Examples Of Low Risk Strategy

Final Report
April 17, 2012

We decided on a rather simple strategy. We were unsure of which direction the market would be heading over the upcoming months, so we decided to pursue a low risk strategy. This strategy consisted of looking for well-known companies with a long history of success. High market capitalization and dividends were other things we were looking for. We believed that these stocks would do well if the market improved, but they would not suffer heavy loses if the market continued to struggle due to their historical success. In the beginning, we bought nine different stocks that followed our particular investment strategy. One of the first stocks we bought was Apple Inc. because of it’s history of consistent and tremendous growth. Then, we bought Amazon, McDonalds, Google, Coca-Cola, Union Pacific, IBM, Nike, and Goldman Sachs because of their high market cap, long-term success, and relative stability. Some of these stocks also had high dividend yields which we liked: McDonalds (2.9%), Coca-Cola (2.8%), and Union Pacific (2.2%). We also tried buying stocks of companies pertaining to our strategy that we thought were undervalued such a Bank of America and Siri. These stocks had fallen recently but had a long history of success and had relatively big market capitalization. As the semester went on, we continued to look for these types of stocks. We were able to add even higher dividends to our portfolio through the purchase of Rio Tinto (3.3% dividend yield). We also added positions in Caterpillar, Walt Disney and Toyota because they met our criteria of big company with a history of success. This is where Jordan took over for the most part. He bought shares in a wide range of companies such as: Research in Motion, Higher One Holdings Inc, Pandora Inc., Leap Wireless International Inc., Netflix Inc., Hewlett Packard Co., Sprint Nextel Corporation, and American International Group. He sold off some of our positions and bought more shares of some companies we already owned. We don't know exactly what he was thinking, but there are two likely scenarios. He may have sold stocks for a profit and then increased our positions in ones that were losing because he believed they would have eventually rebounded. Or he could have sold the stocks that were doing poorly, and increased positions in ones that were up because he believed that they would continue to rise. He appears to have done a little bit of both, but more so the first one (selling for a profit). To allow our strategy to adapt to current events, we looked for stocks that we thought had a reason to increase or decrease in value. We decided to short Arch Coal because the relatively warm weather would decrease the need for coal. We thought that this would make the company’s stock price go down in value. Also, a movie called Hunger Games was advertised heavily and promoters claimed the movie would be extremely successful when it came out in theaters. Because of this, we decided to buy shares of Lions Gate Entertainment Corp. right before Hunger Games played in theaters because they were the studio that was producing the movie. These two trades were also done by Jordan. They did not exactly lineup with our strategy, but these are the reasons he gave for making them. After executing our strategy throughout this semester, our portfolio performed steadily and always had a positive gain. Although we didn’t become one of top groups, the experience from the StockTrak game help us to better understand the stock market and the intricacies of trading. Our strategy was to seek out "safe" stocks because we were unsure of whether we were really moving out of the recession. So in the future we would continue to adhere to this strategy at least until market conditions clearly improved. By picking safe and trustworthy stocks, we could avoid heavy losses. By picking stocks with high dividend yields, we would be able to generate some tangible income

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