Bronson Bowe
FIN 3810
Professor Zhao
The Investment Game Project
Throughout this entire semester I learned and applied many different strategies when it came to investments. Though this class only lasted a semester I approached my million-dollar portfolio as if these were long term investments that I was making. In this paper I will cover the different methods I used to pick the different stocks which I picked. Among those techniques were long-term investing, the passive strategy (buy and hold), and the active strategy (market timing). I have always wanted to play with fake money on an actual stock market to see how I would fare, and this investment game project was exactly that for me.
My main strategy which I used when making my investments was the “buy and hold” technique. My great uncle is a financial advisor for a lot of people in my family and he always told me that investment money is money that you plan on not touching for 10 years. So with that in mind I began to make my stock purchases with the long run in mind. My first big purchase was Amazon for 100 shares. Though Amazon has already reached groundbreaking heights I don’t see it getting any lower any time soon. Another reason as to why I made the move to get Amazon a week before black Friday was because I believed that Amazon would see a potential spike around the holiday season which could benefit be in a short sale scenario. Though I am down on my portfolio at the moment I still look at my investment as a very smart one for the future. At the same time, I also bought 100 shares of Nvidia because with the inevitable increase of technology, Nvidia will gain more and more capital. Also, at the time of my purchase Nvidia was at its 52-week low and it was the perfect time to buy. There are two main aspects to this buy and hold strategy that I used; 1) buy in large quantity, and 2) do NOT sell no matter how good I am doing.
My next big purchases were initiated as an active strategy, however they are turning more and more into a passive strategy because of the slow economy. When I purchased Pacific Gas and Electric Company (PG&E), I had the raging California wildfires in mind. Because of all of the impact that Californians were facing I was expecting somewhat of a spike in their stock. Though the stock did have a slight spike, it was not enough for me to sell which ultimately is why I still own the 100 shares that I bought back in November. Next, in order to maintain a diversified portfolio, I wanted to buy a good amount of a biotechnical company and Cara Therapeutics was the perfect fit in the market at the time. With a lot of room to grow, Cara Therapeutics was one of my safer purchases. Though I have not seen the exact growth that I was looking for, I still intend to hold on that particular stock until it does reach the levels I believe it can in the next 3-5 years. This is why the $19,000 I spent on 100 shares does not worry me considering I believe I can receive a large ROI relatively soon.
For my next big purchases I started to think about the inevitability of the future. Though I don’t exactly wish this next stock would do great, I believe that it can still do very well. This might sound confusing, however that is the case whenever one buys stock into a “military” type stock. When I purchased 1000 shares of Kratos Defense and Security Solutions, I had the inevitable belief that we are heading toward another large war. Even if we never see that war, the demand for increased cyber capabilities will forever increase. Also, as seen in other industries such as the automobile industry (i.e. Jeep and Hummer), if these defense systems are successful enough, large corporations will begin to use these same strategies and engineering services in their corporate world. Though this was one of my large purchases I believe that I will receive an above average ROI within the next 10 years. My next purchase had the same idea on inevitability in mind. When I bought a total of 55 bitcoin, totaling over $200K, I had the idea in mind that it is only a matter of time before it rises back up to its previously high. This stock might be a very seemingly volatile one because it is hard to understand, however, with the ever-increasing need for technology around the world, I firmly believe that the demand for cryptocurrencies will rise with that.
The previously listed stocks were my main big purchases with which I intended to sit on for a duration that would outlast the semester sevenfold. However, I did make some other small key purchases that helped meet my class requirements as well as round out my portfolio. In order to diversify my portfolio and create a safe net for my rather aggressive fund, I purchased 5 bonds of Berkshire Hathaway and a mutual fund with American Funds The Income Fund of America (AMECX). These were relatively small compared to my other purchases however these were very important to maintaining a diversified portfolio. I ultimately made these purchases because they were very recognizable companies that have a long track record of bringing a strong ROI to the buyers. Though I did not expect anything immediate out of these funds, it was interesting seeing how bonds and mutual funds work inside of StockTrak.
Throughout the entire semester I experienced the usual sets of highs and lows when it came to checking my account, however for the most part it stayed very consistent. The first couple of weeks my portfolio was steadily underperforming. It never got lower than -2% however it was consistently not doing a great job. It was until my aggressive purchase of bitcoin that my stock portfolio saw a pretty fast turnaround from -2% all the way up to almost +2%. This brought me to my highest ranking in the class and put me within the top 7 students for the competition. This was short-lived sadly, because the next business day after the holiday my stock dropped all the way back down the range where it is at now; in the -2% to -4% range. Though that is very miniscule at the moment it could mean a lot in the coming weeks if things don’t turn around. These rough last couple weeks in the stock market has ultimately led me to finish with a ranking in the bottom third of the class. Though I was hoping to finish a little stronger, I truly believe that my investments were smart in the long run and they will eventually pay off if this competition were to continue. All in all, this was a very fun exercise that I have always wanted to do. I would parallel it to playing with cards vs. gambling. One can be very fun and the other can be very stressful even though it’s the exact same game. With this exercise I was able to take the pressure off and just focus on playing the game the way that I believed was best. That being said, this project taught me that I still have a lot to learn if I want to make investments with my own money in the future. More importantly, the most important thing that I learned was that I need to hire a financial advisor if I have a savings fund of a million dollars because I do not trust myself investing that kind of money.
In The Essays of Warren Buffett: Lessons for Corporate America, Lawrence A. Cunningham combines a collection of Warren Buffett’s essays which are now used in business classrooms around the world. The chapter which I chose to summarize is the chapter entitled “Corporate Finance and Investing”. The key to Warren Buffett’s brilliance is in his ability to simplify and even oversimplify certain things. For example, Buffet’s key to successful investing is to purchase shares of businesses that are deemed good at certain times in which there are large discounts from business value in regard to market price. Though this may seem like a very elementary topic, for many scholars of this day, this seemed like it was too easy and missing some points. However, in its simplification this was genius in its own way. It allowed buyers to separate the emotions from a purchase and just focus on the businesses and their values in order to truly see their worth. The key to being a wise investor is in insulating oneself away from the headaches that other investors create which ultimately can make the proper decisions individually and especially when the market is in a declining manner. If investors aren’t sure if this is true or not, the market will always validate their decisions. Another point that Warren Buffett makes is that investors should focus more on finding the right company and sticking with it rather than focusing on the short-term jump from one company to another. He paralleled it with relationships and essentially said that one needs to focus on the “romance” and not the “one-night stands”. Though he does admit that most of the time he does have higher profits from the active trading, he is a firm believer in his buy and hold strategy. Another very important point that Warren Buffett makes is that investors should stick to what they know rather than focus on creating a diversified portfolio. He says this because he ultimately believes that proper investing is individual and differs from person to person. Among other points, Buffett has a strong belief that an investor should always keep in mind the margin of safety when investing.
The most important lesson that I learned from Warren Buffett is his belief in saving early on. It is pretty impressive how much wealth he has accumulated all while taking a different route. He is not the normal cutthroat investor who acts like a shark out to get everyone. His ability to stay true to himself all of these years is by far more impressive than all of the wealth that he has accumulated in my opinion. Moving forward I will try to emulate some of the strategies that Warren Buffett used early on in his life to help get ball rolling. This project has been very eye opening to me and I am eagerly looking forward to what the future holds in my investment career.