ISLAMIC FINANCE CERTIFICATE, Beleške' predlog Trzisna ekonomija
anes-prentic
anes-prentic

ISLAMIC FINANCE CERTIFICATE, Beleške' predlog Trzisna ekonomija

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Course: Islamic Capital Markets

Stock Market Game

Mentor: Azra Zaimović, PhD Student: Anes Prentić

Sarajevo, January 2017

Contents

1 Introduction.......................................................................................... 3 2 Stock simulator game.......................................................................... 3 3 Conclusions and lessons learned......................................................... 10 4 5. Resources...................................................................................... 10

1.

Introduction

During our Islamic Capital Markets course we had stock-game included. By using

“Investopedia” we arranged the game. This game allows beginners to feel the experience of

trading, investing, winning and losing. In order to be successful and properly analyze the

stocks, we were using the other sites, like Yahoo Finance.

During our game, every participant had the initial of $ 1 million. We had 13 participants in

total. We had some rules that we agreed at the beginning: 1) we will invest only in shariah

compliant companies 2) we will not trade with options, futures and other derivatives 3) we

will diversify our portfolio

2. Stock simulator game

At the beginning I invested in 4 companies that I previously finished shariah screening. Those

companies are: Opko Health, Manchester United plc, Adobe Systems Inc. The fourth

company “Microsoft” had high price stock, with expectation to decrease, so I decided to wait

with that stock.

Opko Health

The first company that I chose was Opko Healt, symbol OPK. Health, Inc., is

biopharmaceutical and diagnostics company, which engages in the discovery, development,

and commercialization of novel and proprietary technologies in the United States, Ireland,

Chile, Spain, Israel, and Mexico. Its diagnostics business operates Bio-Reference

Laboratories, a clinical laboratory that offers comprehensive laboratory testing services in the

detection, diagnosis, evaluation, monitoring, and treatment of diseases, including esoteric

testing, molecular diagnostics, anatomical pathology, genetics, women`s health, and

correctional healthcare to physician offices, clinics, hospitals, employers, and governmental

units.1 According to that, I realized that this company is doing shariah allowed activities.

1 https://finance.yahoo.com/quote/OPK/profile

Then I started with analysis of 3 financial criteria that every company should fulfil in order to

be shariah compatible. Here is the table of the analysis:

Criteria 1: Interest bearing cash and short term investments / 12 mnths average daily market capitalisation < 30%

0,65%

Criteria 2: Interest bearing debt / 12 mnths average daily market capitalisation <30%

0,17%

Criteria 3: Liquid assets including cash, short term investments and receivables /assets < 70%

15,08%

After I finished Shariah screening, I looked for the potential of this stock. According to the foll ow ing tab le, I rea liz ed tha t thi s sto ck ha

d very stable price, which had trend of growth. At the time when I was trading, the price was low, lower than average price in the past few months, so I expected that it will go back to previous prices, and that the price will soon go up. So I decided to buy it on 10.01.2017.

After I realized that price is not going up, but actually it fells more and more, I decided to sell

it on 19.01.2017.

Adobe Systems Inc.

My second selected company was Adobe Systems Incorporated. This company operates as a

diversified software company worldwide. Its Digital Media segment provides tools and

solutions that enable individuals, small and medium businesses, and enterprises to create,

publish, promote, and monetize their digital content. The company`s Digital Marketing

segment offers solutions for how digital advertising and marketing are created, managed,

executed, measured, and optimized. Its Print and Publishing segment offers products and

services, such as eLearning solutions, technical document publishing, Web application

development, and high-end printing, as well as publishing needs of technical and business,

and original equipment manufacturers (OEMs) printing businesses.2 According to this

statement, we can conclude that this company`s activities are shariah compliant. Next phase

was to analyse the financial criteria:

Criteria 1: Interest bearing cash and short term investments / 12 mnths average daily market capitalisation < 30%

8.85%

Criteria 2: Interest bearing debt / 12 mnths average daily market capitalisation <30%

4.23%

Criteria 3: Liquid assets including cash, short term investments and receivables /assets < 70%

39.74%

I chose this company since this is the strongest company of all my selected companies, with

highest stock price, with stable stock history and with good growth. Also, the motivation for

this stock came from fact that the IT industry in which this company operates is very popular,

with constant growth and fast development. This was my strategy to diversify the portfolio

and secure better profit in total.

Since I bought this stock I have stable growth and this stock gives very good impact on my portfolio.

2 https://finance.yahoo.com/quote/ADBE/profile

Manchester United plc

Manchester United plc, together with its subsidiaries, engages in the ownership and operation of a professional sports team in the United Kingdom. It operates Manchester United Football Club, a professional football club. The company is also involved in media, property investment, and subscription TV channel activities. In addition, it markets and sells sports apparel, training and leisure wear, and other clothing, as well as other licensed products, such as coffee mugs and bed spreads featuring the Manchester United brand and trademarks through its Manchester United branded retail centers, e-commerce platforms, and wholesale distribution channels; and markets content directly to its followers through manutd.com and associated mobile properties.3

This pharagraph shows that this company is doing shariah allowed activities. So I continued with the financial criteria calculation, and I found these results:

Criteria 1: Interest bearing cash and short term investments / 12 mnths average daily market capitalisation < 30%

12.78%

Criteria 2: Interest bearing debt / 12 mnths average daily market capitalisation <30%

28.42%

Criteria 3: Liquid assets including cash, short term investments and receivables /assets < 70%

25.73%

3 https://finance.yahoo.com/quote/MANU/profile

Man utd stock was interesting for me because it totally diversifies my portfolio.

That is the sports business, which is not related to any other stocks in my portfolio. Manchester United had few bad seasons, and with new manager, it is expected to generate better results, titles and further more, increase on stock price.

This stock had stable price, with small fluctuations. I should buy it in December, but, I bought it at the start of January, so that is the reason I didn`t managed to realise the increase in price. I hope the price will continue to grow in future period.

4.

Conclusions and lessons learned

Starting with 1 million was a very interesting and challenging. My strategy was to invest in stable and strong shariah compliant companies, with high average price and volume, but also to invest in different industries in order to diversify my portfolio. In the beginning I had good profit on my portfolio, but later, prices started falling, especially Opko Health. So I decided to sell those stocks, and buy other stocks, such as Microsoft. That was not so good decision because Microsoft didn`t return my lost money. At the end of trade period I had $989,656.24 account value, and negative Annual Return -7.76 %.

Good decisions:

- I managed to find shariah compliant companies and I bought those stocks

- I managed to diversify my portfolio with at least 3 different industries

Bad decisions:

- I didn`t apply more detailed analysis of future prices of certain stocks

- I should have included more companies in my portfolio

- I should have been more active in the market, to buy/sell more frequently

5. Resources

http://www.investopedia.com/

https://finance.yahoo.com/

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