KWHS 2019-20 Region 2 Final Report - Stratton Oakmont

Jayshree Periwal International School - Jaipur, India

OTIS - 36308

Team Leader:
Mridul Saraf

Team Members:

Krish Patel
Vishnu Sojitra
Devansh Barman
Meet Chaudhari
Aryan Verma
Avya Rathod
Section 1: Investment Recommendations
At Stratton Oakmont, we most profoundly desire and respect a distinct investment model for

each of our clients, and Mrs. Reshma Sohoni is no exception. Analysing the needs of our client,

we decided to invest 75-80% of our portfolio funds in securities dedicated to long term goals and

about 20-25% in securities showing potential short term benefits. Inspired by our client’s

Instagram account, we named our stock selection process as ‘serving the perfect meal’, which is

choosing the right dishes (stocks) for the customer (client). To optimize the portfolio for Mrs.

Sohoni, we synchronized investment fundamentals (Modern Portfolio Theory, Financial Ratios,

SWOT analysis, Heptalysis, etc.) with advanced computational techniques (Sentiment Analysis,

Vector Machine Regression, LACE).

To make a customized portfolio for our client, we had to better understand her practices and

other traits that defined her interests and beliefs. We observed her interest in companies that

valued their human resources and technological aspects equally. Through her article on

LinkedIn, we gauged her interest in ‘storytelling’ - something we kept in consideration

throughout our decision-making process. Analysing her LinkedIn account, 8878 tweets,

Instagram account, and various interviews, we built a client analysis that consisted of her goals,

wealth, psychology, and responsibilities. Succinctly, our aim was to align our strategies with our

client’s psychographics to cook a mouth-watering meal for her.

The restaurant’s menu, the KWHS stock list, offered 507 dishes. Obviously, our client’s meal

could not consist of all the dishes, so we had to condense the menu according to our client’s

taste. Thus, we used a zoom-in approach for our stock selection, which revolved around the idea

of selecting fitting stocks for our clients from growing sectors in healthy economies. The process

of choosing the stock market securities was as follows: selecting economies with favorable
macroeconomic conditions, then identifying sectors with room for growth and innovation, and

finally singling out companies that promised to cater the specific needs of Mrs. Sohoni. We used

the ‘country filter’ to select the most favorable economies: The United States, India, The United

Kingdom, and China. By doing so, we could shortlist stocks more efficiently. Keeping in mind

the United Nations’ prediction of an upcoming global recession, rising trade tensions and

uncertainty due to Brexit, we had to sort-out the safest and most stable companies which would

retain their value and offer room for expansion during a recession. Our foremost choice was the

United States, as it accounted for about 40% of the world’s market capitalization and was the

most liquid market in the world. India is the world’s fastest-growing economy. It attracted us by

its ever-rising consumer disposable income, which is a major contributor to the rising demand

for electronic banking and credit facilitating, showcasing a prosperous future for the financial

sector. India's policies are unprecedented in their ability to support businesses, with Foreign

Direct Investment facilities improving for financial sector industries. China’s business climate is

one of the most favorable, with the Government’s constant support via tax breaks, and a vast

allowance for FDI(s). Along with its mighty population, the country’s openness towards trade is

unparalleled. China is amidst a shift towards an urbanized society, which makes it a quick pick

for investment. Our firm was ambivalent to invest in the UK due to the long-standing conflict

with the EU. Brexit had brought bears in the market and had increased market volatility. But,

after thorough research, we found the effect of Brexit to be diminishing. This market condition

gave us an opportunity to identify potentially undervalued stocks for our client. Hence, we took

the UK into consideration.

Via this country filter, we were able to eliminate about 50 stocks from the stock list. We needed

to make the portfolio diversified so that it could sustain its value even through harsh economic
conditions, that meant investing in at least 6 out of the 9 sectors. The work was done by dividing

each sector of the allotted companies amongst our team members and doing a concise PESTLE

analysis of each individual sector, which involved analysing Political, Environmental, Socio-

Cultural, Technological, Legal, and Ethical factors.

