

SKYW SHAK BBRY VRX SBUX FSLR SCTY PBR NUGT/DUST (Short) KBIO (Short)

III.

1 437.15 + 16 (dividend) (1 694.00) 2 677.50 1 956.80 (1 324.47) 1 113.60 3 540.24 1 270.20 5 923.8 21 472.19

RATIONALE

A. Explanation of research conducted prior to selection of stock and/or funds Before putting our capital into any security, I conducted some research about the technical aspects of the stock as well as the underlying fundamentals of the company. I looked for bullish and/or bearish technical indicators with each stock; when used in conjunction, technical indicators helped paint a clearer picture of a company’s direction. I began by consulting charts of a stock to look for areas of support beneath the current price, meaning past share prices that the stock is not expected to drop any further than. I then transitioned to technical indicators including the Relative Strength Index (RSI) and Bollinger Bands to judge the current value and risk presented by the market. I also utilized the P/E ratios of most large cap companies alongside the Commodity Channel Index when trading gold.

Along with a strong technical analysis, a large part of prior research conducted was the use of fundamental analysis. The buy what you know philosphy played a role in fundamental analysis, especially when looking into the operations of the company. Assuring the accuracy and credibility of a company’s history of earnings, and market consistency was always checked before purchasing a stock. For example, I obtained financials of a local Starbucks store for several days and evaluated customer volume in the store, and what customers were buying 4

most during the quarter. I began with the mindset that nobody can predict the markets to a degree of absolute certainty. I was cautiously optimistic with holding long positions in stocks as a strong USD influenced the Fed. With this uncertainty, I felt that with adequate research and analysis of my investments, I could outperform the market by a significant margin.

B. Strategy used to diversify investment portfolio To reduce unnessecary volatility in the short time frame of the stock market game, a diverse portfolio was essential to my success and met my growth value principles. My portfolio was extremely diverse with 37 holdings in stocks, 2 in mutual funds and 2 in bonds. The stocks selected varied in exposure to different countries and a variety of sectors (fig 2,3). I also implemented a market capitalization strategy to balance my holdings in low and high valued companies. I owned small-cap stocks with a high growth potential as well as large-cap stocks to ensure stability across the various sectors. I chose to invest in a variety of different types of stocks then split the types of stocks into their ‘style’ and their attributes which included Fast Growers, Stalwarts, Cyclicals, Turnarounds and Asset Plays. Each type presented a different amount of risk and a different potential for a significant return. Fast growers were often smallcap stocks with greater risk, but high potential for significant returns in a short period of time.

Cyclical stocks performed in predictable cycles based off of earnings and external factors.

Turnarounds provided the opportunity to seek a return from companies that have come close to failure, but with solid analysis, I could find a company ready to rebound. I also chose to own leveraged ETF’s which held a greater risk, and their success depended on my observations that included currencies and commodities linking to the value. Buying securities from a multitude of sectors was the most integral part of my portfolio’s success. Due to the short time frame of the game, I chose to invest primarily in stocks rather than other assets such as bonds and mutual funds. I countered the lack of stability that these assets typically provide with my diversification strategies presented above and using a growth-value mindset, I was able to use diversification to my strategic advantage throughout the trading period.

5



By Economic Sectors (figure.2)



By Type of Security (figure.3)

Fast Grower

ALK, FSLR, SAVE, SCTY, SHAK, SHOP, SKYW, SQ, WYN

Stalwart

AAL, AAPL, DAL, DIS, GE, JNJ, MSFT, NKE, PYPL, SBUX, WMT

Cyclical

BBSI, BUD, C, FB, MAR, RACE, RY, SYY

Turnaround

KBIO, PBR, VRX

Asset Play

ACW, BBRY, GPRO

ETF’s

DUST (short), JDST (short), NUGT, JNUG

Mutual Funds

JPSRX, TDECEX TR_912810QY7 (Treasury), CO_452308AJ8 (AT&T Corporate)

Bonds

C. Description of how selected stocks and funds fit strategy When selecting particular stocks and funds to invest in, following a few key principles were crucial when selecting stock from each group. For the mutual funds chosen, funds with a history of stable and modest growth were chosen to ensure stability in a volatile market. For these reasons, a smart retirement blend and a large cap equity fund were selected to minimize risk while ensuring stable growth. Due to the short time frame for the simulation, bonds were also not a large investment in my portfolio. I selected a treasury bond as another low risk asset with stable growth, but potential to provide a solid return with speculation of rising interest rates.

6

Each stock selected for my portfolio fit into the buy what you know strategy, as well as my diversification efforts through various economic sectors, countries, and market capitalizations.

Each stock was also divided into one of the types listed above (fig. 3). Fast Growers were selected based on a strong fundamental analysis of the companies’ financials, as well as their market capitalization. Each also played into my strategy of market capitalization diversification as each type usually consisted of one cap size over another. Having a market cap. under $20B was a must for these, as well as a strong outlook for potential to become a future stalwart. On the other hand, stalwarts were selected using a strong technical analysis of the company and its operations. Using its P/E ratio and the Relative Strength Index, stock that could provide stability yet modest gains due to being undervalued were often selected. Each stock chosen fit into one of these groups and had a significant impact on my portfolio, whether it be Blackberry and its assets that outweigh the value of the stock, or Disney, which typically posts its best results in the fourth quarter.

