The financial markets are one of the most dynamic elements of the U.S. economy. The primary function of the financial markets is to channel funds from individuals, businesses and institutions that have funds to lend or invest to those individuals, businesses and institutions that need funds. For those that have funds to invest, the financial markets provide an opportunity to profit from their investments; for those that need funds, the financial market provides a source for those funds.
The stock market is a key element of the financial markets. This project is designed to provide you with direct exposure to online investment in stocks using the tools available at the How The Market Works web site. (I will abbreviate the site as HTMW in the balance of this document). This site is quite similar to utilizing an online brokerage account. This project provides an opportunity for you to learn how the stock market works by creating a portfolio (or group) of U.S. stocks with the objective of maximizing investment returns (returns: gain or loss on your stock holdings) over a specified period of time. While the project is realistic in many respects, it is confined to a short time horizon, since it has to fit within the semester. Happy investing!!!!
In this simulation, the
companies and their stocks are real, and the prices are current – a true
simulation of the market – you are looking at the market here and now and the
results you achieve represent what would have happened had you actually
invested money in the stocks you chose. You
will be given a hypothetical $100,000 at the outset of the simulation. Your goal is to invest that in stocks and
produce as much wealth as possible by the end of the simulation. More important than how much you make is what you will learn, You can buy stocks and hold them throughout the simulation,
or sell some and buy others, as you see fit, subject to the requirements,
below. Note that a small part of your
grade depends on your success in investing. But I am more interested in your analysis of what you see
during the simulation.
- Creating an account and entering the LIM contest
- Follow the instructions given on the HTMW site to set up an account and to register in the contest I have set up . You can put your cursor on the link, press cntrl and click, or you can copy/paste the link into your browser. Or, you can search for the contest called lim F19 on the HTMW site. No matter how you get there, be sure that you are in the LIM Fall 2019 contest.
- Click sign up and provide the information requested. HTMW walks you through how to set up your account, by providing both video and hard copy. The link below will take you to the Registration and Site Overview video, which should help to get you started. To play the video either click the date that you see, or click the “read more” button. . The link is working as I write this (and, if you scroll down, you will see 2 more useful videos, dealing with “my Portfolio…:” and the other with “Trading stocks”.)
- If the link in “a”, above does not work, you can follow these links on the site to get to it: HTMW site/Education Center/ User Guides. If you scroll down, you will find HowTheMarketWorks videos and beneath that, the HTMW User Guide. In addition to getting your account set up, there are numerous videos on the site that may be useful to you as the simulation progresses.
- If asked for the amount of virtual cash that you wish to have in your account, enter $100,000. I set this as the default for the contest, so it should already “be there”.
- Should you need them, the name of the contest is lim F19. Be sure you are in the contest.
- Trading stocks
- The hard copy manual, see above, provides instructions for trading stocks.
- If you prefer video, there is one in the HTMW Education Center titled Trading Stocks.
- When can I buy or sell stock? NOTE THAT YOU CAN ONLY BUY OR SELL STOCK WHEN THE STOCK MARKET IS OPEN IN NY. THAT IS FROM 9:30 AM TO 4 PM, MONDAY THROUGH FRIDAY. MAKE SURE YOU ALLOW FOR THAT IN CREATING YOUR SCREENSHOTS THROUGHOUT THE SEMESTER.
- I feel clueless!
As you begin, you may be at a loss as to how to choose your stocks. I would suggest the following approach to start. Choose companies with which you are familiar – as a customer, as an employee, from a research paper in another class, etc. Research some/all of the following “short list” of criteria using a financial site. Several links to financial sites that may be useful are provided below. You might consider the following criteria in your preliminary research:
- Strong revenue growth
- Strong earnings growth
- Analyst ratings – what do the “experts” think? This is available in Yahoo finance.
- Is the price of the stock historically high or low? Create a graph in Yahoo finance to find out.
- Diversification (buy stocks of different companies, perhaps in different industries)
Some links that may be helpful in getting started:
This site provides ranked lists by profits, revenue There are no lists here so you need to enter a company name in the search bar. If you click Analysis, you can find sales growth rates and data about profits (EPS is a name for profit).
