Page 1 of 2 Project Constructing a Three-Stock Optimal.docx

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Project: Constructing a Three-Stock Optimal Portfolio
th
Project Overview
You have ten stocks1 (note below) to choose from to construct a
3-asset optimal portfolio. Please:
1. Prepare a written report to recommend an optimal portfolio.
2. Present an Excel file with worksheet(s) to support your
recommendation.
must be submitted together on or before the project due date.
Late submissions will not be
accepted.
Grading
Written Report (50 points)
The report shall be in a Memo format with 12ft-size and double
spacing. A sample memo is
attached at the end of this document. You can find the same
copy at the end of the syllabus. The
text must not exceed 2 pages, including all figures, tables

graphs and etc.
The written report will be graded on clarity and effectiveness of
the argument. You should
clearly describe your portfolio, for example, the component
stocks, portfolio asset allocations,
and etc. You should justify your recommendation, for example,
by explaining the rational of
your choice of the stocks, by presenting the evidence such as
the correlation coefficients among
stocks, and portfolio’s expected performance and etc. When you
state an opinion, make sure that
you have convincing evidence and analysis to support your
statement.
1 We are going to use the ten contestant stocks the
Investorplace.com has picked as the hopefuls
to be the best buy-and-hold stock for Year 2013 – they are
meant to be long-term investment (1
year for the contest) for people to buy and sit on them for the
entire year. You can find more
information on these stocks from the reading material “10
Experts Pick the 10 Best Stocks for
2013”.
FIN136, Spring 2013
The written report and the Excel file
Due Date May 3 2013

of 2
Excel worksheet (50 points)
The Excel worksheet should be as detailed as possible to
provide evidence support to your
decision making process. Please submit only one Excel file –
multiple worksheets are fine.
The Excel worksheet will be graded on clarity and easiness to
comprehend. It should contain
sufficient relevant information for readers to make an informed
assessment of the quality of the
recommended optimal portfolio. Below is a list of the things
suggested for you to include in the
Excel work file. This list is not exhaustive. You are encouraged
to add other relevant information
as you see fit.
1. Historical price and return information of the stocks included
in the portfolio.
2. Risk-free rate.
3. Summary statistics of the stocks, such as average return,
variance, standard deviation,
covariance and correlation.
4. Sharpe ratio of the portfolio.
5. Plot of the opportunity set of the portfolio.
6. Plot of the Capital Allocation Line
7. Identification of the minimum variance portfolio and optimal
portfolio.
Please make sure to explain the variables you use and clearly
indicate the unit of measurement,

frequency, time period of the data set involved.
Automation feature – where readers can easily switch stocks
and see the resulting portfolio
performance – will receive extra credit.
FIN136, Spring 2013
To: FIN 136 students
Subject: Memo format for the project report
Date: The report submission date
The purpose of this page is to illustrate the memo format
expected for the project written
report. No cover page is needed. Text should be 12ft-sized with
double spacing. The report
should not exceed 2 pages.
You should submit the written report on or before the due date.
Late submission will not
be accepted.
From:

by Alyssa Oursler | January 9, 2013 8:59 am
[1] Last year’s stock-picking contest just came to a close[2],
and it was down to the wire.
For the winners and losers, though, there’s no time to for
celebrating or head-hanging.
Instead, it’s time for another year and another compilation of
your best bets for the coming 12 months. The 10 Best Stocks
for 2013[3] contest is under way.
This InvestorPlace feature lists 10 long-term investments from a
group of money managers, market experts and financial
journalists. The 10 Best Stocks for 2013[3] is meant to provide
buy-and-hold picks you can purchase now and sit on for a
year — and come out better off at the end of it.
Throughout the year, the writers will regularly offer updates on
the good, the bad and the ugly of their respective picks.
There’s a long way to the finish line, of course, but the starting
gun has already sounded.
With that in mind, let’s take a look at each writer’s
recommendation for the New Year:
Best Stock for 2013: Daimler
First up, we have money manager and stock picker Charles
Sizemore[4], CFA. He has a
pretty good track record in the contest, winning the gold in
2011 by picking Visa (NYSE:V[5]) and barely missing a repeat
in 2012 with Turkcell (NYSE:TKC[6]).

