I had $50,000 to spend and see what happened in a six week period. It reminded me of fantasy football. It simulates all major securities and all the results are based on the actual market performance so the only real difference is that the money involved is not real. As such, I tried to treat it as a legitimate portfolio and take it as seriously as I would if it were real.
The rules state that some requirements and transactions are simplified, but it seemed representative of an actual portfolio to me. Stocks could be bought and sold, even traded on the margin or sold short. The NYSE, AMEX and NASDAQ were represented as long as they cost more than three dollars. Foreign markets were also an option, though I admit that it seemed a bit daunting because I am less familiar with that side of investment.
In trying to make the simulation a legitimate experience, I realized early on that my tolerance for risk is limited and I do not like investing for the short-term or based on current trends. The idea of "blue chips" appeals to me even though I am still in a stage of life where my demographic probably has a higher tolerance for risk than I do. M
[...] That would certainly allow me to invest more time in the endeavor. Increased uncertainty needs a greater margin of safety. But the "unknown unknowns" (the potential matters of complexity that one is completely unaware could possibly exist, in the way that no one had looked at swans, in the history of swans, and thought that they might come in other colors) make intelligent assessment of intrinsic value quite problematic, given that the credit bubble has burst. The crystal ball was murky and I went in knowing that sometimes I would have to check my gut, make the bold move and let it ride. [...]
[...] My success came from keeping that in mind. This economic turmoil is like a tsunami and there are other ways to surf it. Because of that and the short-term and relatively few trades involved, standard deviation seems less relevant than the beta that can be found in tracking the S&P500. I terms of beta-ing it, my performance beat the S&P500 consistently. It took a bit to build momentum and that is not including the gold futures, which I only included once I realized the profit. [...]
[...] (An example of this is that whoever spends a lot of money on advertising and launching new products right as the smoke clears will do very well. It cannot be predicted in terms of ROI, but it will be visible everywhere in hindsight, in the same way that investors who dive in at the exact bottom will have a profitable ride as it goes back up.) Autozone jumped $ 2.16 today, making me wish that the simulation was not coming to an end. Bed, Bath & Beyond shows where my long-term thinking did not pay off in the short-run. [...]
[...] Ideally, I went into the simulation hoping to make a ten percent return on my $50,000 investment. It seemed an audacious enough goal while still being attainable. I knew that it would require picking the right sectors and I did not want to make any moves that would damage the portfolio. Since long- term financial planning is my preferred way of thinking, I decided to deviate from a three year plan as little as I had to. I also made a point of trying to keep my research organized and simple because the current economic recession is global and I knew it would continue through the course of the simulation. [...]
[...] That is how I view the markets. There are big dogs who make the right moves and they prevail. The downside to my view is that it takes more time than I had available to win. Therefore, my strategy was to dig out the best hidden gems that a real world investor would miss. I liked that I was competing against other students but using the actual numbers that were driven by the world at large. It made me feel like I had an edge. [...]
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