Investments Essay, Research Paper

Bob Neiswonger

Investments T 6:30

Professor Schadler

Stock-Trak: Project Part II

The Stock-Trak investment simulation program began on August 30th, which marked the first day that trading was allowed. A total available amount of $300,000 was used for investing. The objective of this assignment is to maximize the value of the portfolio through November 19th, which was the last day of the trading period.

I began the process of choosing specific investments for my portfolio by taking an asset allocation questionnaire (appendix I). Since the objective was to maximize portfolio value, I made sure for each question asked that I chose the answer with the most risk. My reasoning being that having my money in risky investments will on average lead to a greater return than investments with lower risk. The objective did not mention risk tolerance, and I wanted a portfolio composition with a good chance of earning exceptional returns. After completing the survey, I ended up with an aggressive asset allocation plan (appendix II). This stated that 85% of my money should be invested in stocks, while the remaining 15% of my money should be invested in bonds.

I had several basic strategies that I felt would lead to my portfolio having high returns. First I felt that it was important to invest early on in the trading period so that I would not miss any positive returns the market might yield (I was fully invested by September 10th). Secondly I wanted to buy all my investments and hold them because I believe that this strategy will best maximize returns. Timing the market I felt was lucky and too complicated. Finally I wanted to make sure that I bought at least 25 separate assets, so that I could be properly diversified.

I used the Wall Street Journal to pick my individual stocks. My personal strategy was to pick stocks that were at or near their 52 week low in price. I felt that corporations, especially those that were well known, at or near their 52 week low in price would gain momentum. Furthermore I made sure that I was choosing companies that were in diverse industries. I also included some international companies as well as some relatively smaller firms to add to my portfolio. My strategy on buying bonds was to buy four bonds that had different maturity dates, and came from different issuers such as corporate and government bonds.

After I used the Wall Street Journal to find stocks that were near their 52-week low I monitored my stocks by viewing some time series charts that I found on the stocktrak homepage. I will now go into detail on each of my 29 buy decisions, all of them occurring on September 10th and each being held for 70 days. I organized my investments in order from the highest annualized holding period returns to the lowest, starting with stocks and finishing with bonds.

Rainbow Technologies Inc.Ticker Symbol: RNBO Shares Bought: 725

Beginning Stock Price: $13.2500Ending Stock Price: $20.5000

Holding Period Return: 1.5472Annualized Holding Period Return: 8.7343

While looking at Rainbow Technologies I noticed that it was a volatile stock. It was priced over $26 per share in early January. It then decreased to below $10 per share in July during its 52 week low. It continued to rise quite nicely after I bought it.

Ameritrade Holding CorporationTicker Symbol: AMTD Shares Bought: 400 Beginning Stock Price: $18.9375Ending Stock Price: $28.1250

Holding Period Return: 1.4851Annualized Holding Period Return: 6.8642

Ameritrade is also a very volatile stock, which had just begun to get recognized by a lot of traders last year. Its price zoomed up from below $5 per share in April of 1998 to over $60 per share in January of this year. The stock has since decreased steadily until right before I bought it. The stock is still rising and at last look is over $30 per share.

Sony CorporationTicker Symbol: SNE Shares Bought: 75 Beginning Stock Price: $130.8125Ending Stock Price: $176.6250

Holding Period Return: 1.3502Annualized Holding Period Return: 3.7858

Sony’s stock price was on a small downturn of a largely upward track when I bought it. At the beginning of the year the stock price was at $70 per share. It has since increased and is still increasing. I thought that this would be a good international stock to invest in even though it did not correctly fit my investment criteria.

Toys R Us IncorporatedTicker Symbol: TOY Shares Bought: 600 Beginning Stock Price: $14.7500Ending Stock Price: $17.1875

Holding Period Return: 1.1653Annualized Holding Period Return: 1.2199

Toy’s R Us had a stock price of over $30 per share in April of 1998. It dropped to around $14 per share in early January of 1999, and went up to over $24 per share in May before dropping back to $14 per share when I bought it.

Edgar Online IncorporatedTicker Symbol: EDGR Shares Bought: 1000 Beginning Stock Price: $7.6250 Ending Stock Price: $8.7500

Holding Period Return: 1.1475Annualized Holding Period Return: 1.0495

Edgar Online just began public trading in July of this year. Initially the stock price shot up to over $21 per share before declining to just about its lowest price ever when I bought it. During the trading period it got up to around $19.50 per share before it started declining again.

Craftmade International Inc.Ticker Symbol: CRFT Shares Bought: 775 Beginning Stock Price: $8.2500Ending Stock Price: $9.3438

Holding Period Return: 1.1323Annualized Holding Period Return: .9140

Craftmade International had a stock price of over $17 per share in January of this year. It declined to below $7 per share just before I bought it. The price increased steadily during the investment period.