This year, though, he’s switching things up with an automaker
stock. Namely, Daimler (PINK:DDAIF[7]) — maker of the
iconic Mercedes-Benz.
Why?
In the end, it boils down to one simple reason: It’s pretty darn
cheap … especially considering it makes such a well-known
and popular luxury model.
“Daimler trades at accounting book value and for just 0.39
times sales. It also has €46 billion in cash short-term
investments, and receivables — and a market cap of just €44
billion,” Charles explains. “Yes, the cash in the bank and
10 Experts Pick the 10 Best Stocks for 2013 | InvestorPlace
http://investorplace.com/2013/01/10-experts-pick-the-10-best-
stocks-for...
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receivables are actually worth more than the entire company at
current prices.”
Read Charles’ complete recommendation on Daimler[8].
Best Stock for 2013: Qualcomm
CNNMoney’s Paul R. La Monica[9] made it into the top five in
2012[10], betting on FedEx (NYSE:FDX[11]) and a
steadily improving economy. This year, though, he’s going a

very different direction: tech.
Specifically, he is expecting mobile to be the dominant theme of
the year, which is why Qualcomm
(NASDAQ:QCOM[12]) jumped out to him. The company, which
was huge in the late 90′s, is a leading maker of chipsets
for tech gadgets.
That’s not all, though. QCOM also passed a rigorous stock
screen he ran. “Qualcomm was one of only seven S&P 500
stocks that came up when I looked for companies that pay
dividends, have relatively low debt, trade at a reasonable P/E
ratio and have estimates for double-digit growth this year and
next for both earnings and revenue,” he writes.
“Qualcomm truly is the mighty Q.”
Read Paul’s complete recommendation on Qualcomm[13].
Best Stock for 2013: Femsa
Renowned trader, journalist and money manager Jon
Markman[14] finished one spot ahead
of La Monica[15] last year thanks to Hershey‘s
(NYSE:HSY[16]) 20% returns. This year, he’s trading in the
sweets for
emerging market pick Fomento Economico Mexicano
(NYSE:FMX[17]), often referred to as Femsa.
While Markman thinks the U.S. will struggle with austerity in
the coming months, he also believes that if we head just a
little bit south, we will find one of the greatest potential growth
profiles in the world: Mexico, where Femsa is based.
“Femsa caters to more than 1.7 million retailers and 215 million
consumers, and is the No. 1 beverage provider in every

region that it operates in. The firm has grown revenues by 16%
annually for the last 10 years,” he explains.
In fact, last year, FMX tallied impressive 44% gains. On the
next pullback, he says, it will be time to buy.
Read Jon’s complete recommendation on Femsa[18].
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Best Stock for 2013: Great Lakes Dredge & Dock
Next up is the founder and president of Dragonfly Capital
Management: Greg Harmon[19],
CFA. His pick for 2013 is dredging services company Great
Lakes Dredge & Dock (NASDAQ:GLDD[20]), which he
believes will be a winner as the U.S. economy starts growing
again.
In fact, the company has already been looking like a winner.
GLDD recorded an even more impressive year than Femsa
did in 2012, gaining more than 60%.
“You might think that picking this name as the winner in 2013

is crazy after its climb in 2012,” Harmon acknowledges.
“But the technicals support a much greater move.”
He points to the chart’s consolidation channel, Relative
Strength Index and Moving Average Convergence Divergence
histogram as bullish indicators. And for those who aren’t fans
of the technicals, the few-and-far-between analysts who do
follow this stock are bullish as well.
Only time will tell if they — and Harmon — are right.
Read Greg’s complete recommendation on Great Lakes Dredge
& Dock.[21]
Best Stock for 2013: Vale
Stephanie Link[22], Chief Investment Officer of TheStreet,
unveiled her go-to stock of 2013
as well, choosing ore-producer Vale (NYSE:VALE[23]) for
three simple reasons.
First, the company has significant exposure to emerging
markets, especially China (its biggest customer by a landslide)
and
Brazil. On top of that, the company has made some important
internal improvements, such as scaling back its production
portfolio and selling non-core assets.
Last but not least, Vale is a steal. “Shares are down from a high
above $35 in early 2011 and were virtually flat for 2012.
Vale trades at 6.3x 2013 enterprise value to EBITDA, below the
group average of 6.6x,” Stephanie writes.
That leaves room for plenty of upside — while downside is
limited thanks to growing production and the simple fact that
emerging markets are resource-hungry.

