The first step of the simulation consists of building a personal Investment Risk Policy Statement. MCF students have to answer some key questions about their own likelihood or aversion towards risk undertaking, both on a broad point of view and on a finance-centered standpoint. Of course, there are no pre-set “right” or “wrong” answers: the right answer is simply the one that best fits their respective personalities, mindsets, goals, etc.
The second step consists of navigating the vast sea of financial markets: MCF students are equipped with top-notch financial databases, namely Datastream Advance and Bloomberg, and they use them in order to set and run a portfolio. They must aim to a performance that faithfully mirrors and closely sticks to the abovementioned Statement. They are aware that common financial wisdom wants no lunch to be for free, and that this means that the very first risk consists of getting no meal. Staying on the sidelines is risky too, thanks inflation. Thanks to these and many more considerations, the Portfolio Management Simulation is equipped with a set of clear rules. The most important are the following:
- Building up a manageable portfolio: no more that a given number of securities, including cash.
- Asset allocation as mix of equities (including shorting), government and corporate bonds, currencies, commodities, ETFs and Real Estate investment vehicles;
- Limits to the weight of a single holding on total portfolio;
- Limits to the frequency of trades and to total portfolio rotation;
- Frictional costs and tax effects of trades always to be taken into consideration;
- Full accountability and transparency on portfolio management faring anytime MCF students are requested to.
