Is this a good return? Watch

TheArsenal
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Hi im an AS level economics student and in our class we had to invest in shares in the FTSE 100 earlier in the year, with the person who makes the most getting a prize.

It is set to last until July, starting in Feb and currently i have made 6.2% investing in 6 companies. I have had 74 days so far and was basically wondering if this was a good attempt for someone who has never done this before and never really loooked at the markets. It was of course virtual. Thanks.
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Zürich
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(Original post by TheArsenal)
Hi im an AS level economics student and in our class we had to invest in shares in the FTSE 100 earlier in the year, with the person who makes the most getting a prize.

It is set to last until July, starting in Feb and currently i have made 6.2% investing in 6 companies. I have had 74 days so far and was basically wondering if this was a good attempt for someone who has never done this before and never really loooked at the markets. It was of course virtual. Thanks.
Depends if you were gambling or investing.
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TheArsenal
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(Original post by Zürich)
Depends if you were gambling or investing.
Investing
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viksta1000
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are you calculating the risk or just going....'that one'?
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username547863
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Thats a decent return. Trading forex i ussualy make between 5-20% a month return (if its a winning month of course)
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TheArsenal
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(Original post by viksta1000)
are you calculating the risk or just going....'that one'?
Well i considered the companies basically im not sure how to calculate risk.
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TheArsenal
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(Original post by NGC773)
Thats a decent return. Trading forex i ussualy make between 5-20% a month return (if its a winning month of course)
Sorry im an amature, what does forex mean? And is there an actual calculation to work out the risk involved? cheers
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qwerty12345678
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Is 6.2% a good return over 74days? Yeah of course, especially these days.

But the question is whether you can produce these returns consistently or you just took a punt and called it investing.

You said you invested not gambled, so did you analyse each stock, looking through the fundamentals, value these companies and derive (from your analysis and valuation) that these companies were undervalued?
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viksta1000
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(Original post by TheArsenal)
Well i considered the companies basically im not sure how to calculate risk.
It's basically the liklihood of a firm losing money in the near future...e.g. a small new firm would be more of a risk than a large conglomerate

(Original post by TheArsenal)
Sorry im an amature, what does forex mean? And is there an actual calculation to work out the risk involved? cheers
ForEx - Foreign Exchange i.e. trading currency

If im totally honest mate 6-8% is the average return you should aim to achieve on any investment, anything above that is a bonus, I know that property can bring about such yields sometime more....from experience I've seen properties make upto 30% markup

To win the competition, aim to make 12%, my team came 4th in a Nationwide School Stock Market Challenge 3 years back with a yield of 11.7%, the winners had a 14.3% ROI
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TheArsenal
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(Original post by qwerty12345678)
Is 6.2% a good return over 74days? Yeah of course, especially these days.

But the question is whether you can produce these returns consistently or you just took a punt and called it investing.

