[in-depth] Be fearful when others are greedy. Be greedy when others are fearful.

“I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” — Warren Buffett

GENERAL PROGRESS REPORT 

Wow, the last blog post before in-depth night. I can’t believe 3.5 months have already passed since I first began this project. To end off this year’s in-depth, David and I are developing and maintaining a trading portfolio on Wall Street Survivors, an online stock trading simulation program. The progress for the past three weeks has been a bit slower, especially as David and I are both heavily involved in and preparing for an extra-curricular event taking place this weekend. 

We researched certain stocks during spring break and compiled a list of potential stocks we can buy. David and I each decided to buy into three different stocks to maximize collaboration and autonomy. For my portions, I tried to mimic a mutual fund ETF method and split my list into 3 areas of investments: technology, medicine, and ETFs. I filled my list by looking at news articles, social media discussions, researching each sector’s leaders, and talking to my mentor. As this is our final project, I’m really hoping for a positive result and I’m careful to achieve that. I gathered 9 stocks I thought to be with momentum, three in each sector, including large cap stocks, like Tesla and Twitter, and penny stocks, like DOGE coin. Then, I cut my opinions down with the help of my mentor and David. In the end, I invested half of our simulated stock portfolio and David controlled the other half. The three stocks I ultimately chose were Bloom Energy Corporation, ARK Autonomous Technology & Robotics ETF (ARKQ), and Moderna. These stocks were chosen for their relatively low price and their growth potential. Currently, I’m pretty happy with their performance. Even though I bought Bloom at a slightly higher price on Tuesday, I was able to sell half of my shares and wait for a more significant dip. I would have preferred to purchase shares in addition to the shares I already owned as Bloom might have skyrocketed after I sold some of my shares, but I didn’t have enough cash to make additional purchases. Luckily, there was a dip and rise later in the week when J.P. Morgan, an influential investment banking company, upgraded Bloom shares from “neutral” to “overweight.” I still made a profit after that risky move. Unlike David’s, my starting investment plan doesn’t rely on or consist of complicated strategies other than the grouping and monitoring technique we used with Tesla stocks. With this technique, we basically grouped Tesla stocks into units and interacted with these units daily, depending on their performance. This approach, though time-consuming and tedious, allowed us to have greater control and gained us a profit of 6.2%. Though there’s hope for great gains on Tesla, we need to remain cautious in this volatile market. Since we started managing our portfolio, we have made a 12.5% profit. Specifically, in the past three weeks, we gained a net profit of 3.5%. I’m very proud of these statistics and hope to improve this throughout the next month.

My mentor, David, and I also discussed basic stock valuation techniques and a variety of different stocks and each of their characteristics. For all three of my chosen stocks, I attempted to evaluate them each with one of the three basic models: the Dividend Discount Model, the Discounted Cash Flow Model, and the Comparables Model. However, whether that was a success is debatable. I paired Bloom Energy and Moderna with the Discounted Cash Flow Model because they both don’t have a dividend and I used a Comparables Model for the ETF stock. By revaluing these stocks, I found that Bloom Energy is a bit undervalued, Moderna’s surprisingly accurate, and ETF funds are just really hard to evaluate. My mentor also explained to David and me that, though these methods are great to analyze the current status of stocks with, we shouldn’t trust these methods to predict a stock’s future development as much. Furthermore, he also introduced us to some general classifications of stocks: penny, income, speculative, growth, and value stocks. Penny stocks are shares that trade for less than $5 each, income stocks offer investors steady dividends from their profits, speculative stocks are risky with substantial payoff by companies that are emerging, growth stocks grow their values, doesn’t pay high dividends, and investors earn capital gains on the increased value, and value stocks are generally underestimated and investors, by purchasing these stocks, gains their potential when the stock value rises. These are only 5 of the many stock classifications and our mentor urged us to research other types of stocks in the following weeks. 

 

NEXT STEPS

For the next month, I’ll be planning and setting up my learning center, monitoring and expanding our portfolio, and engaging with the market. Though our structured-learning period is over, David and I will still be meeting our mentor on a bi-weekly basis to discuss financial news, stocks, and trading tips. We will also be learning more about valuation methods and how a real-life trader approach trading and stocks

 

LEARNING CENTER

As we are reaching the end of this year’s in-depth project, I need to start preparing my final blog post. I will portray my artifact and present my learning in an easily understood and unforgettable way. Though David and I don’t have a definitive plan, we plan to guide the visitors of our blogs through the process of stock trading and the stock market. We discussed creating an interactive presentation to engage our plethora of audiences and display our portfolio and achievements. Currently, we have two major ideas in our decision range. We can make a game, based on the real-life market, where we provide people with limited pieces of industry news, details on the companies, and stocks to invest in. After they chose an interaction, like shorting, buying in, or selling, we reveal what actually happened and why. Alternatively, we can also compile a video that explains how certain financial sectors or the market functions. We have been trading ideas and concepts, but they are still rough. David and I will probably reach an agreement and start assembling our learning center next week. 