We’ll just have to wait and see if they’re hungry enough for
Vale to eat up some profits and rumble to the top of this list in
the coming months.
Read Stephanie’s complete recommendation on Vale.[24]
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Best Stock for 2013: Mylan
Rick Pendergraft[25] — Editor of The Millionaire Blueprint —
is going with Mylan
(NASDAQ:MYL[26]), a drug company whose returns he hopes
will be anything but generic.
Oftentimes when you bet on a pharma name, you’re betting on
one hit-or-miss drug, but not with Mylan. The company
has more than 1,000 generic drug products alone, and they’re
sold in over 150 countires.
Plus, the stock comes with a lot more to like at both a technical
and fundamental level. “Basic technical analysis of Mylan
shows a sustained uptrend in the stock, with the stock price
returning nearly 20% gains annually for the past five years,”
Rick says.
Toss in a low forward P/E, strong renewable cash reserves,
stable earnings and strong growth rates, and you have a nice
package that just might be exactly what the doctor ordered for

2013.
Read Rick’s complete recommendation on Mylan[27].
Best Stock for 2013: Global X Funds Greece
We move across the pond for this next pick, which comes
courtesy of Mebane Faber[28],
portfolio manager at Cambria Investment Management. His
team looked at the historical cyclically adjusted price-
to-earnings ratio (CAPE) of 32 countries and found that extreme
lows have signaled great buying opportunities in the past.
Sure, the countries that were cheap came with lots of bad news
and, in most cases, crisis … but they also came with solid
returns for those who snatched them up at the lows.
With that in mind, he is recommending the MSCI Greece Fund
(NYSE:GREK[29]), as Greece is trading at at 10-year
CAPE of 2.49 — the cheapest of all countries. For comparison’s
sake, just consider that the U.S. goes for a CAPE of 21
right now.
If picking Greece right now sounds crazy, consider this: Jim
Jubak went with a Spanish bank last year, and Banco
Santander (NYSE:SAN[30]) earned him the bronze medal[31].
It’s only crazy if it doesn’t work.
Read Mebane’s complete recommendation on GREK[32].
Best Stock for 2013: Sherwin-Williams
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Greece might not be looking so hot right now, but Louis
Navellier[33], Editor of Blue Chip
Growth, thinks the U.S. is in for some rough waters as well.
Have no fear, though. His pick, Sherwin-Williams
(NYSE:SHW[34]), has resisted market shocks with no problem
— and
that’s just one reason it’s a buy for 2013. It also has a reliable
dividend that serves to keep investors loyal and that will put
some extra cash in your pocket.
Above all, though, Louis likes the fact that “raw material prices
are finally falling, while demand for paint and coatings is
on the rise thanks to a stronger U.S. housing market.”
Oh yeah, and Sherwin-Williams also recently snatched up
Comex Group, giving it exposure to the growing Mexican
market. Those are a lot of reasons to like the stock — and
hopefully they will turn into some even more likeable returns.
Read Louis’ complete recommendation on Sherwin-
Williams.[35]
Best Stock for 2013: Intel
InvestorPlace.com Editor Jeff Reeves[36] hasn’t had quite the
track record he hoped for so
far in these annual stock-picking contests, so this year, he
decided to keep things simple with blue-chip tech company
Intel (NASDAQ:INTC[37]).

Why? Well, quite simply, it’s the largest semiconductor
manufacturer on the planet and comes with an eye-popping
dividend yielding over 4.4%.
Jeff acknowledges that the post-PC era is a challenge for Intel,
but he remains convinced that the company will figure out
mobile.
And he isn’t just talk. He writes:
“For the record, I have skin in the game on this. At the end of
October[38], I added the semiconductor giant
to my personal portfolio at $21.50. And when it fell to $20.50
recently I doubled down. I plan on hanging on
to this company for a long time because of that attractive yield,
and the hopes of big growth and continued
increases in the payout.”
Hopefully, the pick pays off — both for Jeff’s portfolio and for
his contest pride.
Read Jeff’s complete recommendation on Intel.[39]
Best Stock for 2013: Two Harbors Investment Corp.
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Last but not least, we have a pick from Steve Freehill, who won
our reader submission
contest[40]. His pick: Two Harbors (NYSE:TWO[41]). And like

Jeff, he has put his money where his mouth is.
His reasons for the buy of the Silver Bay Realty Trust
(NYSE:SBY[42]) spinoff: TWO has been snatching up single-
family homes over the last three years, and it yields a whopping
19%.
Steve explains, “Yep, you read that right … 19%. True, the
recent $0.55 payout announcement skews the yield (previous
dividends were $0.36 and $0.40 quarterly), but even if the yield
normalizes, it’s still north of 12%.”
He’s pretty confident, too — especially for a newcomer.
“Did I mention I feel great about this trade?” he asks. The real
question, though, is how great he will feel come December.
Let the games begin!
Read Steve’s complete recommendation on Two Harbors.[43]
Endnotes:
[Image]: http://investorplace.com/best-stocks-for-2013/1.
just came to a close: http://investorplace.com/2013/01/10-best-
stocks-for-2012-the-results-are-in/2.
10 Best Stocks for 2013: http://investorplace.com/best-stocks-
for-2013/3.
Charles Sizemore: http://../author/charles-sizemore/4.
V: http://studio-
5.financialcontent.com/investplace/quote?Symbol=V5.
TKC: http://studio-
5.financialcontent.com/investplace/quote?Symbol=TKC6.
DDAIF: http://studio-
5.financialcontent.com/investplace/quote?Symbol=DDAIF7.
Read Charles’ complete recommendation on Daimler:

