BP Trading Simulation Challenge

Cedar Point 098

(Sandusky, Ohio) Crash and burn.

I saw the BP’s participation certificate tucked somewhere on my table and decided to recount the event that occurred few weeks ago. BP came to campus and provide a trading simulation exercise on crude oil. It was supposed to be a competition among all the participants doing thee simulation. I teamed up with Has for this challenge. I had some prior experience doing some virtual trading and analysis before so it should be in my favor to be ahead of others. Indeed, as soon as the simulation started, we start out small by longing and shorting to fell the market around. Has and I are rather passive players. We will hold a position and wait until we earned a profit. With 10 minutes left in the game, we locked in around $12 million in pure profits. But hold strategy was no longer working for us in the final moments, we ended up reducing our profit by $3 million, but I was adamant to recoup those losses till I forgot about the time clause. The time runs out as I was trying to close my account. Still, I had $9 million in the bank, so it should be okay right, wrong! Because I didn’t managed to close the account before time ended, we were penalized $43 million from our holdings. To make matter worse, earning $9 million would still make us ahead of the market by a large margin because the runner-up (who won the game because of our penalty) only earned $2 million, while the rest of the participants all lose money or are just barely scraping through. I should have not gave up on the forest just for an additional tree, a key lesson that I should not be myopic in chasing small profits and forgot about the things around me. Rubbing salt into injury, Z came and congratulate me, “Hey, at least you know you’re the best trader here.”

FYI, my virtual portfolio last year earned more then 100% return. It’s just that I do not have the guts to put in real money to play, unlike A and H.

Competitive Strategy Game: Week 6 & 7

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(Boston, Mass.) Chapel within Boston University.

Basically, there are not a lot of changes within this two period. Each firms are playing cat and mouse with each other. My group has been trying to undercut each other in the effort to drive other firm out of the competition. Considering the short period of time left, this is a futile act. I am wondering whether the other firms who take the low production high price route might fare better within the time period. Considering Market A, I finally gave the white flag and resigned that I could hold much of the market share, allowing the price to rise higher so that we could gain more revenue. In Market B, our presence was so strong that the market leader gave up and cut their production, pushing us into the leading position. This market differentiated taste is hurting us significantly though because it is hard to convert the rest of the market share despite the low cost allowing me to reconsider whether my expansionary plan was a good one. Nevertheless, Market B is a good revenue generator which has provided enough ROI.

Competitive Strategy Game: Week 5

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(Providence, Rhode Island) Fear not the ambiguity that lies in front of you.

Market update for the previous period produced a lot of headache, for me especially.  We were too greedy in Market A and did not expected another new entrant to undercut us so much as the was an equilibrium with other firms in thee previous periods. There was also a huge capacity investment by that entrant. Our reasoning behind why the low price and huge capacity investment was to kick us “old timer” out of the market. Was it predatory pricing, I’m not sure but the possibility of them recouping their losses is slim if they continued on like this. As a result, we sold less than half of what we produced. Market A now looks utterly too competitive and not desirable to continue on. Yet, we believed that we should teach the new entrant a lesson, and cut our price significantly for two reasons: sell our inventory at a loss to cut down on inventory costs and to give the new entrant a taste of what it meant to have your market share taken away. Our profit margin is almost nonexistent with this pricing scheme but we believed we could progress with it for now.

In Market B, we sold off everything and learn something new about producing beyond our capacity. Our main revenue generator seems to come from Market B instead of A like initially predicted. At this point, I thought it would be rational for other firms to cut their losses and move into other markets, which are essentially still a duopoly. We are engaging in a price war with two different firms with capacity advantage in each respective market and I’m afraid that we are stretching ourselves a bit too thin. I wanted to expand our capacity in Market B much higher despite the differentiated market and plentiful competitors. It’s a gamble that will raise our profit if it goes well. For now, I’m maintaining the price as previous period because there’s an equilibrium over here as well.

I’m envious of the firms who initially ventured into the other two market because they seemed to be doing quite well with few competitors.

