A DESCRIPTION OF INSTRAT: A GAME OF INVESTMENT STRATEGY Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 108 A DESCRIPTION OF INSTRAT: A GAME OF INVESTMENT STRATEGY Lawrence J. Gitman, The University of Tulsa INTRODUCTION INSTRAT* is a game designed to provide players with experience in the development and implementation of investment strategy. Players are provided with an uncertain environment in which to make strategic decisions aimed at maximizing their wealth. Initially each player is given an equal amount of money (from six to one hundred thousand dollars) which he or she is free to invest in any combination of the game’s ten listed securities. The securities differ as to risk of principal and associated income. The general description of INSTRAT, which follows, is presented in four major sections which discuss general features, player input, player output and conclusions, respectively. GENERAL FEATURES A number of general features have been incorporated into this game in order to provide the players with a realistic investment environment. Each of these features is discussed separately below. Execution Price The execution prices will be a function of the supply and demand for each security in that period. The actual deviation of the execution price from the opening price depends upon the absolute difference between the number of shares supplied and the number of shares demanded in each security, the number of participants in the game, and the initial amount of wealth given each player. The marketplace can be looked upon as a closed system with the computer acting as the specialist in all securities. This guarantees that all purchase or sale orders will be processed. The closing prices are generated through a random function. The difference between execution and closing prices represents market activity that has occurred subsequent to processing all orders. Stock Splits Each of the common stocks (all of the game’s securities except for National Telephone Bonds) will automatically split (two-for-one) when the securities price reaches $150. * Gitman, Lawrence J., INSTRAT: A Game of Investment Strategy, (Morristown: General Learning Press, 1974). Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 109 Margin Call Loans Each player is permitted to borrow in order to make purchases. The charge on borrowing is initially set by the game administrator; 8 percent per period on the outstanding loan balance is recommended. The margin requirement is set by the game administrator. If the margin requirement is initially set at 60 percent, this means that each player is permitted to have borrowed up to 40 percent of his gross wealth, where gross wealth is defined as current value of security portfolio plus cash. If the player has insufficient margin collateral, a portion of his portfolio is liquidated. Commission Charges Brokerage commissions on purchases and sales of securities are charged according to the portion of the New York Stock Exchange schedule on October 1, 1972, which is given in Table 1. TABLE 1 New York Stock Exchange Commission Schedule Dollar Value of Transaction Round Lot Fee (100 sh) Odd Lot Fee* (less than 100 sh) less than $800 $ 6.40 + 2% $ 4.40 + 2% $ 800 to $2499 $12.00+ 1.3% $10.00+ 1.3% $2500 and up S22.00 + 0.9% $20.00 + 0.9% *1/8 of a point (12 1/2c) is added to the price per share in all odd-lot transactions. This is the fee charged by the odd-lot specialist Dividends and Interest Dividends and interest are paid on some of the securities. The dividends and interest are calculated on the basis of the opening--not execution--price for each security. The yields on each of the ten listed securities are given in Table 2. Table 2 Securities, Ticker Symbols, and Yields NAME TICKER SYMBOL YIELD National Telephone Bonds NTB Coupon 6% Technological Innovators. Inc. TIl 1% Beizer Land Investments BLI 0% Ball Mutual Fund BMF 4% Clifton Power and Light CPL 7% Tundra Oil and Gas TOG 0% Inter-City Transport ICT 0% Nader Motor Company NMC 2% Uranium Expeditions, Inc. UEI 6% Crank-Cam Auto Parts CAP 3% Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 110 Short Sales A player may take a short position in any of the nine (9) common stocks. The number of shares shorted is not limited. A player may have both a long and a short position in the same stock. Interest on Idle Cash Interest is paid on idle cash. The interest rate is initially set at 4 percent per period (this may be changed by the game administrator) on the idle cash balance held from one period to the next. A player can have idle cash only when he has no margin loans. This results since all idle cash is applied to reduce any existing margin loans. This is performed automatically by the computer. Purchasing Information Each player has an opportunity to purchase information concerning the random price effects in the coming period. Two plans are available. The “INFO-i” plan provides dollar changes for each security in the coming period with 90% accuracy. The “INFO-2” plan provides a “+” or a “-“ indicator which is 70% accurate. INFO-1 is twice as expensive as INFO-2. Penalties There are a number of penalties built into this game. The penalties are intended to simulate certain intangible costs expected to result from the associated actions, when attempted in a real-world situation. The penalties are for: selling more shares than owned, attempting to purchase beyond financial capacity, insufficient margin collateral, decreasing a short position incorrectly, failure to liquidate a short position, and taking multiple short positions in the same stock. PLAYER INPUT Players make transactions each period in an attempt to increase their overall wealth position. Initially all players are given equal wealth positions and all ten securities have $100.00 opening market prices. Based upon this information, the player’s expectations of the execution price, and his investment strategy, each player decides what transactions he will make. The decisions are (1) the number of shares of stock to purchase or sell; (2) the number of shares of stock to sell short or purchase to satisfy a short position; and (3) which one of the two available information plans to buy. A sample of a completed Player Decision Form is included in Table 3. Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 111 TABLE 3 Sample Player Decision Form INSTRAT PLAYER DECISION FORM Period 7 Player John Q. Player Transactions Normal Short No. of Shares No. of Shares Security Sell (-) Purch. (+) Sell (-) Liquid. (+) NTB 5 6 7 8 5 6 7 8 TIl 13 14 15 16 13 14 15 16 BLI 21 n 23 24 21 22 23 24 BMF 29 31 37 39 30 31 32 CPL 37 38 39 40 37 39 30 40 TOG 2 47 5 48 45 -46 147 043 ICT 53 +54 4 55 056 53 54 55 56 NMC 61 62 63 64 61 62 63 64 UEI 69 -70 1 71 0 72 69 -70 2 71 0 72 CAP 79 80 77 78 79 80 A player is only required to fill in nonzero values Blanks .re assumed to mean no change Information Costs $00. *Z None 1 $500.*Z INFO-1 1 (Check one) $250.*Z INF0-2 X 1 Initial wealth *Z= rounded to the lowest integer $6000. PLAYER OUTPUT At the end of each period all players receive output, a sample of which is exhibited in Tables 4 and 5. The output includes the following pieces of information: Heading The output will be headed by the player’s name, period, number, and market condition indicator for the present period. Portfolio of Securities Holdings This statement provides each player with a list of his current purchases of each security in shares, current market price per share, market value of holdings of each security in dollars, and the total value of the portfolio at the current (closing) market prices. The current purchases in Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 Table 4 Sample Statement of Accounts INSTRAT John Q. Player Statement of Accounts End of Period 7 Bull Market Condition Portfolio of Securities Holdings Short Positions Security Purchase Balance MKT Price MKT Value No. Shares Period Price TII 0 20 84.50 1690.00 short 20 6 75.00 Liquidate Next CPL 0 20 144.00 2880.00 0 0 .00 TOG -25 0 123.50 .00 Short 10 7 126.00 ICT 40 40 100.00 4000.00 0 0 .00 NMC 0 55 107.25 5898.75 0 0 .00 UEI .10 0 131.00 .00 Short 20 7 134.50 NET 14468.75 Cash Statement Statement of Change in Wealth Beginning Balance .00 Ending Cash Balance .00 +Dividends and Interest 380.22 +Portfolio at Market 14468.75 +Margin Cost 434.76 +Margin Call Loan 5179.28 +Net Purchases -1014.99 Ending Wealth 9289.47 +Penalty Charge 200.00 +Beginning Wealth 8146.76 +Comm. Charges 240.25 Change in Wealth 1142.71 +Change in Loan Bal. -255.21 Information Cost 250.00 +Short Profits -15.00 Ending Balance .00 Statement of Margin Account General Information Maximum Line of Credit 6192.98 Interest on Margin 8.00% Beginning Loan Balance 5434.49 Interest on Cash 4.00% +Change in Loan Bal. -255.21 Margin Requirement 60.00% +Current Borrowing Capacity 5179.28 Market Expectation Bull Unused Borrowing Capacity 1013.70 Messages You have been penalized 200.00 dollars for not liquidating a short position After a 2 year holding period. The position was automatically liquidated. Congratulations for increasing your wealth by more than 400.00 dollars Good luck next period Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 Table 5 Sample History of Securities Price Movements INSTRAT History of Security Price Movements Period End NTB TII BLI BMF CPL TOG ICT NMC VET CAP 1 100.00 105.50 109.00 107.00 105.50 133.50 107.50 111.00 109.00 106.50 2 110.00 121.00 125.00 124.00 116.00 87.00 122.00 132.00 128.00 123.00 3 111.00 130.00 139.50 134.50 124.50 84.00 130.50 145.50 128.00 130.00 4 112.00 142.50 77.25 133.50 133.00 122.00 141.00 91.25 139.50 138.00 5 119.00 147.00 75.75 128.00 139.50 138.00 80.50 75.75 125.50 131.00 6 118.00 74.00 75.75 125.50 132.50 125.00 77.00 90.75 133.50 134.00 Execute 7 115.00 75.00 75.75 124.50 139.50 126.00 87.00 100.00 134.50 135.00 7 115.00 84.50 87.75 133.00 144.00 123.50 100.00 107.25 131.00 142.50 Volume 45 45 25 10 75 85 270 155 65 10 Yield 4.35% 1.00% .00% 4.00% 7.00% .00% .00% 2.00% 6.00% 3.00% Info-2 0 - + + + - + + + - Shares, the balances in shares, and the current m arket price all w ill have been adjusted for any stock splits. A lso included in the statem ent is a section titled “short Positions.” This section indicates the stocks in w hich short positions are currently held. For each of these stocks, the num ber of shares held, the period in w hich the short Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 114 position was established, and the amount of collateral per share currently (at the execution price of the current period) held against each stock, is indicated. Also included, when necessary, is an indicator specifying a short position that must be liquidated in the following period in order to avoid being penalized for not liquidating a short position after the maximum holding time of two periods. Cash Statement This statement gives the player’s ending cash balance, dividends and interest, margin cost, net purchases, penalty charges, information costs, commission charges, short profits, and any changes in loan balance. Statement of Change in Wealth This statement adds the player’s ending cash balance to the current market value of his portfolio and subtracts from this total the current loan balance in order to determine the player’s ending wealth. Statement of Margin Account This statement gives the player’s unused borrowing capacity. This