By this approach, we eliminated 52 stocks from the consumer staples sector along with 46 stock

from the materials and processing sector. But our menu required further trimming to become

appealing for our client. Hence, we divided her meal into two parts: the appetizers (short-term

investments) and the main course (long-term investments). For our main course, we devised an

algorithm for quantitative analysis of the securities called ‘The Pizza’.

Each slice of the pizza represents one factor that affects a company and accounts for 20% of the

total value of the pizza. The slices are as follows: the company's future prospects, its past

performance, the price of the stock relative to intrinsic value, the company's financial health, and

its competitiveness in its market. The greater the score (out of 20%) of the slice, the better that

individual factor is for the stock. The ratios and other financial data that we use to create each

slice are Sharpe Ratio, Price to Earning Growth, Debt to Book value, M Score, Return on Equity,

Alpha, Beta, Return to Capital Employed, Price to Earnings, Price to Book Value, Price to Sales,

Debt to Capital, Debt to Assets, Quick Ratio, Earnings per Share, Market Share and Standard

Deviation. This algorithm incorporates financial ratios and other related numerical data to

generate a pizza percentage score (from 0 to 100%) for the stock whose ticker name is input and

outputs a pie radar chart indicating the strength of each factor. To get real-time financial data, we

used Quandl (a web source for financial, economic, and alternative datasets). After retrieving

data from Quandl, the algorithm stored the contents in a .csv file. Then, the algorithm compared

these values with the average values of the past 5 years of the individual industry and the country
of the security. Finally, the algorithm creates a pie-radar chart from the output data. For example,

we have illustrated the pizza of Microsoft (NASDAQ: MSFT).

The final pizza generated by the algorithm determined whether the business was doing better or

worse than the industry, its control on the whole market, and condensed various other parameters

into a simple model. Hence, it saved us from the unprofessional and tedious task of researching

every single stock. We eliminated companies that had a pizza percentage of less than 75%.

However, we still had not accounted for qualitative factors. Now that our main course was

planned, we started to cook the appetizers.

For short-term stocks, our firm tried to account for every variable that could potentially affect the

portfolio strength, and we did so by evaluating the public sentiment and predicting the future

value of our portfolio using our machine learning model. Also, while investing in short-term

stocks, we kept in mind our client’s purpose to do so: powerdown.co, which required large initial

funding to support its capital-intensive requirements. Hence, we had to yield a significant profit

from the short-term allocations.

Firstly, we had to gauge the public sentiment for the companies in our portfolio, for which we

used social-media websites like Twitter, Instagram, and Facebook to judge the sentiments

regarding a stock at a given time. For a deeper insight, we used tweets by various sources that

framed a company’s perception in the market. Using twitter API client, we analyzed hundreds of

tweets posted by consumers for a particular company whose name was input as a query which

was processed through the regex, tokenization, POS (Parts of Speech), splitting, and selection to

determine if a tweet about the company is positive or negative. We ran the program and noted

the responses of the program which provided us the total percentages of the tweets that were
positive or negative. To get a sense of the quality of leadership of any corporation, we also

queried the names of the business owners and board of directors to be heuristically conscious

about the social sphere of a corporation. Along with the social media analysis, market sentiment

indicators helped us perceive the market’s opinion: the VIX (Fear Index), High-Low Index and

Moving Averages, provided us with the quantitative element of consumer and investor

sentiment. Whenever we saw a stark positive difference between the positive and negative

sentiments for a stock, we shortlisted that stock. Apart from the general sentiments, we

constantly checked the major news websites that could potentially sway the public’s views,

therefore we had accounted for most of the public’s sentiment.