IV.

CONCLUSIONS AND FINDINGS A. Explanation of strategy effectiveness The outlined investment strategy I used for the duration of the game proved to be successful

delivering a 36.2 % return in 3 months of trading. As does any successful investor, I overcame challenges along the way by allocating assets effectively between cash and dififferent securities through diversification. Allocating most assets into stock rather than mutual funds and bonds proved to be an aggressive strategy that yielded high returns throughout the course of the simulation.

Following the advice of Peter Lynch and buying what you know was the trademark of my investment strategy as I typically only purchased companies that I was fimiliar with. As shown later in section V, the companies that proved to be the most successful were ones that I knew from firsthand experience or was following for an extensive time period. These companies were 7

the staples of my portfolio and provided a structure for the rest of the returns received.

Diversifying through different economic sectors helped my portfolio maintain needed stability when the market lost nearly 5% of its value in October, while I managed minimal losses.

Following my investment strategy was crucial to success, but not following my own strategy was also key. Sometimes breaking your own rules is important to overall success, as many investors advise. Examples were when I purchased Petrobras as well as the gold miner ETF’s. I broke my buy what you know philosophy due to the substantial evidence to suggest appreciation in the price of these securities. Leveraged ETF’s can often be unpredictable, but through technical indicators and factors in the United States economy, going bull on gold was the right thing to do. I believed in the growing strength of gold due to the weakening and declining US dollar, and the uncertainty of an interest rate hike by the Federal Reserve.

B. Proposed Changes in Strategy for Future Investments Although my portfolio was prosperous throughout the simulation, there were certainly areas of improvement where I would have changed my investing philosophy. My portfolio contained several risky stocks that could have been detremental to the success of my portfolio.

Companies like Valeant Pharmaceuticals, W & T Offshore and Petrobras presented excellent oppurtunities to be a successful asset in any portfolio, however the risk associated with them should not have been taken on due to the short time frame given for investing and the amount of initial capital provided. A major alteration I would make in the future is too avoid companies like Petrobras, where there was limited access to underlying factors affecting the companies share price (financials, operations, etc.). In this case, It was difficult to understand their current situation due to their location, and that I had never directly experienced the company. Using a wider selection of techinal analysis and charts when researching a stock is also one change I would make, as the indicators I chose to sometimes did not provide value to the research being conducted.

8

In future investments, I would also try to limit the amount of trades placed over the 3 month period. With such a short time period to invest, holding stocks for a short period of time was often the case. However each trade also cost 1% of the shares purchased as commission, which I paid over $15 000 in over the course of the simulation.

Lastly, I believe I could have excercised more of a certain degree of patience when investing, especially during the beginning of the simulation. My portfolio did not lose substantially due to a lack of patience, but had I had more of it, a greater number of my investments could have been more profitable (eg. fig. 7). Waiting to purchase until the stock had hit a low or waiting longer to sell a position could have provided my portfolio with better returns and higher quality investments.

Overall, I was extremely pleased with the way my portfolio performed over the duration of my investing. Regardless of some of the flaws that I have noticed with our portfolio I can still be proud knowing that I performed well and fundamentally executed a good strategy with a high degree of effectiveness. The things that can and should be improved upon would not make sweeping changes but rather just streamline the strategy used. The key improvements for me are patience, reducing riskier investments, and keeping better track of commission expenses.

CHARTS/DIAGRAMS OF PORTFOLIO PERFORMANCE Majority of holdings bought

Figure.4

Majority of holdings sold

Dividends received

Blackberry (BBRY) 8.5

8

Value ($)

V.

7.5 7 6.5 6 5.5

9

Figure.5

Value ($)

KaloBios Pharmaceuticals (KBIO) - SHORT 45 40 35 30 25 20 15 10 5 0

Figure.6

SolarCity (SCTY) 58

Value ($)

53 48 43 38 33 28 23

Figure.7

SkyWest Airlines (SKYW) 22

Value ($)

21 20 19 18 17 16

10

Figure.8

Value ($)

Shake Shack (SHAK)

VI.

55 53 51 49 47 45 43 41 39 37

BIBLIOGRAPHY

Google Finance: Stock market quotes, news, currency conversions & more. (n.d.). Retrieved April 3, 2016, from http://www.google.ca/finance

NASDAQ's Homepage for Retail Investors. (n.d.). Retrieved April 4, 2016, from http://www.nasdaq.com/

Lynch, Peter, and John Rothchild. One up on Wall Street: How to Use What You Already Know to Make Money in the Market. New York: Simon and Schuster, 1989.

Graham Benjamin. The Intelligent Investor: A Book of Practical Counsel. New York, NY: Harper & Row, 1985.

Leveraged & Inverse ETFs | Alternative Mutual Funds | Direxion. (n.d.). Retrieved April 2, 2016, from http://www.direxioninvestments.com/

11