value is determined by subtracting the current loan outstanding from the player’s maximum line of credit. Messages A number of messages may be generated for each player in each period. These messages appear below the statement of Margin Account. The messages generated depend on the player’s performance in the period and whether or not any penalties have been levied. General Information This section lists the value for the Interest on Margin, Interest on Cash, and the Margin Requirement used in the most recent period. Also included is an indicator of the random market effects expected in the next period. “Bull” signifies a rising market and “Bear” indicates a declining market. History of Security Price Movements Each player receives a copy of this statement. The statement provides a summary of the opening prices for all periods including the current period. These opening prices are equivalent to the closing prices of the immediately preceding period. Also included are the execution prices for the period just ended. These prices are noted by the word “EXECUTE” in the left margin. For the most recent period, notation of any splits is indicated by the word “SPLITS” under the appropriate Simulations, Games and Experiential Learning Techniques:, Volume 1, 1974 115 security. At the bottom of the statement is a line of value denoted by the word “VOLUME” in the left margin. These values represent the volume of shares traded in each security. The yields for each security along with any purchased information are also included in this statement. CONCLUSIONS The number of periods for which the game is played is up to the game administrator. Eight to ten periods is suggested as a minimum. The player who has accumulated the greatest wealth may be considered the winner. The game administrator (who is given summary data on all player transactions each period) may require the players to submit a statement of their investment strategy and then evaluate each player’s ability to implement his stated strategy. This lesson may be as important as the maximization of wealth. The desired emphasis is up to the administrator. A sample of the end of period wealth position rankings, which is posted by the game administrator each period, is given in Table 6. TABLE 6 End of Period 7 Wealth Positions INSTRAT• Wealth PositionS End of Period 7 Bull Market Condition Name Wealth Rank Player 1 9850.14 1 Player 2 9816.86 2 Player 3 9787.76 3 Player 4 9630.36 4 Player 5 9540.56 5 Player 6 9327.36 6 John Q. Player 9289.47 7 Player 8 9092.61 8 Player 9 8904.02 9 Player 10 8857.75 10 Player 11 8672.43 11 Player 12 8650.19 12 Table of Contents Volume 1, 1974 Long Live Your Business Game Marketing In Action In Collegiate Education How to Create Your Own Business Game with Imaginit The Design, Conduct and Evaluation of a Computerized Management Game as a Form of Experiential Learning Experiential Learning: Conceptualization and Definition The Teaching Potential of a Structured Experience The Lecture versus the Game Tracking the Elective: Student-Goal Oriented Education The Use of Internal and External Assignments with a Marketing Simulation Game Constructing Mini-Courses to Supplement Business Simulations A Video-Tape/Computer Learning Experience A Collective Bargaining Negotiation Simulation: Settle or Strike Simulation in Personnel Administration Introduction to Pablum: A public Administration Game Enrichment of a Multi-Functional Game through Dynamic Overlays and Intensive Decision Analysis An Orientation to the Oklahoma Farm Management Game A Description of INTSTRAT: A Game of Investment Strategy DØG: A Decision Mathematics Game The Use of Production Scheduling Simulation in a Production Planning and Control Course Interactive Gaming: A Production Example Marketing Interaction: A Marketing Management Game ADMAG I: An Advertising Management Game Meeting the Decline in College Enrollments Using the Money Game in the Classroom Training Salesmen with The Sales Management Game Smith Management Game (BUSOP) The Business Game: A New Approach to Managerial Accounting Administration: The Key to a Successful Gaming Experience Simulation: A Frustration, A ‘Game’, or a Meaningful Experience Using Complex Simulations in Policy Courses in Institutions with Limited Resources Flexibility in Simulation Design for Continual Student Motivation A Terminal Keyboard Experience in Executive Gaming Application of Theory and of Computerized Grading in Management Simulation The Executive Education Experience Using the Toronto Management Game Experiences with the Harvard Management Game Managing the Dynamic Small Business Via Simulation The Use of Business Game and a Simulated Stock Exchange in a Business Policy Course Managerial Strategy and Systems - An integrative M.B.A. Course SIMQ, A Business Simulation Game for Decision Science Students: Towards a Total Gaming and Teaching Package The Use of Simulation in a Financial Planning Course Simulation as a Supplementary Learning Experience in Marketing Principles Intercollegiate Business Gaming: The State of the Art Intercollegiate Business Gaming from a Participant's Viewpoint Correlates of Satisfaction, Learning and Success in Business Gaming A Student' s View of Leadership Training with a Two-Level Hierarchy, Two Course Simulation Autocratic versus Democratic Decision Making: The Executive Game as an Experiment Identifying Potential Game Participants Assessment Centers Selection Based on Simulation Business Games in the Process of Management Training in Israel and the United States Evolution and Flexibility in Business Gaming Quantitative Applications of Games Growing Emphasis on Implementation Debits and Credits: First National ABSEL Conference