Secondly, our strategy included a machine learning module, which used vector machine

regression and linear regression to predict the future price of any stock. The model predicted

individual stock prices to about 10 days with an accuracy of 66.02%, therefore assisting us in

short-term allocations. However, we realized that regression alone cannot guarantee business

profitability, and hence a structured portfolio was needed in the long term. This was due to the

fact that the functional form of the relationship between many financial variables is not easy to

determine. Thus, we included further features into the model: LACE (Learning to Assess from

Comparison Examples) and RFE (Recursive Feature Elimination) algorithms, these incorporated

preferential learning (a technique used to predict if a stock will have a higher price in the future

than another stock without actually calculating the exact numbers) rather than simple stock

classification. Hence, we reduced the loss of exact information about the stock price as well as

eliminate the need to define the exact functional form of the relationship among the variables

under study.
Lastly, when we were done with the analysis, we made our purchases by utilizing The

Modern Portfolio Theory. Maximizing the reward to risk ratio for Mrs. Sohoni, we

plotted individual stocks on the efficient frontier, graphing the active returns (alpha)

against the risks (beta). Then we determined the tangency portfolio, and calculated the

point with the highest return for a reasonable level of risk.

To summarize our recipe: we divided the stocks country wise, and eliminated countries with

poor economic weather for businesses. Then, we conducted a qualitative analysis using PESTLE

and Heptalysis to shorten our menu further. Next, came our pizza which helped us list out

companies with poor prospects from a financial perspective. Next on the menu were the

appetizers, which we shortlisted via our sentimental analysis and real-time price prediction. To

invest our cash, we used The Modern Portfolio Theory, and found the optimum investment

amount to be invested for each security. All methodology that we applied collaboratively helped

prepare a more suitable and nutritious meal for our client.

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Section 2: Investment Decision Process

Our firm consisted of individuals specializing in their respective fields, and with every minute

opportunity to have a discussion, we frequently received opinions that were vastly distinct in

their approach. This often led to conflicts that resulted in squandering of our limited time. To

solve this issue, we came up with a unique solution: giving each member an equal amount of

time to briefly express their views. Once each member had put forth their perspectives, we took a

vote to gauge its appreciation by all of our teammates. If the vote exceeded 4 members, we

proceeded with that idea. Whenever the vote count was less than 4, we did a force field analysis,
and considered the driving and restraining forces for every decision. It was imperative to respect

each view, in order to prompt our team members to put forth their ideas in the future. Hence, we

were able to combine strategies from varying origins, from heptalysis to a machine-learning

program, deliberating the need for diversification in our strategies. Initially in the competition,

we used a single numerical such as P/E or the rise in net profit, but as the competition proceeded,

we realized this was an unnecessary process. We came up with the pizza approach for our

quantitative analysis, (mainly because of our client’s immense love for food) which helped us

integrate a variety of financial ratios while avoiding the unnecessary research. As we move

towards the end of the competition, we notice that this simple change in our approach

remarkably enhanced and accelerated our decision-making process. If we were to change

something in our decision-making process, we would have requested additional knowledge from

experienced traders, which could have strengthened our grasp on some concepts. Moreover, an

integral part of our discussions was to record a ‘minute meeting log’ (these are the detailed notes

that serve as an official written record of a meeting.) Following the technique of ‘minute meeting

log’, we could easily synchronize the ideologies and strategies that each member contributed.

Updating this log on a regular basis made us observe how our strategy evolved through the

distinct stages of this competition. All these little nuances in our decision process aided us in

cooking the perfect meal for Mrs. Sohoni.

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Section 3: Team Dynamics

At Stratton Oakmont, we believe in intertwining the team members with a strong bond of

professionalism and camaraderie. We often held opposite views but we addressed each opinion

with the utmost respect and in compliance with the decision making process. This dynamic

moral is the core of Stratton Oakmont which powered us in difficult times when the market was

in the valley. The Executive Chef of our kitchen (Team Leader), Mridul Saraf is the ultimate

risk-taker who takes on opportunities as they come and holds the final call on the strategies to be

used. Krish Patel, the Chef de Cuisine is the stock maniac who monitors the stocks of the
portfolio both on the graph as well as on social media day and night to ensure that returns are

maximized and fund waste is minimized. Vishnu Sojitra, the Sous Chef, is the string of our team

and economic researcher who holds us all together, pushes us to work when the market rages,

and brings uniqueness via creativity in the investment strategies. Devansh Barman, the Chef de

Partie, is the statistical supremo of the team who scans and maps the financial reports of every

potential corporation to reveal the hidden tastes behind the elusive numbers. Meet Chaudhari, the

Commis Chef is the Fintech enthusiast who loves to handle large data sets via advanced

computation techniques to provide the team with the computational power of the 21st century.