You said you invested not gambled, so did you analyse each stock, looking through the fundamentals, value these companies and derive (from your analysis and valuation) that these companies were undervalued?
Ok maybe my definitions are out of touch.
No i didn't derive that the companies were undervalued, is there a set of calculations i can learn quickly to do this?
I didn't take a random pick i did pick companies that i expected to go up for various reasons, however basic e.g. bSKYb for obvious reasons.
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crcr
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what companies were they?
you can calculate a sharpe ratio (wikipedia it)?
there is rarely anything about obvious about any trade, if its obvious you usually don't know what your doing inc. bskyb. basically tho, there is very little chance you knew what you were doing.
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TheArsenal
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(Original post by crcr)
what companies were they?
you can calculate a sharpe ratio (wikipedia it)?
there is rarely anything about obvious about any trade, if its obvious you usually don't know what your doing inc. bskyb. basically tho, there is very little chance you knew what you were doing.
What is wrong with sky? Im not complaining i would like to know :P. I did centrica, experian, marks and spencer, vodafone, IMI (went up alot) and sky. I realise some of those are pretty crap but i've never done this before.
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DeeDub
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There is nothing inherently wrong with BSkyB but in order to get something worthwhile out of the exercise you should try and develop a methodology for picking your stocks rather than just picking random ones because you like the name or you have heard of them. Like any investment you are not going to be able to eliminate risk but you should try and maximise your returns for a given level of risk.
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TheArsenal
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(Original post by DeeDub)
There is nothing inherently wrong with BSkyB but in order to get something worthwhile out of the exercise you should try and develop a methodology for picking your stocks rather than just picking random ones because you like the name or you have heard of them. Like any investment you are not going to be able to eliminate risk but you should try and maximise your returns for a given level of risk.
Ye i found a useful calculation to aid this so i will try it. These companies were not completley random btw. Thanks for help
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crcr
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ok so presumably the reason you bought was to do with the merger...the thing with this is that you often are taking a big risk to get a smaller reward. in addition, the strategy isn't sophisticated so the risk-adjusted returns are likely to be pretty sketchy and you will never have the best information i.e adverse selection. but it isn't a bad idea for the type of competition you are doing. to work out what has happened you need to look at what the general market has done, what the stocks you picked have done, why they have gone up or down. my view is that over any period less than 6 months all your seeing is just changing supply/demand for the stock. you have to be quite objective to work out what happened tho.
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TheArsenal
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(Original post by crcr)
ok so presumably the reason you bought was to do with the merger...the thing with this is that you often are taking a big risk to get a smaller reward. in addition, the strategy isn't sophisticated so the risk-adjusted returns are likely to be pretty sketchy and you will never have the best information i.e adverse selection. but it isn't a bad idea for the type of competition you are doing. to work out what has happened you need to look at what the general market has done, what the stocks you picked have done, why they have gone up or down. my view is that over any period less than 6 months all your seeing is just changing supply/demand for the stock. you have to be quite objective to work out what happened tho.
Ok thanks.
When it comes to expected return should it always be 10-12%? I have looked at probability theory on google and saw this example

To illustrate the use of probability and weighted average to arrive at an expected return for an investment, let’s say that a given investment opportunity has a 50% probability of a 10% return; a 20% probability of a 12% return; a 15% probability of a 6% return; and a 15% probability of a 15% return. In this case, the formula for the expected return can be written as:

I am struggling however to see where they got these figures, or are these standard?

Also is expected return usually between 10-12%?
thanks
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DeeDub
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You have to remember that the price of an investment is related to probability of it generating a certain return. The most obvious example of this is with bonds in which the higher yielding (read riskier) are cheaper to account for the greater risk (this doesn't hold true in all instances but it is a good place to start).
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crcr
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(Original post by TheArsenal)
Ok thanks.
When it comes to expected return should it always be 10-12%? I have looked at probability theory on google and saw this example

To illustrate the use of probability and weighted average to arrive at an expected return for an investment, let’s say that a given investment opportunity has a 50% probability of a 10% return; a 20% probability of a 12% return; a 15% probability of a 6% return; and a 15% probability of a 15% return. In this case, the formula for the expected return can be written as:

I am struggling however to see where they got these figures, or are these standard?

Also is expected return usually between 10-12%?
thanks
well it depends...if you think 10-12% is a good return then yes. i don't want to get too complicated but for some reason 10% does appear to be the figure that most investors talk about (i.e when doing cost of equity calcs). interestingly considering your bskyb example, the expected probability is exactly how most merger arb places work (i.e Robert Rubin). your thinking about it too much, the figures aren't standard. however. outside of merger arb (where there isn't a defined event to which you can attach a probability) it doesn't apply.
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TheArsenal
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(Original post by crcr)
well it depends...if you think 10-12% is a good return then yes. i don't want to get too complicated but for some reason 10% does appear to be the figure that most investors talk about (i.e when doing cost of equity calcs). interestingly considering your bskyb example, the expected probability is exactly how most merger arb places work (i.e Robert Rubin). your thinking about it too much, the figures aren't standard. however. outside of merger arb (where there isn't a defined event to which you can attach a probability) it doesn't apply.
Ok cheers, i've been reading tons this evening and polishing up on maths, which is always fun . I had better stop now i've taken in alot thanks for the help now i feel i understand ALOT more now.
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Neocortex
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Depends where your benchmark is, where the market benchmark is, you comparing vs equity indices? Whats the opportunity cost of your investment as well? any FX risk? whats the volatility on that security? etc. Reading up on risk management and benchmarking will give you a better idea where you stand both performance vice and vs the market in general.
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