Investment simulation

This is an investment simulation, where we have invested TK. 1, 000,000 in the DSE by valuing different stocks and then we measured the portfolio performance using our theoretical knowledge of investment. We managed our portfolio by dividing the time horizon into 3 phases. At first we have analyzed the market situation and allocated our investment assets using the analysis. Next 2 phases were prepared using investment knowledge and theories. We have a loss of TK.

145,375 by investing in the DSE from February 05, 2011 to March 24, 2011. Then we have measured our portfolio performance and discussed about it. We also have observed the market factors and tried to figure out how our portfolio has been affected by those factors. Being relevant in today’s business world it is impossible without knowledge. As part of our course FIN435- “Investment Analysis And Portfolio Management” requirement, we got a fictitious portfolio of TK.

1,000,000 in our disposal to invest in the stocks of DSE (Dhaka Stock Exchange) for our investment simulation project on February 05, 2011 to enrich our practical knowledge. Our investment time horizon started at February, 2011 and ended at April, 2011. During this time horizon we got the three phases to change our investment. In first phase with the amount of TK. 1,000, 000 we invest in 11 different companies’ stock which is mainly based on P/E ratio, EPS. In the first phase we made some mistakes because of our lacking knowledge in stock investment.

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And in the second and third phase of our simulation project we were able to judge firm specific risk, systematic risk, return, sharp ratio, trey nor ratio which helped us to choose better stock for investment. And by learning from our investment course, we are now able to invest in more stable stocks in Dhaka Stock Exchange. Our objective of this project is to build our knowledge and ability to make our own investment decision in the stock market and maximize our after tax wealth in the portfolio through trading of our selected stocks.

We know that the market return is uncertain but to some extent it is predictable. The gap between forecasted values and actual values always exists. OAs per our course instructor advised us, we tried to spread our investment over different industry. Also we cannot invest too much in one stock. Keeping this into mind and with constrains of market lot each stock, we tried to weight our stocks according to utility value in the 2nd phase and we weighted the stocks according to treynor ratio.

Sometimes it was not possible to weight the stocks exactly according to the utility value or the treynor value. Also we tried to weight the portfolio in such a way so that the portfolio beta is less than 1. During the 3rd phase stock weight selection, treynor ratio was our main tool. Also we chose stocks with very low beta to keep portfolio beta less than 1. So while allocating our asset, our target was to allocate assets in such a way so that our portfolio is diversified and gives a fair return for taking some risks.

The latest developments both inside and outside the country's main bourse, the Dhaka Stock Exchange (DSE), last few months was prompting some quarters to consider that the market was heading towards a downhill course. The stock market that has witnessed almost an unending bull run for more than a year has been going through a troubled time, marked by continuous fall in stock prices and angry demonstrations by small investors. An abnormal market rally for months after months, having not much relevance to the country's general economic conditions, raised a strong fear among some market watchers.

What has always played in the back of their minds is the 1996 stock market debacle that was dubbed as the 'slaughter of innocent'. If the market, belying all the optimism dished out by a section of market players to lure more and more investors into an overheated market, goes down abnormally, small investors this time, too, stand to bear the main brunt. Street agitation, vandalism and any other form of protest are unlikely to help them much. Investors in other countries are very rarely found resorting to street protest or violence to air their grievances.

A host of factors, as many dispassionate analysts have been driving home; have contributed to the build-up of the stock bubble, if one prefers to term it so. Primarily, two factors - inadequate investment opportunities in productive sectors and weak oversight function by the concerned regulators - have made the entry of unscrupulous elements into the market rather easy, lay the trap for unsuspecting investors and, in the process, make their fortunes. Short-term speculative trading, as happens in the case of every stock bubble, has been hallmark of the current market growth.

And manipulators have availed themselves of some new tools - preference and placement shares, direct listing and book-building system - that were not much in use in the past to mop up general investors' money. If the worst happened, the capital market regulator would obviously be the prime target of widespread criticism. In fact, its built-in weaknesses in terms of manpower, logistics and appropriate laws and rules, lax enforcement, "on-again and off-again" policy responses, and, thus, its inability to take timely and consistent actions have, to a large extent, been responsible for market reaching an unsustainable height.

What did come as a surprise too many for the last two years are the frequent change of mind of the regulator about margin loan, lock-in period and use of circuit-breakers. It could not stick to own decisions for long, under, what the fairly objective market watchers have been pointing out, the undue influence of some powerful market players. Some of such players, as far as the ordinary investors' perception is concerned, were responsible for creating the 1996 stock bubble.

The failure of the authorities concerned to take actions against the prime suspects of the earlier crash has emboldened the latter to replay their game this time in a more refined way than before, taking the today's capital market situation into consideration. Given the will, it was - and is still - not difficult for anyone having some clear understanding of the market to unearth the involvement of some big "manipulators". Timely and decisive actions on the part of the regulators could have at least reined in the market in time.

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