Aryan Verma, the junior Commis Chef, is the scientific mind behind the team that brings the

latest innovations of the business world (business models, product innovations and supply chain

solutions) into the team with sound research. Avya Rathod, the Escuelerie, is the investment

analyst who thoroughly reviews our investment decisions and their consistency with the aims of

the portfolio. Deliberately composing our team with expansive skills was integral to our success

as a trading firm.

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Section 4: Ethics

We at Stratton Oakmont, believe in availing ethics to our advantage. The morals and virtues that

we believe in establish our firm as one with integrity. When clients invest in a trustworthy firm,

they feel confident to invest a second time. As for employees, their willingness to work for an

ethical firm boosts their motivation and consequently raises our firm’s employee retention rate.

At every step, the team’s ethical conduct was tested. To provide you with some more insight, we

would relish apportioning with you how we upheld our ethics in the immediate environment that

we were working in. In our school, a significant number of teams were formed for this
competition with only a limited number of mentors to guide each team. Directing more than one

team, the mentor(s) could have access to the strategy of multiple teams. Attestation of our virtues

would be the fact that we did not ask the mentor for an insight into other teams’ strategy or stock

selection. Being a team firm in our testaments, we have not used any non-ethical means,

including eavesdropping on other teams for any section of the research and analysis required.

Throughout the course of the competition, we ascertained that under no circumstances would we

let slip from our mind the ethical obligations we had as a firm, and respected other teams’

privacy to create a level playing field. Hence, our firm doesn’t just adhere to ethics but believes

in using it as a secret ingredient for our perfect meal.

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Section 5: Takeaways

When we first heard about this investment competition, we were exhilarated, and all ready to

delve into the world of investments. But as we further learned about it, we realized the amount of

research and effort that would go into the competition and now, if we were to change one thing

from the start of this competition, we would have begun the organization and planning earlier.

On realizing the importance of the competition, our team had accelerated our efforts and had

started to respect the privilege that we held in being a part of this competition. Our team

members shared their individual expertise about various subjects such as Computer Science and

Accounting, to combine knowledge and generate an integrated portfolio. This competition

presented us with a platform not only to learn but to apply the knowledge we learned into a real-
life simulation. Expanding this knowledge, we started a club of financial literacy to educate our

juniors about the importance of learning about the monetary world and to encourage them to test

their knowledge in the KWHS platform. We also developed a stock market competition of our

own via Market Watch (An online stock market simulator) in our school. As we end this final

report, we can indubitably express the fact our ability to research, communicate and put forth

ideas has improved exponentially. We, as grateful students, highlight the joy we felt while

competing with students around the world, and the joy of becoming proficient in the language of

the stock market.

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China World Trade Center (SHSE:600007) : It operates commercial mixed-use developments

in China. Past earnings have risen by 23.6%, and future earnings are expected to rise further. The

stable dividend track record and stable price levels over the past 5 years increase the overall

stability of our portfolio.

INT10966: Sun Pharmaceuticals (NSE:SUNPHARMA). Its earnings revival is expected to

continue in the coming years: net profit in 2019-20 is expected to be 35% higher than what was

estimated for 2018-19. Several factors are contributing to this earnings revival, most important

being the expected growth in its speciality business in the US, and various new markets.

INT8220: Pearson (LON: PSON) PLC has a P/E of 13, which is highly favorable compared to

its sector. If we focus on the stock's long-term PE trend, the current level reveals its undervalued
nature. Pearson plc currently has a Value Style Score of A, putting it into the top 20% of all the

stocks we cover from this look.