 

HOW TO HAVE A BEAUTIFUL MIND: CONCEPTS AND ALTERNATIVES 

In the ninth and tenth chapter of Edward de Bono, in How to Have a Beautiful Mind, guides readers to develop a beautiful mind through the handling and identification of concepts, “the parents of practical ideas,” and the potential and flexibility of alternatives, the parents of change. In my conversation with my mentor and David, we explored a variety of concepts, some more complete and others more raw, and we looked for alternatives, especially of actions and perceptions.

By examining concepts and identifying them, we can “‘breed’ other ideas from the concept.” In our meeting with our mentor, we studied some concepts of the financial industry and there were a lot of financial concepts to investigate. These concepts include the stock market, economics, investment, and behavioral finance. For example, the concept of the stock market, as implied by my mentor, is to publicly share a business and ensure mutual profit through stock shares. Stocks exist to raise capital for businesses and this capital will then be used to gain more profit, for both the company itself and the shareholders. These stocks also engage the general public with the financial market and thus, the economy, which is beneficial to the economy, the businesses, and the participants. We also discussed what drives the stock market. Though we have previously touched on this idea and concluded the fluctuations of stocks are due to perception and other external influences, last week, my mentor advised us to also consider the two basic human emotions that cause unpredictability and volatility: greed and fear. Simplified, there is a behavioral finance spectrum. On one side, greed can lead to irrational and highly risky investments and create a volatile and unsteady market. On the other side, fear, invoked by situations like the COVID-19 pandemic, will produce market lows as investors sell and trade stocks for low-risk but low-return assets. When people are overtaken by either extreme greed or extreme fear, the market sickens and prices are distorted. The calculations and considerations involved in the greed and fear index are very complex and unfortunately, David and I couldn’t fully comprehend the entirety of this idea. Overall, from the very broad, abstract concept of the stock market, we ‘bred’ multiple more specific, more useful, and more tangible ideas, following Bono’s characterization of concepts.

Though we didn’t outright discuss the concept of organization, it was another dominant concept in my last meeting with my mentor and David. When our mentor was providing us with trading techniques to experiment with, he highlighted how stock traders need to remain organized and plan their trades. I identified the skill-based concept here, and with it in mind, we then turned our attention to practical ideas and strategies that can achieve the essence of this concept. These are more practical suggestions, like using Excel to track our trades, placing limit orders and specifying a certain price to buy in at, and collecting potential stocks and comparing them before trading. In hindsight, it was really interesting how we narrowed down the concept and crystallized our ideas from there. Having a conversation with a clear concept brings efficiency and allows us to experiment with ideas with potential and limits unnecessary distractions.   

Paul Samuelson, an American economist, once said “Economics is a choice between alternatives all the time. Those are the trade-offs.” Alternatives, according to Edward de Bono, are starting points of growth. Throughout this entire journey, I had to constantly adapt for the better, especially in such a difficult time, and my mentor supported us by providing alternatives. When David and I were stuck or conflicted, our mentor encouraged us to analyze “the other options” because “finance is a complete but hiding thing. You need to look at it from different perspectives.” Honestly, as our mentor really supported the autonomy of our project, most of our learning was through alternatives. For instance, in our last meeting, while we discussed stocks, he gave us some perception alternatives. He redirected our focal point from certain stocks’ performance in the past to their future and he offered us alternatives on the motivating factors of the market, such as investor sentiment, news, and the global economy. Our mentor also offered us action alternatives from the beginning of the project. We entered in-depth wanting to dive right into stocks, investing, and complex topics, but, in a discussion about our next steps, our mentor provided us with multiple more suitable, introductory alternatives to pursue. These include research and analysis projects, which we later took on, personal finance projects, investment projects, book reports, and other hands-on activities. Combined with our own alternatives, we had a wider range of choices and a better understanding of how inadequate our original plan was. Alternatives allowed us to refine our existing plan. 

Our mentor valued our autonomy and our opinions, but he assigned us many projects that weren’t directly related to the stock market and more finance-focused. With another mentor, they may give us more stocks-related tasks and fewer exploration-based tasks. Furthermore, they may also approach the mentorship differently and teach us with lectures and structured lessons. Depending on who they are and their experience with finance, we may also receive a variety of perception alternatives. Though I’m really happy with my mentor, I would love to learn from different mentors and observe their investment strategies.

I can’t believe how fast time has passed. I’m almost done with my last in-depth project and my TALONS experience. It’s scary, but I hope for greater things to come. The journey this year was interesting and a bit challenging. I learned a lot, both financially and relating to beautiful minds. I sincerely appreciate this opportunity to explore my passions and build skills for my future. Grateful for the support of my family, my mentor, my teachers, and my peers!

see you at in-depth night,

joanna

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