1

Table of Contents

I. TRADERS LOG.....................................................................................................................
II. ANALYSIS..............................................................................................................................
1. Trading strategy............................................................................................................
Risk hedging.................................................................................................................
Best trade......................................................................................................................
Worst trade...................................................................................................................
2. Performance valuation.................................................................................................
III. LESSONS LEARNED.........................................................................................................
1. Be aware of trading lag problem.................................................................................
2. Its time to take real profit/ cut the loss......................................................................
3. Combination of analysis...............................................................................................
4. Referencing from neighbors........................................................................................
APPENDIX..................................................................................................................................
REFERENCE..............................................................................................................................

I. TRADERS LOG
The Investopedia Game was activated on September 18th and ended on November 13th.
Followings are summary of our final results and weekly trading activities during 8 weeks:

Market value portfolio at the beginning $500,000

Market value portfolio at the end
$406,370.54
Overall return
-18.73%
Number of stocks
51
Number of transactions
123
Closing rank
46th
Table 1: Summary of weekly trading activities
Week 1
7
$500,090.97

Week 2
21
$503,490.54

Week 3
0
$503,773.54

Week 4
7
$503,150.16

$90.97

$3,399.57

$283.00

($623.38)

Number of transactions
Account values

Week 5
9
$482,637.25

Week 6
11
$448,394.26

Week 7
29
$452,326.55

Week 8
39
$406,370.54

Accumulative gains/ losses

($20,512.91) ($34,242.99)

$3,932.29

($45,956.01)

Number of transactions
Account values
Accumulative gains/ losses

Figure 1: Account value during 8 weeks

Account value
$500,000.00
$480,000.00
$460,000.00
$440,000.00
$420,000.00
$400,000.00
41907
41921
41935
41949
41900
41914
41928
41942
41956

II. ANALYSIS

Account value

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1. Trading strategy
The strategy we applied mainly was Bottom up approach. We tried to forecast the price
movement based on some signals from Technical analysis.

Risk-hedging
We had already applied the Buy at Stop and Cover at Stop orders for stock PT, NETE,
CRTO, etc to hedge the no-limitation changes in stock prices.

Best trade

Figure 2: Portugal Telecom (PT) Stock Price Chart

Our biggest gain was on Portugal Telecom (PT) stock. In 20th October, the price trend of PT
stock was decreasing under its supporting line. Expecting that the stock price would bounce
back soon, we decided to buy 100,000 stocks at $1.40 then sell right after that when the stock
increased to $1.42. One day after that, PT stock decreased to $1.32. We took this opportunity
to buy more $120,000 shares. We then sold these stocks little by little when the stock price
went up to $1.39, $1.41 and $1.45. Our total gain was $14,144.47.

Worst trade

Figure 3: Orexigen Therapeutics (OREX) Stock Price Chart

Our biggest loss was trading on Orexigen Therapeutics (OREX) stocks. In 10th November,
observing that OREX stock price increased 26% from $4.05 to $5.12. This was a
considerable fluctuation. We expected that this trend would adverse soon. Therefore, in 11th
November, we short sold 40,000 stocks at $5.04. Unfortunately, in 12th November, the stock
price continued to rise further. This was nearly the last day of the game. Wanting to stop
further loss, we had to cover the stock at the price of $6.04. In total, we lost $42,039.98.
2. Performance valuation
- Elements of calculations: (Detailed calculations are shown in Appendix)
For calculation of risk adjusted returns, we used annualized holding period return (HPR) and
annualized standard deviation.
The market return was based on return of S&P500 Indices. Since we traded mainly on
S&P500 stocks, we use these indices as our proxy. We then calculate the HPR for S&P500
and used the Index model to yield beta figure.
The risk free rate chosen was 3-month Treasury bill (0.02%) since this rate was widely
accepted as risk free.
- Sharpe ratio:

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Sp =

r pr f
2.48 0.02
=
10.657

= -23.35%

Sharpe ratio indicates that for each percentage of total volatility, our portfolio loses -23.35%
of excess return.
- Treynor ratio:

Tp =

r pr f
p

2.48 0.02
69.2935

= 3.61%

Treynor shows that for each percentage of systematic risk, our portfolio gains 3.61% of
excess return
- Jensen ratio:
p

r p

-[

r f

r m

r f

)] = -2.48% [0.02% + 69.2935% (0.2032% -

0.02%)] = -2.371%
Jensen ratio indicates the average loss on our portfolio over that predicted by the CAPM is
2.371%.