JBLU: JetBlue Airways (NASDAQ: JBLU) is a low-cost aviation company based in America,

which is one of the most efficient airlines in its industry. It is introducing a plethora of new

flights connecting America. The company’s capacity has grown by 4% in 2019, and with its net

profits increasing consistently in every quarter of 2019. Due to its cost efficiency, it is one of the

most competitive in the market of airlines.

HBIO: Harvard Bioscience’s (NASDAQ: HBIO) revenue growth is expected to accelerate in the

coming years, indicating a solid future ahead. Unless expenses grow at the same level, or higher,

this top-line growth should lead to robust cash flows, feeding into a higher share value. The

company is expected to earn $0.08 per share for the current quarter, which represents a year-

over-year change of +14.29%.

Now, for the main course:

INT10938: GAIL (NSE: GAIL). The petrochemical giant is recovering from a valley in its

business life. Despite the fall in petrochem prices, GAIL should be able to protect its margin

because natural gas prices are sustainably rising. The Indian economy is now investing heavily in

natural gas related areas like city gas distribution system, regasification terminals, conversion of

fertiliser plants to natural gas, etc. Hence, via the suitable economic conditions, profits are

predicted to rise by 50% in the next five years.

TCS: Tata Consultancy Services (NSE:TCS) India's largest IT Consulting & Software

company by market cap, offers a diversified portfolio. It has announced the launch of its Quartz

DevKit, which is helping programmers to fabricate and apply new business code on their
preferred blockchain platform, which is supporting startups extensively , which is exactly what

Mrs. Sohoni’s seedcamp is doing.

MET: MetLife (NYSE:MET) It provides insurance and financial services to individual and

institutional customers. It announced a $10 million Workforce of the Future Development Fund

and forged a 3-year (2018 – 2020) strategic partnership with MDRT for exchanging marketing

and sales practices and skill development. It also established a company minimum wage of $15

an hour (twice the federal min. wage).

BMY: Bristol Myers Squibb CO (NYSE: BMY) is a global biopharmaceutical company

committed to provide top quality innovative medicines to curb the growth of serious diseases. Its

pizza percentage score was the highest in our portfolio. Its sales increased to $6.27 billion,

mainly due to the sales of Eliquis. Bristol-Myers Squibb and AstraZeneca provided a 5 million

dollar grant to the American Diabetes Association's Pathway to Stop Diabetes program.

MSFT : Microsoft Corp (NASDAQ: MSFT). It develops, licenses, and supports a range of

software products, services and devices. Windows 10, its top of the line product, saw an

increased user-share by 3.1%, to stand at 48.9% in the overall desktop market. Its commercial

cloud revenue advanced to 35.6% ($11.6 billion) while the gross margin on this business came in

at 66%, (+4% year on year).

MAR: Marriott INTL Inc (NASDAQ: MAR) is a diversified hospitality company that manages

and franchises a broad portfolio of hotels and related lodging facilities. It has 30 brands and

7,000+ properties across 131 countries. It reported a $203 million increase in fourth quarter

reported net income from 2017 to 2018. It is also planning to expand through development of 20

more luxury hotels internationally, and has announced to give dividends worth $11 billion by

2021.
ADBE: Adobe INC (NASDAQ: ADBE) is a multinational software company based in California

that releases industry-leading creative apps with simple license management and easy

deployment. It constantly updates its applications, making it the most dominant in the industry. It

also acquired Magneto (cloud platform company), leading to 34% increase in revenue from

Adobe’s Customer Experience Cloud. Yearly adjusted earnings per share increased 25.1%

and total revenue increased 21.5%.

FB: Facebook. Inc (NASDAQ: FB) is a social media giant based in California. Plans such as

launching its own cryptocurrency, major updates to its application and incorporating shopping to

its media-based apps, along with its robust financial position make the stock a top pick for long

term growth. It also acquired Bloomsbury AI (seed funded by SeedCamp) for countering fake

news. With its operational leverage, Facebook is predicted to experience a rise in earnings per

consumer with a relatively lower rise in total costs.