Enter a company name in the quote search and click on it when it appears in the drop down menu. In Summary, you will see a graph of the stock price and you can adjust the time frame by clicking a link below the graph. In Analysis, you will see the firm’s revenue and earnings (profit) growth over the prior year.
If all of this seems overwhelming at the outset, you can pick your stocks however you choose. BUT be sure that you a) invest in at least 5 companies and b) that you buy enough shares to use up at least $95,000 of your $100,000.
- Note that in the event of any Blackboard difficulties, you need to contact Blackboard Support. Guidelines for so doing are in the Blackboard shell for the course (see the Welcome Announcement and the link to Blackboard Support). Note that when you contact Blackboard, you need to ask them for a “trouble ticket” number. That will allow me to verify that you contacted them, and, if the problem cannot be resolved, will enable me to possibly give you permission to submit other than through Blackboard. Without the trouble ticket number, no submission outside of Blackboard will be permitted.
- Be sure that you upload only Word files. Word files will have a suffix .docx. Students sometimes upload other types of files that are not compatible with Blackboard. In such case, I will not be able to open your file and if I can’t open it, I can’t grade it and therefore you can’t earn credit for it.
Due Dates. The due dates are set out in the course calendar. All deliverables should be submitted by uploading to Blackboard. Back up your work, as technological malfunctions will not be accepted as justification for a late submission. Late papers will be penalized for each calendar day they are late and, after a few days, may not be accepted at all, at my option, resulting in a zero grade for the project.
There are 2 deliverables for this project:
- On the dates specified in the Course Calendar, you need to upload screeenshots and commentary related to your simulation. Two such uploads are required.
- On the date specified in the Course Calendar, you need to upload a report about your simulation.
Each of these
deliverables is covered in its own set of instructions below.
Deliverable #1: 2 Sceenshot uploads. On 2 dates specified in the Course Calendar, you need to upload to Blackboard certain screen shots from your HTMW account. The screenshots should be inserted into a Word document which will be uploaded. The screenshots should be legible – not blurry, not extremely small. My sample screenshots, below, meet those criteria and so should yours. Along with the screenshots, write a few sentences, saying something about what you see in your account. I need a few meaningful sentences of analysis. Please don’t tell me “I spent $64,000 of my cash” – I will be able to see that for myself. Rather, say something about why you bought or sold certain stocks. Any surprises as the simulation progressed? Did something work out as you expected, or better or worse? Plans to sell or buy some stocks? Did you use something you learned in the course? Did something happen in the news that impacted your stocks? Etc. A few sentences should do it, but make it meaningful. Each of the 2 sets of screenshots, along with your comments, is worth 7 points of the project grade, for a total of 14 points.
Note that a) you need to have invested in the stocks of 5 different companies and b) you need to have no more than $5,000 in cash – in effect, invest virtually all of your $100,000. Your screenshots will show me if you have fulfilled these requirements.
Here are the screenshots you need on each of your 2 upload dates. The HTMW Education Center has a video called My Portfolio, Open Positions and Ranking Pages, which you may find useful. Embed the screenshots into a Word document, add a few sentences of analysis and upload the document to Blackboard. Here are the screenshots you need. First, your open positions, in standard view – it should look like my screenshot, below.
There is more about screenshots on the next page – read on.
Second, in each upload I need the first Motely Fool headline, which is below your Open Positions. This allows me to see the date of your screenshot. I only need the first headline. You will probably not be able to get both the headline and your open positions in the same screenshot, without making the text incredibly small. So create separate screenshots – 1 for your open positions and 1 for the Motley Fool headline, as I have done here.
Third, on each upload date, I need a screenshot of your account balances, like this. The key pieces of this are your initial cash balance, cash balance, market value of long, short and all positions and your portfolio value. Be sure I have what I am looking for.
Deliverable #2 – the
report – is on the next page.
Deliverable #2: Report. In addition to the 2 sets of screenshots that you will upload, discussed above, you will submit a report on the due date specified in the Course Calendar. The Format and the Content of the report are set out below.
Format of the report
- The project is partly a writing project. So, spelling, grammar and clarity of expression matter.
- In creating your answers to the questions that appear later in these project instructions, please do NOT try to create a continuous essay. Rather, your document should be in question and answer format. Write the number of the question and then write your answer to that question. Be sure the number of your answer corresponds to the number of the question.
