The Investment project is a portfolio management exercise.
Each student first, constructs a policy statement in which he (she) specifies his (her) investment objective in terms of risk and return. The student then states his (her) return objectives in terms of an absolute or relative percentage return, or in terms of a general goal, such as capital appreciation, capital preservation, current income or total return. The student also specifies the types of risks he (she) is willing to take.
For example, you may set your objective to earn 10% above the market return. This would imply that your portfolio risk would be slightly above the market risk. Your portfolio beta will be slightly above 1 (the market beta).
If you set your objective as capital appreciation, your investment will be mostly in high growth companies that does not pay dividends. Your portfolio will include high growth companies and small capitalization stocks and will have a higher beta than the market.
If you chose capital preservation as your goal, you will invest in low risk (low beta) companies these will be mostly large and stable companies
If you chose current income as your objective, the stocks in your portfolio will be for companies that pay high dividends.
In the second step of the exercise the student studies the financial and economic conditions then determines his (her) investment strategy based on those conditions.
You will examine the current economic, financial and political environment and decide on which industries are best to invest in under the current conditions. For example, if oil prices go up you will invest more in oil companies and avoid airlines and trucking companies. If interest rates are expected to go up, you would you would invest more in banks and other financial institutions. You would also look at other micro events relating to some industries or companies, for example if a company introduces a new product that is received well by the consumers, you would like to invest in that company.
In the third step of the portfolio management process the student constructs his (her) portfolios on Cnnmoney.com or yahoo.com. or any The student decides on what asset classes to consider for investment, the policy weights to assign to each asset class, and the specific securities to purchase for the portfolio. The students then perform portfolio analysis to ensure that the asset allocation process is consistent with the objectives stated in his (her) policy statements.
You now will select the stocks that you will include in your portfolio and decide on the allocation to each stock. You may have equal allocation to each stock (like three percent of you invested money in each stock). I am giving your $100,000 to invest. This means you will invest about $3000 in each stock. You may overweight (put more than 3%) some of the stock that you think will do very well and underweight (put less than 3%) in the ones that you think are not going to be as good as the high performers.
The fourth step in the portfolio management process is the monitoring and updating of the investment needs and market conditions. A major component of the monitoring process is evaluation of the portfolio performance and comparing the results to the expectations listed in the policy statement.
You want to make sure your choices are consistent with your goals. Do not worry about making or losing money at this time. Build your portfolio with the intention of keeping it for a long period of time
The student will then prepare an 8 to 10 pages’ report Including any exhibits. In the project report the student discusses how he (she) applied the four steps in the investment management to construct monitor and manage his (her) portfolio.
In your report you briefly talk about your investment objectives, the stocks you selected and why did you select each of these stocks and how these choices are consistent with your investment goals.
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