http://investorplace.com/2013/01/daimler-ride-in-style-
in-2013-ddaif/
8.
Paul R. La Monica: http://../author/paul-la-monica/9.
the top five in 2012: http://investorplace.com/2013/01/10-best-
stocks-for-2012-the-results-are-in/7/10.
FDX: http://studio-
5.financialcontent.com/investplace/quote?Symbol=FDX11.
QCOM: http://studio-
5.financialcontent.com/investplace/quote?Symbol=QCOM12.
Read Paul’s complete recommendation on Qualcomm:
http://investorplace.com/2013/01/qcom-qualcomm-year-of-
the-snapdragon/
13.
Jon Markman: http://../author/jon-markman/14.
one spot ahead of La Monica:
http://investorplace.com/2013/01/10-best-stocks-for-2012-the-
results-are-in/8/15.
HSY: http://studio-
5.financialcontent.com/investplace/quote?Symbol=HSY16.
FMX: http://studio-
5.financialcontent.com/investplace/quote?Symbol=FMX17.
Read Jon’s complete recommendation on Femsa:
http://investorplace.com/2013/01/fmx-quench-your-thirst-
for-growth-with-femsa/
18.
Greg Harmon: http://investorplace.com/author/gregharmon/19.
GLDD: http://studio-
5.financialcontent.com/investplace/quote?Symbol=GLDD20.
Read Greg’s complete recommendation on Great Lakes Dredge

& Dock.: http://investorplace.com/2013/01/great-
upside-for-great-lakes-dock-dredge/
21.
Stephanie Link:
http://investorplace.com/author/stephanielink/22.
VALE: http://studio-
5.financialcontent.com/investplace/quote?Symbol=VALE23.
Read Stephanie’s complete recommendation on Vale.:
http://investorplace.com/2013/01/a-global-recovery-will-lift-
vale-to-new-heights/
24.
Rick Pendergraft: http://investorplace.com/author/rick-
pendergraft/25.
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MYL: http://studio-
5.financialcontent.com/investplace/quote?Symbol=MYL26.
Read Rick’s complete recommendation on Mylan:
http://investorplace.com/2013/01/mylan-is-the-rx-for-portfolio-
growth-myl/
27.
Mebane Faber: http://investorplace.com/author/mebanefaber/28.
GREK: http://studio-

5.financialcontent.com/investplace/quote?Symbol=GREK29.
SAN: http://studio-
5.financialcontent.com/investplace/quote?Symbol=SAN30.
earned him the bronze medal:
http://investorplace.com/2013/01/10-best-stocks-for-2012-the-
results-are-in/9/31.
Read Mebane’s complete recommendation on GREK:
http://investorplace.com/2013/01/grek-buy-greece-
buy-greece/
32.
Louis Navellier: http://investorplace.com/author/louis-
navellier/33.
SHW: http://studio-
5.financialcontent.com/investplace/quote?Symbol=SHW34.
Read Louis’ complete recommendation on Sherwin-Williams.:
http://investorplace.com/2013/01/paint-
your-portfolio-green-with-sherwin-williams-2/
35.
Jeff Reeves: http://../author/jeff-reeves/36.
INTC: http://studio-
5.financialcontent.com/investplace/quote?Symbol=INTC37.
At the end of October:
http://slant.investorplace.com/2012/10/why-i-just-bought-intel-
stock-and-why-
you-should-too/
38.
Read Jeff’s complete recommendation on Intel.:
http://investorplace.com/2013/01/intel-pays-big-dividends-
now-and-shares-could-soar-in-2013/

39.
reader submission contest: http://investorplace.com/2012/12/if-
you-could-own-only-1-stock-for-the-next-365-
days-what-would-it-be/
40.
TWO: http://studio-
5.financialcontent.com/investplace/quote?Symbol=TWO41.
SBY: http://studio-
5.financialcontent.com/investplace/quote?Symbol=SBY42.
Read Steve’s complete recommendation on Two Harbors.:
http://investorplace.com/2013/01/one-big-reason-
to-own-two-sby/
43.
Source URL: http://investorplace.com/2013/01/10-experts-pick-
the-10-best-stocks-for-2013/
Short URL: http://investorplace.com/?p=287600
Copyright ©2013 InvestorPlace Media, LLC. All rights
reserved. 700 Indian Springs Drive, Lancaster, PA 17601.
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