Category: Competitions

The Husky Investment Tournament hosted this spring by the College of Business (COB) at Michigan Technological University drew more than 300 high school business students across the region to compete for a cash prize and scholarships toward a Michigan Tech education. 

The competition utilized a virtual stock-trading tool and College faculty-led video modules to help high school educators lead engaging conversations and lessons of their own. Teams of three to four students received $1,000,000 in virtual U.S. dollars to build a portfolio. The group with the highest-valued portfolio earned $1,000 in prize money and all students who actively participated were awarded scholarships to attend Michigan Tech.

“The purpose of the Husky Investment Tournament is to offer more students more pathways to discover business opportunities at Michigan Tech,” said Dean Johnson, dean of the Michigan Tech College of Business. “We want young people to understand that investing is the key to their retirement and we want to help demystify the stock market in a hands-on and dynamic way.”

Students from Hancock Central High School in Hancock, Michigan, came in first place at the conclusion of trading earlier this month. Despite the stock market declining by 26% during the contest, the team of Ryan Levanen, Lance Meyette, Blain Stromer and Sam Stromer earned a positive 24% return. Their teacher, Leanne Laakonen, was impressed with how enthusiastically they participated: “They were emailing me, reaching out for updates — I’m immensely proud of them,” she stated. 

A New Way of Doing Business

When the outreach initiative kicked off in February, the biggest obstacle to work around was various spring break schedules. “The COVID-19 pandemic changed the content considerably, and the program quickly became a more important aspect of students’ remote learning opportunities,” Johnson said.

In real-time, the participants witnessed the longest bull market in U.S. history come to a screeching halt. At first, like many people, students were uncertain of next steps. “The market tanked and students were afraid to make the wrong move,” Johnson added. 

In addition to financial lessons, students learned the value of teamwork; one member of the winning Hancock team noted: “We discovered the need to consult with our investment partners every time we made a trade.”

“These students now have a better understanding of trading strategies and how to work through obstacles,” Johnson concluded.

Moving Business Education Forward

The Husky Investment Tournament is embedded into high school economics, business and personal finance classes. Since its launch in September 2019, 600 students across Michigan, Wisconsin, Minnesota and Illinois have participated. High school educators or administrators wishing to sign teams up for the fall 2020 competition, should visit mtu.edu/business-tournament.

Thank you for participating in the Husky Investment Tournament! Together we watched one of the longest bull runs in history come to an end, markets move at peak volatility, and developments in COVID-19 disrupt financial markets and everyday life. We hope the Michigan Tech College of Business has helped you to understand the connections between these developments and the financial markets, as well as understanding other important financial concepts. 

This week is your final week for trading, which will close at 11:59 p.m. on Friday, April 3. The winning team will be determined by their final portfolio value at the time of the completion of the tournament. We will announce the winning team on Monday, April 6. 

We hope that you have enjoyed learning and interacting with us as much as we have with you.

Throughout the competition, we have introduced you to the idea of total portfolio return (formula shown below). In this simple calculation, the ending portfolio value is divided by the beginning value and converted into a percentage to yield the total portfolio return. However, this formula fails to take a very important factor into account—risk. 

We have encouraged teams to pursue risk in order to win the competition—here is the reason why. As you can see, the total portfolio return does not take the amount of risk that you pursued into account while calculating your percentage return. Because of this, teams may have found it lucrative to pursue a higher level of risk in order to achieve a higher potential return (see week two blog post). 

While this strategy works well in a trading competition, where there is nothing to lose and everything to gain from pursuing risk, we would not want you to leave the Husky Investment Tournament thinking this is the best strategy for investing for retirement, or that this is how portfolio returns are measured in industry. In the real world, portfolio returns are risk-adjusted, or adjusted to show how much extra return you generated per unit of risk. This comparison shifts the question from “how much money did you make me?” to “how much did you risk to make me this money?”

In this week’s video, Dean Johnson, dean of the MTU College of Business, introduces risk-adjusted return metrics and how investors use them to measure their investment results. 

If you need to blow your nose you use a Kleenex. You use a Q-Tip to clean your ears. If you have a headache you might take Tylenol. What do these examples have in common? Brand recognition. Brand recognition is how familiar a company’s brand is to consumers. This, along with other factors, helps some companies to form an economic moat. Economic moats serve as barriers to competition by creating a competitive advantage that is difficult for other companies to copy or replicate. 

You can think about an economic moat by thinking about a castle with a moat around it. The bigger the moat is, the more difficult it is for intruders to attack the castle. Now, imagine that the castle is a company and their profits, the moat is the economic moat, and the intruders are other companies trying to gain a share of the company’s profits. The larger the economic moat, the more difficult it is for other companies to cut into their profits. 

Economic moats take on many different forms and can be difficult to quantify (measure).

There are five types of economic moats: cost-advantage moats, intangible-assets moats, high-switching costs moats, size-advantage moats, and soft moats. Cost-advantage moats are when companies have a cost advantage and can squeeze out other competitors who try to enter their market. Intangible-asset moats are created when companies have some type of non-physical barriers that prevent other companies from competing; examples include patents, trademarks, and brand recognition. High-switching costs are just as they sound—it is expensive to switch from one company to another. Consider the swap from an Apple to Android phone. Not only does the user need to pay for a new phone to make the switch, they may also have other technology, such as a Mac or iPad, that would need to be adapted (either by purchasing new software or a different device) to achieve the same level of integration that iOS products offer. Size-advantage moats come from economies of scale, the idea that larger companies are able to do things better, faster, and cheaper (think $1 McChickens). Finally, soft moats are economic moats that are difficult to identify and describe. They could be caused by the unique culture of an organization or some other advantage a company has over competitors.