Dollar Tree Stores IncorporatedTicker Symbol: DLTR Shares Bought: 225 Beginning Stock Price: $35.3750Ending Stock Price: $39.9375

Holding Period Return: 1.1290Annualized Holding Period Return: .8824

Dollar Tree was selling for $45 per share in early January before falling to $29 per share in April. It then went up to $46 again before decreasing to $35 where I bought it. Initially it was my best pick as the price soared to $45 per share in just a few weeks before falling back to $39 per share.

Tyson Foods Incorporated Ticker Symbol: TSN Shares Bought: 525 Beginning Stock Price: $15.7500Ending Stock Price: $17.5635

Holding Period Return: 1.1151Annualized Holding Period Return: .7652

Tyson Food’s is a very stable stock that has had few upturns and downturns in the past year. The stock price was near its year low and it was cheap so I thought it would be a good fit in my portfolio.

Coca Cola CompanyTicker Symbol: KO Shares Bought: 175 Beginning Stock Price: $54.9375Ending Stock Price: $60.5000

Holding Period Return: 1.1053Annualized Holding Period Return: .6535

Coca-Cola stock was selling for $85 per share in August of 1998. It reached its two year low of just under $50 per share in early August of 1999. Because Coca-Cola is such a huge corporation I was pretty confident that the price would go back up. The week after the investment period Coca-Cola was selling for $68 per share.

Quixote CorporationTicker Symbol: QUIX Shares Bought: 775 Beginning Stock Price: $14.9375Ending Stock Price: $15.5000

Holding Period Return: 1.0377Annualized Holding Period Return: .2126

Quixote Corporation is a low priced foreign stock that was very close to its 52 week low. I thought that it would be a good buy for international diversification even though I had never heard of the company.

Wachovia CorporationTicker Symbol: WB Shares Bought: 125 Beginning Stock Price: $80.3750Ending Stock Price: $82.000

Holding Period Return: 1.0207Annualized Holding Period Return: .1100

Wachovia’s stock reached its 52 week low of just under $76 per share in August. While I owned it the price shot up to over $88 per share and then went back down again. Dividends were received for this stock in the amount of .5400 per share or $67.50 for the 125 shares.

Arizona Public Service CompanyTicker Symbol: AZD Shares Bought: 400

Beginning Stock Price: $25.5000Ending Stock Price: $25.375

Holding Period Return: .9951Annualized Holding Period Return: -.0253

This, like most utility companies, is a very steady stock with few fluctuations. Its 52-week high occurred last October at a price of $27.50 per share. It declined to right above $25 per share when I bought it. Nothing much happened at all for this stock.

Heinz H J CompanyTicker Symbol: HNZ Shares Bought: 200

Beginning Stock Price: $43.5000Ending Stock Price: $42.6250

Holding Period Return: .9799Annualized Holding Period Return: -.1005

Heinz’s stock was selling for over $60 per share for much of the month of October 1998. I bought the stock right at its 52 week low. I was initially happy as the stock price rose to $48 per share, but then it went back down again.

Sears Roebuck & CompanyTicker Symbol: SShares Bought: 250

Beginning Stock Price: $33.5000Ending Stock Price: $32.6250

Holding Period Return: .9590Annualized Holding Period Return: -.1289

Sears Roebuck’s shares sold for around $65 per share in May of 1998. In April of 1999 it was selling for around $52 per share before dropping to its 52 week low of $30 per share roughly a week before I bought it. It initially went up a little, before declining to $28 per share, and is now on an upturn again.

Nordstrom IncorporatedTicker Symbol: JWN Shares Bought: 325

Beginning Stock Price: $26.9375Ending Stock Price: $24.5000

Holding Period Return: .9095Annualized Holding Period Return: -.3901

Nordstrom’s stock was selling for over $35 per share in July. I bought Nordstrom’s stock at its 52 week low. It kept declining after I bought it to around $22 per share. It has since started increasing again, but not enough to help get a positive return.

Barnes & Noble IncorporatedTicker Symbol: BKS Shares Bought: 425

Beginning Stock Price: $25.0000Ending Stock Price: $22.4375

Holding Period Return: .8975Annualized Holding Period Return: -.4310

Barnes and Noble’s stock sold for almost $48 per share in early January. It went down to around $20 per share in July, which was at its 52 week low. I felt confident that this stock would continue its upward swing in the fall. The stock price, unfortunately, slowly declined after I bought it.

Rambus IncorporatedTicker Symbol: RMBS Shares Bought: 125

Beginning Stock Price: $91.6250Ending Stock Price: $82.1250

Holding Period Return: .8463Annualized Holding Period Return: -.4349

Rambus Incorporated’s stock price was over $115 per share in early July. Right after I bought it, the price decreased all the way to $60 per share. It then went up to over $100 per share before declining again.