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III. LESSON LEARNED:
1. Be aware of trading lag problem:
For the stocks whose prices fluctuate continuously during each trading session, there is a risk
of trading lag which can make the adverse result from expectation.
Various types of orders should be used instead of market order so that the desired price of
orders can be ensured.
2. Its time to take the real profit/ cut the loss:
We were too optimistic about some stocks that we kept them for several days, expecting that
they will gain after gain. In fact, there is no stock that would increase in price continuously.
Especially for trading in short time horizon, we should sell the stock at appropriate time after
observing an acceptable gain. The gain will be real only when we sell the stock.
We also were too optimistic when trying to retain the stocks, hoping it would increase in
price so that we can offset some loss. In fact, we should set limit loss for stocks, for example,
a loss of $0.5 per stock meaning that if stock price reduces up to $0.5 at any time, we should
sell it immediately instead of keeping and hoping it recover in the future.
3. Combination of analysis:
For future investment, a further and professional analysis should be carried out for better
performance. Fundamental and technical analysis can be combined so that we each stock can
be considered in terms of macro factors and specific factors.
4. Referencing from neighbors:
While many of our friends suffer huge loss from accidental increase of LAKE, we had
quickly take the opportunity to short sell this stock even we had never heard about LAKE
before. And after that, we get the second largest gain from LAKE. Therefore, thank to my
neighbors, we have a great foreseen opportunity and we have learnt that relationship with
other investors is very important in stock market.

APPENDIX
1. CALCULATION OF HDR AND SD:
HPR =

End of period valueInitial value

=
Initial Value

$ 500,090.97 $ 500,000
$ 500,000

HPR1=

$ 503,490.54$ 500,090.97
$ 500,090.97

HPR4 =
HPR5 =

HPR7 =

$ 503 , 773 .54$ 503,490.54

$ 504,490.54

= -4.08%

HPR6 =

= - 7.09%

$ 452,326.55$ 448,394.26
$ 448,394.26

= 0.88%

HPR8 =

= -10.16%

R 1+ R 2+ R 3+ R 4+ R5+ R 6 + R 7+ R 8
8

1
0.02

2
0.68

= 0.06%

= -0.12%

= -2.48%

Table 1: Summary of weekly R and

Week
R

= - 18.73%

HPR2=

= 0.68% HPR3=

$ 482,637.25$ 503,150.16
$ 503,150.16

$ 406,370.54$ 452,326.25
$ 452,326.25

= 0.02%

$ 503,150.16$ 503,773.54
$ 503,773.54

$ 448,394.26$ 482,367.25
$ 482,367.25

$ 406,307.54$ 500,000
$ 500,000

3
0.06

4
-0.12

5
-4.08

-2.48%

6
-7.09

7
0.88

8
-10.16

(R )
i=1

n1

( 0.02 + 2.48 ) + ( 0.68 + 2.48 ) + ( 0.06 +2.48 ) + (0.12 +2.48 ) + (4.08 +2.48 )
+ (7.09 +2.48 )2 + ( 0.88 +2.48 )2 + (10.16 + 2.48 )2
81

= 4.18%

Calculation of HPR
HPR8 weeks = -18.7%

Calculation of
8 weeks = 4.18%

Annualized return

Annualized standard deviation

= (1-18.07%)52/8 1 = -74.017%

= Standard Deviation * SQRT(N)

= 4.18% *

52/8 =10.657%

2. CALCULATION OF BETA:
Week
1
2
3
4
5
6
7
8

Market HPR
-2.2557%
-1.0081%
-0.9228%
-3.3943%
4.7274%
2.2467%
1.8329%
0.3998%

Portfolio HPR

0.2032%

-2.48%

0.02%
0.68%
0.06%
-0.12%
-4.08%
-7.09%
0.88%
-10.16%

Dependent Variable: EXCESS_RP

Method: Least Squares
Date: 11/17/14 Time: 17:43
Sample: 1 8

Excess Rp
-0.002%
0.660%
0.036%
-0.144%
-4.097%
-7.115%
0.857%
-10.180%

Excess Rm
-2.276%
-1.028%
-0.943%
-3.414%
4.707%
2.227%
1.813%
0.380%

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Included observations: 8
Variable

Coefficient

Std. Error

t-Statistic

Prob.

C
EXCESS_RM

-0.023711
-0.692935

0.014382
0.579185

-1.648592
-1.196396

0.1503
0.2767

R-squared
Adjusted R-squared
S.E. of regression
Sum squared resid
Log likelihood
F-statistic
Prob(F-statistic)

0.192611
0.058046
0.040569
0.009875
15.43725
1.431364
0.276669

Mean dependent var

S.D. dependent var
Akaike info criterion
Schwarz criterion
Hannan-Quinn criter.
Durbin-Watson stat

-0.024980
0.041800
-3.359312
-3.339452
-3.493263
2.382326

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REFERENCES

http://us.spindices.com/indices/equity/sp-500
http://www.federalreserve.gov/releases/h15/update/
http://www.investopedia.com/simulator/portfolio/