Finance Case Study on Investment Trading Simulation

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Question

You are required to undertake imaginary transactions and record all the transactions that you undertake. You can purchase any instrument that the SGX and other main markets in Singapore and overseas, so it is not just shares. .For example when you “purchase” a share you will need to record the purchase price (this can be obtained by checking the price on the web.). Transaction cost will depend on the “broker” you use to undertake the transaction, thus ignore brokerage.(C02)

Solution

What the Simulation taught you about Trading:

The different security investments available for me with respect to capital markets and debt markets are mutual funds, stocks, bonds, and other interest-bearing securities. It is very important for me to understand the various details with respect to the different security investments before investing into it. I did not have a clear perspective, with respect to my investment expectations, when entering into these investment products in the beginning.

The investment trading simulation helped me to know about these various investment avenues without actually investing my real money. It helped me to get a clearer perspective about which investment products I prefer. In the given trading simulation activity I was able to identify that I preferred shares of various companies in the equity markets.

The simulation provided me with the platform to invest in the shares of various high profile companies with the help of virtual money. It provided me with the opportunity to take risks with respect to the purchase of these shares.  I did make mistakes, incur losses and failed to get bigger profits on certain occasions. However, I only lost my virtual money and it helped me to learn from my mistakes. The simulation activity also helped me to get a better idea of the capital markets and the various perspectives one needs to see while purchasing or selling the shares of a particular company.

         

Trading Psychology:

What affected your Trading?

I am a moderate investor and I prefer limited returns by taking limited risks. In the given simulation activity, I purchased shares of blue chip companies to be on the safer side. The views of different experts influenced the purchasing and selling of shares of the various stocks in my portfolio. The macroeconomic conditions that existed in the current market and various news related to a particular company influenced my decision making.

There were many situations wherein I was happy to partially book some of my profits. I was happy with the limited capital gains that I was able to make on some of my shares. Hence, if a particular stock was above the purchase price for some time and I felt it may not move higher, I preferred partially selling some of the shares and obtain that capital gain.

I never did intra-day trading and generally gave a time frame of 7 days to one month after purchasing the shares. I gave the shares I purchased a certain time frame on the basis of the experts’ views. I would keep a close look on those shares within that time frame and in cases of stagnant movement or excess volatility, I would sell those shares.

 

Did Trading match your Risk Profile?

I am a moderate investor who preferred moderate returns. In the given activity of investment trading, I had not completely invested in the capital provided to me. This shows that I was hesitant to invest in a company until I felt I would not incur any loss. Hence, I believe that I could have been more aggressive and less selective about the stocks I chose.

The limited capital that I invested earned me a return of about 5% in almost two months wherein I had a capital gain on almost of all my stocks. The returns I obtained if calculated on an annual basis could go up to around 20% percent which would match my expectations. Hence, I believe the stocks that I chose were good but I could have been more aggressive in my trading since I knew about the duration of the activity.

In the case of Singapore Telecom, I could have been more patient and learned more since I felt the share price of the company would still increase. However, I was happy booking some of my profits that I had gained.

I was neither constantly chopping and changing the stocks of my portfolio nor constantly purchasing or selling the shares that I possessed.  I was a not a very active investor but a rather passive one. I gave my stocks a certain time frame in the range of 7 days to a month and had a limited number of stocks in my portfolio. These features did suit my risk profile to an extent. 

However, I believe my trading methodology did not completely match the risk profile that I have since I was happy with the limited returns rather than take more risk and have the possibility of incurring some losses.

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Fundamental or Technical Analysis:

The fundamental analysis gives a more comprehensive view with respect to the financials and the overall growth forecast pertinent to the company. The technical analysis of the company gives a better view with respect to the sentiments prevailing in the market on the basis of the current macroeconomic conditions.

In the given simulation activity, initially, I did use fundamental analysis to select the stocks on the basis of the company fundamentals. However, I felt that for this particular trading activity, technical analysis would help me be more proactive with respect to the market sentiments. Hence, I preferred doing my trading on the basis of technical analysis than fundamental analysis.

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