- Double space and number your pages. You do not need a running header.
- Include in text citations where appropriate using APA style. Include a references page.
- Include a screenshot of the window from moneysentral.com that contains the financial ratio you used to answer question #4. Place this screenshot beneath your answer to #4.
- A screenshot of “My Graph” that provides a comparison of your portfolio performance to “the market” – you need only one screenshot of this at the end of your simulation. Be sure your graph covers 3 months. This relates to question #5 and the screenshot should be placed beneath your answer to #5.
- Your “Order History” – you need only one screenshot at the end of your simulation. This should cover all of your transactions for the entire simulation. Place your screenshot beneath your answer to #6.
- Include a third and final set of screen shots to include a) open positions in standard view; b) the first Motley Fool headline and c) Accounts Balances. This is the same content as the 2 uploads that you did earlier in the semester. Please include only this 3rd set of screenshots in your report – there is no need to resubmit the 2 earlier versions. Place these screenshots beneath your answer to question # 7.
- Submit your simulation project by uploading it to Blackboard by the due date. Name your file your last name_simulation
Content of Report
- During the semester you will have uploaded 2 sets of screenshots along with comments on each. You should include a 3rd set of screenshots in your final report (no comments are needed – only the screenshots). Put the 3rd (and only the 3rd) set of screenshots beneath your answer to # 7. (14 points for the first 2 sets of screenshots + comments; 2 points for the 3rd set of screenshots; total of 16 points)
- The stock market is reactive to macroeconomic and geopolitical events or conditions– events/conditions that impact the national, or even the global economy (not events that impact only one or more of your companies such as the retirement of a key executive). To answer this one, you will need to develop a sense of macroeconomic events/conditions that impacted the market during the entire duration of the simulation. The purpose of this question is for you to keep abreast of national/world events, in particular as they will impact the stock market. Your goal in answering this question is to pick and explain the macroeconomic/geopolitical event that you believe most impacted the stock market during the entire simulations (not just for a few days) – on what were investors most focused during the simulation? Be sure to explain how this event impacted the stock market. I will make my own short list of such events/conditions and the more important the one that you pick, the more credit you will earn. This question requires you to keep current with happenings in the financial markets throughout the semester; reading a summary of market performance for a single day (or a few days) will not get the job done! (10 points)
- Do not sell all of your stocks at the end. Part of the credit for the project depends upon how successful your investments were – nothing for you to do in answering this question. Credit for this question is as follows: 7 points if your stocks did much better than the overall market; 6 points if your stocks did better than the overall market; 5 points if your stocks performed about as well as the market; 4 points if worse than the market; 3 points if your stocks performed much worse than the market. Typically, no one earns less than 3 points, unless there are issues unrelated to the performance of your stocks, e.g. screenshot not included. The screenshots I need to grade this one should be included as parts of the answers to other questions in this report, so nothing special that you need to include here.
- Choose one of your
stocks. For that stock, choose any
financial ratio that we discussed and which can be found on this site. Press control and place your cursor over the
link above and it will become “live” – click it to go to the site. Click “markets” and begin typing the name of
the company you chose in “quote search” and when its name appears in the drop
down menu, click on it. Under
“Analysis”, the ratios we discussed will be listed in the categories of
profitability, price ratios, financial health, and management effectiveness. Consult your notes and be sure to select
one of the ratios that we covered.
Note that “pre-tax profit margin” is the same as operating profit margin
(the term our text uses, and which we used in class). Consult your notes to refresh your memory as
to which ratios we covered. Include a screenshot of the ratio you use
from the moneycentral site when you submit your project (see screen shots at
the end of these instructions). Place your screenshot beneath your answer to #4.