Investors should think about economic moats and consider them in their investment decisions. Companies with larger economic moats are more likely to protect their profits and therefore, your investment. Economic moats also allow companies to charge higher prices for their goods and services. For example, Kleenex brand tissues are more expensive than a dollar store brand.

What companies do you know have economic moats and brand recognition?

In this week’s video, Jun Min, professor of marketing in the Michigan Tech College of Business, illustrates what economic moats are and why they are important in business and in influencing the stock market. 

Attempts to limit the spread of COVID-19 have closed schools, suspended face-to-face classes at many universities (including Michigan Tech), closed restaurant dining areas, and are causing countless events and functions to be canceled.

The markets have been extremely volatile (rapidly changing) in the past few weeks and will likely continue to be until the effects of the virus level out and normalcy is restored to the financial system (the President indicated yesterday that this could be sometime in summer). 

The bull market (remember, a bull market is when the market continually goes up, whereas a bear market is when stocks are dropping), one of the longest in history, was still going strong a month ago. However, in just a few weeks, things have taken a major turn. Last Monday, the S&P fell 7.6 percent in one day; that’s the biggest drop since 2008. Stocks then rebounded on Wednesday and fell again (by 9.51 percent) on Thursday. On Friday, they soared by over 9 percent again. 

For a bull market to turn into a bear market, the market needs to drop 20 percent over a period of time. The Dow, S&P, and Nasdaq all ended their historic 11-year bull run last Wednesday and Thursday, with stock prices less than 20 percent than they were just a month before. 

Typically, a bull market turning into a bear market is an indicator of a looming recession, but this is not always the case. Prior to market disruptions from the Coronavirus, the US economy was booming with 50-year low unemployment, a 20-year high in household income, and record-low interest rates. It is yet to be seen if the Coronavirus will propel us into a recession, or if the markets will rebound following these unprecedented times.

Of course, this is not the first time the markets have seen huge fluctuations. You may remember learning about the Great Depression, the financial crisis of 2008, and the dot-com bubble in your classes. All of these events triggered detrimental effects on the stock market, but the market recovered from each event. There is yet to be an event in history where the market could not recover—with time. 

We know many students are out of school right now. Keep following the markets and making trades! This is an excellent time to learn how the markets react in times of distress and is a great time to practice virtual collaboration, a useful skill for anyone. We recommend using a video conferencing software, such as Zoom, to meet with your team and discuss your trading strategies. 

For this week’s video, Laura Connolly, an assistant professor of economics at Michigan Tech, discusses economic indicators and how investors can use them to gauge their investment decisions. Please note, the rates and indicators in this video are as of October 2019; however, the information surrounding how to read and interpret these ratios is correct. 

Accounting is the language of business; it allows companies to accurately convey important financial information to stakeholders. Accountants have many jobs, but among them are preparing the company’s financial statements, which show the financial position of a company.

There are three main financial statements: the balance sheet, income statement, and statement of cash flows. 

The balance sheet is a snapshot of a company’s financial position at one point in time. It details the amount of a company’s assets, their liabilities, and how much owner’s equity is in the company. Assets are things the company owns, liabilities are how much a company owes to others, and owner’s equity is the residual assets that would be leftover if a company paid all of its liabilities at that point in time. 

The income statement shows how much a company made during a period of time. The income statement and statement of cash flows are different from the balance sheet in that they both show financial information for a period of time, versus one point in time. To show how much a company made, the income statement shows a company’s revenues (earnings), minus their expenses. 

Finally, the statement of cash flows details all of the cash a company received and used during a period of time. These cash flows are broken into operating, investing, and financing cash flows. Operating cash flows are from running normal business activities, investing cash flows section shows how much money was made or spent on investing activities, and the financing section shows how a company funded its operations. 

Stakeholders are anyone who have an interest in a company’s performance and include, but are not limited to: investors, creditors (people and other businesses who the company owes money to), banks, and even employees. Enabling companies to accurately convey their financial information to both exterior parties and people within an organization is critical for both publicly and privately held companies. 

For example, when a company wants to borrow money from the bank, the bank wants to ensure the company has the ability to repay the loan. By looking at the company who is borrowing money’s financial statements and other factors, the bank is able to see how much money they should lend the company and what interest rate (to accommodate for risk) they should charge on the loan. 

Another example is when investors look at a company’s financial statements to see if a company is a worthy investment opportunity. Investors can look at various financial statements and use various techniques and accounting ratios to gauge their investment decisions. In the week two video, Jacob showed you an example of how the students in Michigan Tech’s Applied Portfolio Management Program use various financial statements to decide whether they should buy or sell shares of a company. 

In this week’s video, Sheila Milligan, a senior accounting lecturer at Michigan Tech, explains what the income statement is and how investors can use it to gauge their investment decisions.

Please note: Teams are encouraged to continue making trades and checking tournament updates during upcoming spring breaks.