FIN 4504 Trading Simulation

Trading Simulation Written Assignment

This report will analyze the portfolio I led over the time of this spring semester 2023. For

annualization purposes, I will consider a 3-month period for the overall return of the portfolio.

In addition, I will focus on the benchmark performance, the overall composition of my portfolio,

and the trades made in terms of risk and return.

The first trade recorded for my portfolio was a long position in the stock of Bank of America on

January 13, the last recorded trade was a position in the future of Brent Crude Oil on April 14

and the end date was April 18. During this 3-month period, my portfolio had a return

percentage of 2.66%. This is compared to the SPY ETF which ended the same 3-month period

with a return percentage of 5.70%, meaning that the SPY ETF was around 2.15 times more

profitable than my portfolio over the same time period. Annualizing the return percentage over

the 3-month period, my portfolio would have a return percentage of 10.64% per year.

Looking at the overall composition of my portfolio, it consists mostly of big tech companies like

Apple, Google, and Amazon, two banks with Deutsche and Bank of America being completed by

Walt Disney, Proctor & Gamble, and two ETFs- IVV and ICLN. My strategy was to use the

beginning of the year rally of the tech companies which was caused by unexpectedly good

fourth-quarter reports of 2022 for Apple and Google. Therefore, I invested early in long

positions in which ultimately paid off the most with percentage returns of 21.10% and 16.45%.

On the other side, I was expecting the FED and the Central Bank of Europe to keep fighting

inflation and therefore raising interest rates for at least until mid-year which motivated me to

invest in long positions for DB and BofA. Instead of profiting from the interest rate risk, the

bank collapse of the Silicon Valley Bank caused bank stocks in the USA and also Europe to

drastically decrease causing a loss on both stocks of 13.08% for DB and 10.59% for BofA.

In addition, I was able to profit from a short-term increase in the crypto market, investing in a

long future of the company Coinbase and selling it 2 days later which brought a profit of more

than $20,000 from this trade.

The main source of my portfolio was unsystematic risk, as shown by the big profit through the

tech companies but also the big loss through the banking sector stocks. Rethinking the main

trades, I did over this period of time I would do some things differently with the knowledge I

gained throughout this course. First of all, I would diversify my portfolio much more so that the

overall performance of my portfolio would be less affected by single events of unsystematic

risk. As mentioned, my portfolio depended too much on specific sectors like the tech or bank

sector. Going back, I would include more different groups of equities, bonds, and also

commodities. Another point I would do better is to know when to sell a stock. Too many times I

was thinking that if a was losing money with an asset, I will wait until I get my money back to

sell it. On the opposite when I was profiting from an asset, I wanted more and kept it until the

price fell again and I missed the best time to sell it.

In conclusion, I believe that my profits and losses are mostly based on a combination of skill and

luck especially when it comes down to the execution of the trade. Many times, I think that I

analyzed the market situation correctly and that I had the right base idea about an asset and

how it will develop in the future. Ultimately, I was missing either the timing of when it is the

best time to buy and sell or how to find the best instrument to achieve the highest profit for my

desired trade.

Sources

https://www.stocktrak.com/account/portfoliosummary

Chen, James . "What Is Unsystematic Risk? Types and Measurements Explained." Investopedia,

22 Feb. 2023, www.investopedia.com/terms/u/unsystematicrisk.asp.

Gilson, Dave. "Many US Banks Face the Same Risks That Brought down Silicon Valley Bank."

Stanford Research, 21 Mar. 2023, siepr.stanford.edu/news/many-us-banks-face-same-risks-

brought-down-silicon-valley-bank

Chen, James. "Interest Rate Risk Definition and Impact on Bond Prices." Investopedia, 25 Sept.

2022, www.investopedia.com/terms/i/interestraterisk.asp.

Cote, Catherine. "HOW TO DIVERSIFY YOUR PORTFOLIO WITH ALTERNATIVE INVESTMENTS."

HBS, 28 Sept. 2021, online.hbs.edu/blog/post/how-to-diversify-your-portfolio.