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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.

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.

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

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.

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.

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

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.

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

Great! Now you have your own portfolio!

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