Stories from Class

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(Orlando, Florida) Hogwarts School of Magic: It’s all magic to me.

Here’s two laugh worthy stories from one of my classes this week. That’s why it’s nice to study in Michigan, the faculties here are blessed with great experiences, and often funny encounters.

Story 1

This story was from a professor’s experience in the 80’s. Professor M created a computer accelerator so that the CPU can accelerate from those 126 kilobytes to 256 kilobytes (I’m making these numbers up). It was revolutionary at the time and he sold a lot of these accelerators. But, there’s a twist to his marketing methods. Because he has trouble identifying the correct price for his product, he resorted to create seven different packaging with different colored boxes. He priced each of these with different prices and just like that, created seven new products which are essentially the same underneath. He captured all the surplus because different people will buy different products according to how much they valued them. And here’s where it get more ridiculous, a pc magazine decided to produce a top 10 list for accelerators in the market. His products occupied every position from 1 to 7, which are essentially the same accelerator. This shows that even the writers never did their homework properly. He still hangs the cover of the magazine in his office and have a good laugh with his visitors who asked about the magazine.

Story 2

I did a case study on failure about WB and his investment in Berkshire Hathaway. The story is not about the case itself but the authors. They are also students  who took the same course a few years ago under the same professor. They decided to wrote a case study about Warren Buffet and the first company he owned. They finished writing about the case study and give it to Professor L to review. Professor L then give a call to BH and sent the case study to Mr. Buffet’s secretary, asking if Mr. Buffet wanted to take a look at it. Mr. Buffet looked at it, was impressed and invited the two authors to come attend a board meeting with him and other investors. So, they went there, and had a great time meeting Mr. Buffet and others who were there, including Bill Gates, Charlie Munger and Jamie Lee Curtis to name a few.

But, one of the author, D have his first week of job that same week. So, he called the office and asked to start working on the next week. Here’s how the conversation roughly goes:

Hi, I’m D. I’m one of the newly hired graduates who going to work at your office next week. I want to shift the starting date by another week. I’m going to fly to Omaha to attend a meeting with Warren Buffet and Bill Gates. Thanks.

Imagine the look of the person who received this call, as well as all the upper echelons of the company when they heard this message.

On the Monday he’s reporting to work, every single partner in the company went to work. Each of them wanted to look at the newly hired who just had a meeting with Warren Buffet and Bill Gates. Last Professor L heard from D, his career didn’t rise from Day 1, it skyrocketed because everyone in the company knows about him.

Personal

This is a snippet from my personal life. I’m a very careless person. This is because I’m quite impulsive and always decide on things with my intuition. Yesterday, I went and did a quick NPV calculation to make sure my group’s investment was still relevant. I came up with a number and approved the decision. It was after that then I realized I approached the parameters wrongly and the payment was off. The data was ambiguous and I used the data that I believed intuitively was a better estimation.

Today, I had a short quiz on calculating the probability of death within ten years on a multiple decrement model given two force of mortality. I was impulsive and didn’t think things thoroughly before I started. In the end, I calculated the probability for a newborn and not someone aged 40 as instructed. This cost me my quiz since I do not have the time to edit my answers after I realized about it.

Edit:

Might as well add another one, this is about customer service in France. Professor L was transiting in France airport together with a Nobel Prize winner and the President of a large aerospace corporation. They were waiting in line for their boarding pass to board the airplane when the lady at the counter suddenly looked at her watch and decided that its break time. This was despite the fact that there were 15 other people waiting to get boarding pass for the same flight and the plane and gate was right in front of them, having the last call to board the flight. The NP winner was so enraged that he took his prosthetic leg (shouldn’t be hard to guess the identity) and wave it around, trying to hit the lady while standing on one leg. The manager showed up along with 10 officers, and the President threatened to use his power to ask the FAA to ground the flight unless they got their boarding pass. At the end of the commotion, they finally got their boarding passes and board the plane, escorted by the 10 burly officers. The crowd were enjoying the scene while it last. Customer service in a socialist leaning country; can’t fire them and no incentive to make it better.