Neal and Peter are friends who have different approaches to dealing with their investment portfolio. Neal invests passively; he will analyze the market once at the beginning, acquire the most suitable investment, and will hold to the investment for a longer period as compared to his friend. Neal will normally review his stock investment performance twice a year. Over the years, Neal has built up a portfolio that currently weighs $250,000. His portfolio is well diversified across industries although it is heavily weighted in high quality, income stock and blue chips stocks. He will reinvest his dividends and will add investment capital to his portfolio every year. Peter on the other hand, spends more than 2 hours per day studying technical analysis with aim of entering and exiting the market at the most precise time. Peter, to his advantage, can receive market information in advance, as he has in reach few market insiders. Unlike his Friend, he practices all sorts of trading strategy including short selling to optimize his profit. As a result, he has managed to collect proceeds of about $180,000 over the years.

They both feel the market has pretty much run its course and the pandemic situation is making things worse. As such, they believe they might need to change their strategy to protect their profit. However, again, their strategy is different.

Neals Strategy:

Neal is now thinking of reinvesting half his future dividends into purchasing physical gold to store the value.

Neal is also aiming to change his approach by tailoring market movement to ensure that he is not left behind the mass-market reaction.

To avoid the decline of his portfolio value, Neal plans to sell the winning stocks in his portfolio and invest the proceeds in a fixed deposit account.

Peters Strategy:

Believing that the market will have a long bearish period, Peter is seeking more inside information from his connection to identify potential losing stocks to practice short selling.

Peter is also aiming to spend more of his investment on cryptocurrency as he believes digital assets are the best alternative to store value.

To ensure he does not lose track of the market, Peter aims to invest in the stock index futures.

a) Evaluate the changes in Neal's investment strategy. Can he maintain his portfolio position with his new strategy? (compare and discuss the advantage and disadvantage of his existing and new strategy)

b) Evaluate the changes in Peter;s investment strategy. Can he maintain his profit with his new strategy? (compare and discuss the advantage and disadvantage of his existing and new strategy)

c) Identify and list two behavioral biases on their strategy. Explain how these biases could lead to a systematic mistake

d) Identify and list two violations to efficient market hypothesis on their strategy that you can find. Explain how the violations to the strategy could lead to an inefficient market.