Eastman Kodak CompanyTicker Symbol: EK Shares Bought: 150

Beginning Stock Price: $73.8750Ending Stock Price: $65.6250

Holding Period Return: .8883Annualized Holding Period Return: -.4607

I had a good feeling about Eastman Kodak as I saw that their stock price had fell $5 per share in the week before I bought it. After I bought the stock, it continued a slow and steady decline.

Kellogg CompanyTicker Symbol: K Shares Bought: 275

Beginning Stock Price: $38.7500Ending Stock Price: $34.3750

Holding Period Return: .8871Annualized Holding Period Return: -.4646

Kellogg had its 52 week low of $32 per share a month before I bought it. After I owned it the stock price went up to $41 per share and then steadily declined to give me a loss.

Lance IncorporatedTicker Symbol: LNCE Shares Bought: 650

Beginning Stock Price: $12.7500Ending Stock Price: $11.0000

Holding Period Return: .8627Annualized Holding Period Return: -.5369

Lance’s stock has declined steadily over the last year since its 52 week high of around $30 per share in July of 1998. I bought the stock right at its 52 week low. Unfortunately the stock has continued to fall ever since.

Allstate CorporationTicker Symbol: ALL Shares Bought: 275

Beginning Stock Price: $33.8125Ending Stock Price: $28.0625

Holding Period Return: .8299Annualized Holding Period Return: -.6216

Allstate had a high price of over $52 per share in July of 1998. After a sharp decrease in April, the stock price has continued to steadily decline until I bought it. Share prices dipped to below $24 in October before increasing to $28.

Carmike Cinemas IncorporatedTicker Symbol: CKEShares Bought: 725

Beginning Stock Price: $13.3750Ending Stock Price: $10.1875

Holding Period Return: .7617Annualized Holding Period Return: -.7582

Carmike Cinema has been in decline for quite some time. I bought the stock almost exactly at its 52 week low down from a high of $22 per share in May. The stock declined steadily during the time I owned it.

Polaroid CorporationTicker Symbol: PRD Shares Bought: 425

Beginning Stock Price: $29.9375Ending Stock Price: $20.0000

Holding Period Return: .6681Annualized Holding Period Return: -.8779

A few days after buying Polaroid, which was near its 52 week low, the stock plunged to under $20 per share. It has stayed that way ever since.

Kroll O’Gara CompanyTicker Symbol: KROG Shares Bought: 500

Beginning Stock Price: $24.0000Ending Stock Price: $15.7500

Holding Period Return: .6563Annualized Holding Period Return: -.8888

Kroll O Gara’s shares were selling for over $40 per share in January of this year. The stocks 52 week low, which was $20 per share, occurred about 15 days before I bought it. I was hoping that this stock was on the upward trend, but after reaching $27 per share it fell sharply.

Xerox CorporationTicker Symbol: XRX Shares Bought: 200

Beginning Stock Price: $47.6875Ending Stock Price: $28.6875

Holding Period Return: .6016Annualized Holding Period Return: -.9293

Xerox’s stock had not been trading at a price as low per share as I bought it for since October of 1998. In July the price per share of Xerox was over $60. In early October very heavy trading sent the stock in a spiral to under $25 per share.

When buying bonds I did not realize that the commissions charged would be so much higher than stocks. I bought 1 Treasury note and 3 corporate bonds each maturing at different times. The interest received on all 4 of my bonds totaled $1082.00. I estimated the amount of interest given for each bond by using its coupon payment.

Bond Exxon 6s 05 Ticker Symbol: B-XON Number Bought: 10 Beginning Bond Price: $981.30 Ending Bond Price: $972.50

Holding Period Return: 1.0022 Annualized Holding Period Return: .0115

Bond CompUSA 9 ? 00Ticker Symbol: B-CPU Number Bought: 10 Beginning Bond Price: $998.80 Ending Bond Price: $998.80

Holding Period Return: 1.0182 Annualized Holding Period Return: .0986

Bond ChaseM 6 1/8 08 Ticker Symbol: B-CMB Number Bought: 10 Beginning Bond Price: $938.80 Ending Bond Price:$937.50

Holding Period Return: 1.0125 Annualized Holding Period Return: .0670

Bond July 02 6 Ticker Symbol: B-T026 Number Bought: 10 Beginning Bond Price: $1,006.5625 Ending Bond Price: $1,001.25

Holding Period Return: 1.0142 Annualized Holding Period Return: .0555

In retrospect I believe I should have chosen some stocks that had riskier betas in addition to having a risky asset allocation. I was sad that only 11 of my 25 stock selections had positive returns. My disappointment was increased whenever I looked at the class rankings. I thought that my investment strategies would produce good returns, but my total return for the investment period was -1.16%. By comparison the S&P 500’s return during that same time was 7.40%. Overall I feel my investment strategy would have worked if the time frame would have been longer. Unfortunately many of the stocks that I bought at or near their respective 52-week lows, kept right on declining. Most of my picks were on the rise over the last month as I steadily began to make back some of the money that I had previously lost.