The following criteria will be used in assessing this assignment:
1. Analytical & problem-solving skills (30%): Depth of analysis, and extent of understanding of the analytical techniques used; breadth of knowledge demonstrated; the relevance and practicability of the recommendations made and the extent to which they relate theory to practice, etc.
2. Theoretical understanding (30%): The ability to interpret and apply theory in a practical context; the use of theory to explain concepts and real phenomena; recognition and ability to articulate differences and contradictions between difference theories.
3. Written communication skills (30%): Report-writing ability - power of expression; clarity of language and analytical logic; originality and effectiveness of structure and presentation.
4. Planning & organisational skills (10%): The manner in which the task was approached, the extent of background reading done.
Submission Deadline: Monday 22 August 2017
You have been asked to prepare a report for The Penge Investment Club concerning the risk and return of investment strategies and the benefits of a diversified portfolio. The Club has seven members and meets on a monthly basis although they communicate frequently with each other using social media. It has a constitution and the principle investment focus is in bonds and shares.
Tahera Begum is the chairperson of the Club. She is proposes that the members should adopt a low risk policy obtain a fair return. She proposes that the club should focus on investing in mutual funds, ETFs or a portfolio of blue-chip stocks and gilts. In an email to you, Tahera has written the following:
“I am concerned that some members of the Club have very significant disagreements about the strategy (or strategies) that we should follow and others do not understand some of the theoretical language and jargon that is used in our meetings. I have been trying to educate the group with some theory but I am not an expert. There are concepts such as the Efficient Market Hypothesis, Portfolio Theory, the Capital Asset Pricing Model, Behavioural Finance and Information Asymmetry which I think that I understand but I really need someone who is a little more expert than me to explain them in the context. I understand that you have studied finance and may be able to provide us with a basic guide. We are all busy people so I would recommend that the report should not be greater than 1,500 words.”
In subsequent email communications you have learned the following about the Club:
• Jack Brown, the Club Secretary, advocates a more speculative approach and has proposed that they should target specific companies quoted on AIM which he believes will perform well. He scrutinizes the accounts and potential performance of newly quoted companies which he considers to have very good prospects. He provides members with his research and investment proposals at each meeting. Jack has been successful at selecting some winners but some of this choices have performed badly.
• Helena Spiropoulou is the Treasurer for the Club. She watches market movements and advocates that the club should follow market trends and buy and sell on this basis. She regularly provides the Club with charts and statistics on price movements and volumes to promote her preferred investments. Helena has had some partial success with this strategy and made quite significant gains on some trades but has also made losses on others.
• The remaining four members of the Club are less dogmatic and do not have a strong understanding of Financial Theory. They have asked for some advice from an expert so that they can decide on the most suitable strategy to pursue. Hence Tahera has asked you to provide independent clarification to help all members to understand the benefits and risks of alternative investment policies.
You are required to provide a report of approximately 1,500 words that addresses the following:
1. Defines the three strategies proposed by Tahera Begum, Jack Brown and Helena Spiropoulou. (30%)
2. Explores the theoretical ideas underlying each strategy. (30%)
3. Explains the risks associated with the strategies. (30%)
4. Proposes how the club should resolve differences in preferred strategy. (10%)
Initially you should:
• Research investment clubs to be become familiar with their purpose, aims, management and any guidance given relating to investment strategies.
In the report you should
• Consider the features the three trading strategies described and explain the terms used to define them. You should contrast the methods used to obtain a return for each.
• Review the theoretical concepts that are mentioned in Tahera Begum’s first email. Demonstrate how they relate to the strategies that are being proposed and the assumptions that are being made.
• Distinguish between different forms of risk that are taken with each approach to the investment and what impact they may have on overall returns. You should consider the long-term and the short-term return.
• Consider how the club can come to a consensus. You are not required to state which strategy should be adopted. However you should propose a method for the Club to develop a coherent investment process which addresses the policy of the Club members and its implementation. (10%)
• You should cite sources to theory throughout the report and provide bibliography using the Harvard Referencing System ;
• There is no specific word limit for the report, but the recommended maximum of 1,500 words should be enough to thoroughly meet the requirements.
Students are reminded that plagiarism is not tolerated. This is an individual piece of work. In the case of plagiarism being substantiated, all students concerned face the possibility of receiving a mark of zero and/or other penalties as deemed appropriate under the University’s policy on Academic Misconduct.