With markets becoming most unpredictable than ever in 2008, it was time to test Finance Club members on their trading skills. The Finance Club organised a 45-day Virtual Stock Exchange Challenge. The rules were simple - $1 million in capital and asset class was limited to only US equities.
The volatility of markets was high and so were the rankings. At one stage, Gagandeep looked to be clear winner with return of close to 66%. However, at the end of 45 days, not anyone of us would have imagined that Shreya would earn a return of staggering 118.4% in a market where Dow Jones returned -23.7%. And she was not alone to earn such unrealistic profits in just 45 days – Omer finished second with 78.3% while Gagandeep was third by increasing her profits to 70.5%.
Shreya shares her investment and trading strategy with us below.
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The virtual stock exchange was an immense learning experience for me to develop an understanding on the market functioning in a bear scenario which helped all the participants earn extraordinary rates of return compared to previous years.
My core strategy at the commencement of the game was passive investment in long term and fundamentally strong stocks. As the game progressed, I discovered that in a volatile market to optimise return, one should not only have a basic portfolio of defensive stocks, but also trade on the market momentum on an active basis. A combination of recognising fundamentally strong stocks and timing the market is what supports an extraordinary return.
I populated my portfolio with Bank and IT stocks, however come late September and both these sectors were on a downfall. So I replenished this with Airline stocks which were doing well despite rising oil prices at the time. Simultaneously, according to the market movements I also short sold few US regional banks stocks to take advantage of their weak fundamentals and correlation with the dipping Dow Jones. I followed the news feeds and traded on the macro scenarios such as bail-outs, stimulus as well as company based news with increasing number of companies filing for bankruptcies, mergers etc. I traded on the momentum stocks whilst having basic portfolio of Pharma and Staples stocks on basis of fundamental macro view of the direction of the market. Around October end, with the Third Quarter results awaited in November, the market had started rising and I traded stocks based on different analyst views of the company results during this period published on various sites such as Google Finance and CNBC market watchers. During November, the market post results was extremely volatile with consumers and service related sectors such as IT, Real Estate and Banks being hit hardest as envisioned. In accordance of this view, I invested in banks especially regional banks in US which were on a downfall in this period and traded to take advantage of the volatility based on various news feeds. I also invested in few gaming companies in this period which were showing poor performance due to lack of governmental support and pending projects in Asia.
In a nutshell, I based my trading on a few fundamental stocks combined with active momentum trading on speculative stocks and dynamic sector and security allocation strategies based on market conditions.
- Shreya Gaunekar
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