- You will need the same ratio for the company and its industry (both are given in moneycentral). Name the ratio you chose. Be sure it is one of the ratios we covered. Be careful – the debt equity ratio is not the same as the debt ratio (which is debt to assets). What does the ratio tell you about the company compared to its industry? Be sure to compare to the industry in a way that tells me you understand the meaning of the ratio – don’t merely say “it’s good: or “it’s better than the industry”. (10 points)
- Note that a single ratio comprises but a small piece of the financial research that can be done on a company, as we have discussed. Nonetheless answer this question based on the ratio you chose. Does the financial ratio information you reported above tend to support your purchase of this stock, or does this ratio raise some questions in your mind in retrospect? Don’t force the answer (it’s perfectly okay to say that the ratio is not favorable for your company – the key is to explain why). (5 points)
- Again, be sure to include a screenshot of the MSN site, showing the ratio that you chose. You will lose credit without the screen shot. Place your screenshot beneath our answer to #4. (2)
- Go to Graph My Portfolio. Bring up a graph for 3 months. Be sure your graph covers 3 months, not 1
month. There are several measures of the
performance of “the market”. Use the
drop down menu to find the measure of the overall stock market that best
represents the overall market, in your opinion.
We have discussed at least 2 measures of the market – there are others
and you can choose any of them, as long as they can be graphed in HTMW. Your goal is to use the drop down menu and create
a graph with 2 curves on it: your portfolio and the measure of the market that
- Include a screen shot of the above graph in your project. Put that screenshot beneath your answer to #5. (2 points)
- Briefly tell me what the measure you selected represents – Indicate how you know that this is a measure of “the market”. (5 points)
- Why did you select this particular measure of the market (there are several)? Try to select the measure that you think makes the most sense. I do not feel there is a “right” answer as to the best measure, but a) it needs to be one that is in the HTMW graph AND b) I am most interested in your telling me why you picked the one you did. (5 points)
- Comment on how your stocks did relative to the market, based on what you printed. (5 points)
- There is a document in Blackboard, called “Stocksquest strategies” (your professor will tell you precisely where the document is posted, e.g. Course Info or Coursework, etc.). The document describes several common investing strategies, taken from another web site. Which strategy (or strategies) best matches what you did in the simulation? Explain briefly. In order for me to grade your answer, I need to have a screenshot of your Order History. The screenshot should be beneath your answer to this question. (10 points)
- You began the simulation with
$100,000, all in cash. We could say that
your account was worth $100,000 at the outset of the simulation.
- Based on the screenshot of your final Account Balances what is your account worth at the conclusion of the project? (5 points)
- In your Word document, how much total worth, in dollars, did you gain or lose during the simulation? (5 points)
- Include a third and final set of screen shots to include a) open positions in standard view; b) the first Motley Fool headline and c) Accounts Balances. Be sure to answer parts a and b to this question based on these screenshots so that I can verify what you say in your answers to a and b.
- Looking back on the simulation, identify one thing that, knowing what you know now, you would have done differently if you had the simulation to do over again. Your answer to this question needs to be different than your answer to #4. Explain briefly. Your answer needs to be specific – I am thinking that your answer will relate to something you learned in the course. An answer such as “I would do more research” or “I would not procrastinate and would start the project earlier” will not earn much credit. If you say that you would do more research, specifically, what would you research? (5 points)
- Writing Requirements: For full credit, this project should be in question and answer format with answers numbered to correspond to the questions. Nonetheless, there is some writing, which accounts for 8 points of the credit for this project. Refer to the Format of the report for specifics about the writing aspect of the report
Total credit for project: 100 points.
Navigating the moneycentral site. I need to see the particular ratio you are using in question #6. You need to include a screenshot of it in your report. So if you picked “current ratio” you would have something like this:
Note that you do not need to do the current ratio – pick any of the ratios we covered.
Here is how to get to the ratio you select:
Press CNTRL and click on the link above. You will see something like this. Enter the company in which you are interested in “quote search” and hit enter.
Decide which ratio you want to discuss. Then Click analysis and then one of the 4 categories indicated by my red arrows below (profitability, price ratios, financial health, management effectiveness). We will have covered most or all of the ratios below – in parentheses, I indicate where to find the ratio in MSN.
- Current ratio (Financial health)
- Quick ratio (Financial health)
- Inventory turnover (Management effectiveness)
- Operating profit margin (you can use Pre-tax profit margin as operating profit margin, under Profitability in MSN – they are very close to the same thing)
- Net Profit Margin (Profitability)
- Return on equity (Management effectiveness)
- Debt Ratio (unfortunately, this is not given in MSN)
- Price earnings (Price ratios)
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