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Portfolio Management Simulation In Use

Learning portfolio management by managing a portfolio?

With the Portfolio Management Simulation, this experience is possible for various levels of students and executive education members. Portfolio management is the compilation and management of a portfolio consisting of securities such as bonds or shares. The goal is to meet customer needs and achieve a positive return on investments. While participating at the simulation, players can apply their knowledge in finance and macroeconomics in a portfolio management setting. Further, they learn to construct a portfolio that fits to the strategic and tactical asset allocation of their clients.

Portfolio Management at a Glance

The Portfolio Management Simulation (game flow below in blue) follows the investment process in private banking (below in green).

Necessary Theoretical Background

Before the Portfolio Management Simulation can be successfully applied, it is important to make sure that the students are already equipped with a basic level of the following Prior Knowledge (which they can practically apply during the simulation):

  • In the field of finance: Risk-return concept and measures, asset classes and the influence of key economic factors on financial markets
  • In the field of business administration: Income statement
  • In the field of economics: Key economic ratios (e.g., gross domestic product and its respective growth, unemployment rate), economic cycles and their impact on the financial market

The students playing the Portfolio Management Simulation do not have to be proficient in all those topics and the game itself will provide them with definitions and additional learning opportunities (e.g., in tooltips). If students do not have any theoretical background at all it might end in stress and frustration within teams or for the entire class as well as the teacher. The specific level of required prior knowledge depends on the target group and their specific learning goals.

Target Group

The Portfolio Management Simulation is primarily designed for students at university level with a significant level of prior knowledge. However, it has been played successfully by other groups of students with a different didactical focus. The different target groups of the simulation include the following:

  • Master students (mostly studying in the field of business administration, finance or economics) and participants of executive education (often with work experience in finance): To practice an in-depth analysis of the economic cycles and their impact on the different asset classes (money market, equity, bonds, alternative investments). Further, to apply the investment process in private banking and improve the ability of analyzing and explaining the financial outcome to critical investors. The primary focus is to apply the theory in a practical but safe environment.
  • High school students: To develop a basic understanding of economic developments and factors, as well as the behavior of the stock market.
  • High school teachers: To evaluate teaching possibilities for high school students and what they can learn from the portfolio management game.
  • (International) bachelor students (with various backgrounds): To learn more about the economic cycles and their impact on different asset classes (mostly equities and bonds). Furthermore, to understand the investment process in private banking and enhance the ability of explaining the financial outcome in simple words for potential clients.

Course Design

When applying the Portfolio Management Simulation, we recommend two to three game periods as an introduction to the topic and to get to know the portfolio management process. An extended play of four to six periods is recommended when the goal is to provide an in-depth analysis and learning experience.

Depending on the available time and learning plan, there are different Course Design possibilities.

Compact Seminar/Course

Within a compact seminar respectively course, the Portfolio Management Simulation play sessions are distributed over one to three days.  Lectures on theoretical and practice-oriented topics enrich the seminar.

Semester Course

Within a semester course, the Portfolio Management Simulation play sessions are distributed over a couple of weeks. Lectures on theoretical and practice-oriented topics enrich the semester course.

Semester Course with Homework (Partial Attendance)

Within a semester course, the Portfolio Management Simulation play sessions are distributed over a couple of weeks. At the beginning it is helpful to play the sessions in class, but thereafter it is also possible to play the sessions decentralized with a certain deadline per period played. This setting allows for lectures on theoretical and practice-oriented topics during class instead of focusing only on playtime.

Assessment Design

Using a simulation like the Portfolio Management Simulation in class allows aiming at higher levels within the Learning Objective taxonomy. For example, instead of a simple multiple-choice exam where the passive knowledge of the students is being tested, students can be asked to apply, analyze and evaluate their knowledge and, e.g., elaborate the outcome of the game.

Any of the following elements or any combination / weighting thereof can be used as an academic assessment:

  • Presentation: e.g., hold an investor conference or conduct a client meeting, in which students explain their strategy and game decisions to their customers
  • Written assignment: e.g., design a portfolio factsheet resembling a real-life fund description, including a summary of the game performance and strategy/major decisions
  • Game performance: e.g., (game) stock price development, portfolio performance (portfolio return, Sharpe Ratio), total earnings as a bank

Assessment Design should be aligned with the Learning Objective and should keep the students engaged and motivated throughout the course. Natural competition between teams (I.e., banks) helps, but should not be the main focus during play.

Evaluation and Feedback

A suitable Course Evaluation incorporating the simulation itself helps regarding improvement of the course as well as the Game-Based Learning elements.

Possible questions on the example of the Portfolio Management Simulation are the following:

  • Did you feel well prepared for the Portfolio Management Simulation after the preparatory sessions and lectures? Is there anything that should be additionally covered beforehand?
  • What are your key takeaways after playing the Portfolio Management Simulation?
  • What parts of the Portfolio Management Simulation did you enjoy least? Why?
  • What parts of the Portfolio Management Simulation did you enjoy most? Why?
  • Do you have any suggestions for improvements to the Portfolio Management Simulation?
  • How would you rate your overall experience with the Portfolio Management Simulation (1=worst, 6=best)?

Finally, some feedback from the players of the Portfolio Management Simulation:

  • “The Portfolio Management Simulation was a lot of fun, and I have never had the mopportunity to do something like this before, so it was also a great learning experience. I always looked forward to seeing the results of the previous periods.” (Student from International Summer School 2020)
  • “I absolutely loved the Portfolio Management  Simulation, it was great fun and required us to apply our knowledge and to work meticulously to come up with good decisions for our portfolio, our customers, and our bank in general. It's a very educational, fun tool.”  (Student from International Summer School 2020)