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AFC3540 Financial Modeling

Information for Top-down/Group Assignment

Introduction

The bottom-up assignment primes and/or prepares students for this assignment. The

assignment provides students with the opportunity to make ongoing changes throughout the

semester to their portfolio initially chosen using the bottom-up approach. Students are

encouraged to use a top-down approach, incorporating any new economic data to change

their decisions. Making investment decisions based on global economy, Australian economy,

sector and finally individual company.

Learning objectives

To develop and use an understanding of the economy to aid investing.

To regularly read and understand the financial press.

To be flexible in an investment approach; to change investment decisions based on new

information.

To appreciate that different opinions can be formed about the state of the economy and

sector performance given the same information.

Each week a discussion should take place amongst all of the group members as to how much

to weight each sector (i.e. corresponding to a weight for the underlined share), to form the

initial portfolio.

To allocate a percentage of your portfolio to each sector your group should have a grasp of

how the sector relates to the economy and where in the cycle of the economy we are at the

moment. General reading of the financial press can help here. Each student must negotiate the

weight allocation of their sector with the entire group. The group leader resolves any

disputes.

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For example your portfolio may look like this in the first week of trading, week 4:

FINANCIALS: (20%) National Australia Bank (NAB) (1) vs. Westpac (WBC) (2)

CONSUMER STAPLES: (50%) WesFarmers (WES) (3) vs. Woolworths (WOW) (4)

MINING (30%): BHP Billiton (BHP) (5) vs. Rio Tinto (RIO) (6)

This is how your portfolio will look at the beginning of trading. However, this assignment

asks you to make changes to your portfolio as your thoughts about how maximize profits

evolve. You can change your initial weights, go from long to short or even change your initial

stock selection (you can only be invested in one of the two stocks in a sector). You should

read the financial press. Indeed you will be asked to comment on these issues weekly (see

section A). You can discuss any developments with your group members when you meet

each week in your tutorials. This is when you will have the opportunity to make changes to

your portfolio and most importantly debate those changes amongst your group members and

between the other groups in your tutorial (see section B below).

Please Note that:

SHORT SELLING IS PERMITTED.

THERE ARE NO TRANSACTIONS COSTS (NO BID-ASK SPREADS, NO

MARKET IMPACTS COSTS AND NO BROKERAGE COSTS).

USE THE CLOSING PRICE ON THE PREVIOUS FRIDAY AS YOUR

TRANSACTION PRICE TO BOOK YOUR PROFIT & LOSS.

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A. Week by Week Individual Portfolio Analysis

(Weekly Hurdle Requirement) Each week you are required to submit a report via Black Board. These will be compiled and

up-loaded to a tutorial and group specific Black Board discussion board.

The aim is to ensure that you prepare for each weeks debate in the tutorial about changes in portfolio.

Your responses to the questions below will be posted so that everyone in your group may

view them and discuss changes to your portfolio at the beginning of the tutorial.

The learning objectives that are tested here are:

1. Whats news this week? Show that you have group read and understood the financial

press this week.

o Provide references to news stories on weekly basis pertaining to the general,

domestic and sectors of the stocks of the group.

o Provide stocks specific references weekly.

2. What weights stocks would you like to change this week? Indicate flexibility in

investment approach; to change investment decisions based on new information.

o Show that the portfolio changed weights or choices of stock.

o Whenever change occurred indicate reasons for changes in weights or choice in

stock.

3. Demonstrate sound reasoning about changes you would like to make to the

groups investments this week, citing various relevant global, domestic and sector

specific economic factors affecting profits.

o For each change in portfolio (change in stock and/or weight) provide a reason as

to why that change was made.

4. Compare the groups relative investment performance this week with those of

other groups in the subject and reflect upon the reasons for their relative performance.

o Compare your group weights and stock choices with the best and worst

performing groups each week. Understand how your investment choices differed

to those groups and how it explains your performance relative to those groups.

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B. Tutorial Structure Weeks 7-9 Ideally, you will come to the tutorial having completed your weekly portfolio analysis (step

A above). The majority of the tute will be spent discussing your new weights with your group

members for this week, given financial news, past performance and price action. You will

then present your results to the rest of the tute group and then debate with them any

differences that you may have may, reflect upon this debate and change any your weights

before you post your new weights to the head tutor.

Feedback for work submitted last week:

10 minutes issues from last weeks spreadsheets & quiz.

Group Assignment:

At Start of Debate: First, in their groups of six students... Group leader writes up weights this week and last

week on the white board.

Group leader writes important news stories on the white board for global, national, sector and company.

Parts 1&2 of Debate: Each group presents weightings (writes on white

board) and explains decisions & past performance.

Each group compares their weights/decisions with other groups

Part 3: Rebuttal Students debate different decisions between groups -

opportunity to change weightings.

Post weightings to head tutor on BB

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C. Marking criterion for Top-down Group Assignment

(10% overall)

Group 1 Group 2 Group 3 Explain this weeks weights relating to last

weeks. Why did you

make any changes?

(1 mark)

Compare your weights

this week with your

competitor groups in

the tutorial and argue

why your decisions are

superior.

(1 mark)

Rebutt your

competitors decisions with reference to the

financial press, stock

ratios and price action.

(2 marks)

Total

The tutor will simply decide who wins each criterion (no ranking will be given). The group

that gets the highest marks wins and obtains 100%, the team that gets second 75% and each

other team 50% for the week.

To be eligible for debate marks each week:

Each group must submit a soft copy of the weeks market summary via email to their tutor the day before their tutorial. This ensures collaboration and communication

between group members prior to the tutorial debate.

At least two-thirds of each group (i.e. four individuals for a group of six) must attend the weekly tutorial debate each week; else the entire group will receive zero for that

weeks debate.

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D. How to use Yahoo! Finance to create your own portfolio.

Step 1: Go to Yahoo! Australia and sign in. If you do not have a Yahoo! Account, you have to sign up first.

This is free.

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Step 2: After logging in, click Personal Finance on the left panel.

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Step 3: Then click Finance Home Page and the portfolio management tool is just up there. You can create a

new portfolio or manage existing portfolios.

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Step 4: If you try to create a portfolio, you have to enter a name for the portfolio and stock symbols which you

want to watch and click Finish button. Note for Australian stocks you may need to use the format xxx.AX.

E.g. BHP.AX

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Great! Now you have your own portfolio!