The great 'Independent' share contest

Can the amateurs beat a leading City fund manager, asks Jamie Feli

Have you ever wondered if the City experts are all they are cracked up to be? Ever fancied taking on those stuffed suits at their own game? The Independent is launching a daring challenge to see who really is best at finding those hidden equity gems.

We are pitting a leading City fund manager against a team of students and an amateur investment club in a three-way, no-holds-barred battle to see who comes out on top. Will it be the amateurs who turn out to be the real City gurus, or the professional that can call on all his experience and resources to reach the spoils?

The rules of play are simple. Each team will start with a notional £5,000, which they must invest in a portfolio of five UK stocks.

All shares listed on the London Stock Exchange or the Alternative Investment Market are eligible, provided the share price is over 100p. Teams may trade one stock every other week, but each portfolio is limited to five stocks at any time. So if they own five shares already, they must sell one before they can buy another.

Trading commissions and stamp duty fees are excluded for the purposes of the competition.

We will be tracking the players over the coming year, with updates on their strategic victories and frustrating failures, as well as tips on how you can improve your own portfolio skills.

You can also keep a close eye on the competition online. For up-to-the-minute details, or to start your own virtual portfolio of shares to take on the competitors, log on to the special Independent section on the trading game service, www.bullbearings.com.

Does the expert stand a chance against the collective brainpower of the bright-eyed beginners? "The students have the best chance," Justin Urquart Stewart of Seven Investment Management, says. "As new investors, they have the advantage of objectivity and enthusiasm, and more time to play with their portfolio.

"My advice is that they don't try to cover the whole market but focus on a few key areas when picking their stocks."

If you'd like to learn more about amateur investing, or how to start your own investment club, visit www.proshareclubs.co.uk.

THE SCHOOL PUPILS: Share-pickers who are in a class of their own

Plaques and newspaper clippings adorn the walls of Claire Jackson's classroom, reminders of the business teacher's award-winning students and their financial acumen. "Here's Tony Blair shaking hands with one class of winners," Ms Jackson says. "Here's another with Princess Anne."

Since Ms Jackson began teaching business studies at Moat Community College in Leicester, she has engaged pupils in the world of economics and corporate finance. In return, they have racked up an admirable collection of financial education prizes.

All this from an inner-city school where nearly every child qualifies for free meals because they cannot afford to bring or buy their own. "My kids acutely know the value of a pound," says Ms Jackson says. She believes their limited means stokes their desire to learn more about money management and investment skills.

Ms Jackson says when she asked her Year 10 class to enter the share-trading competition a flood of 15-year-old volunteers rushed to sign up. "Stocks and shares are 'cool' these days," she says. "The teens hear and read about the markets and they want to know how it works. Many want to work in finance some day."

Neither Ms Jackson nor her teenagers have investing experience, but that does not affect their confidence in picking winners. The students are aware of what's hot and what's not, Ms Jackson says. That gives them a unique and valuable pool of knowledge when they hunt investment opportunities. "The adolescent years are times of intense self-awareness, and brand names and labels are important," she says. "Teenagers know more about high street trends and what's in fashion than your average fund manger."

THE INVESTMENT CLUB: Nine wine-lovers with passion for investing

After seven years of clubbing together, the nine-strong Lexar Investment Club is up for a new challenge. The surging market has helped heal their battle wounds from the dot-com years, and they are more confident than ever that they can play as well as any pro.

The all-male group of retired friends from Surrey met through their love of badminton, but later morphed into a wine-tasting club as their passion for French reds over-took their fondness for swatting shuttlecocks. "We started investing to help pay for the wine tastings," Gerry DeLacey, Lexar's chairman, says.

As their shares racked up profits, members were keen to take the investing side one step further. They opened an online trading account and registered with Proshare investment clubs, the organisation that provides advice and information to Britain's 12,000 investment clubs.

Shares were roaring then, and the friends were making fistfuls of money. "We were lucky with our portfolio," Mr DeLacey says. "Then again, you could have thrown a dart at the stock pages and you would have done reasonably well."

Best pick to date? "London Bridge Software. We bought it for a few pence and sold it for 900p." And the worst? "Versailles. The finance company impressed us with its stellar growth. We invested £4,000, only to read in the papers that the Serious Fraud Office had found management was allegedly cooking the books. Our investment was wiped out."

When the market turned south in 2000, Lexar took heavy blows. The portfolio dropped nearly two-thirds in value before the club cut its losses and liquidated the remainder. "Those were hard times," the chairman says. "It was difficult having investment club meetings when you don't own any investments. But we never take the club too seriously and we hung in there."

The members swore they would never repeat their mistakes and dedicated themselves to learning the fundamentals of stock-picking. Now Lexar is back in action. The club has retrenched its strategy and faithfully adheres to several investment rules, including a stop-loss policy requiring the sale of any stock that falls 10 per cent. "We run a tighter ship, we're more prudent and we're much better at managing our money," Mr DeLacey says.

Lexar's fledgling portfolio of four shares leapt 18 per cent last year. "We can do as well as any fund manager," Mr DeLacey says. "And we keep everything we make. That's the best part; no management fees. Everything goes into our pockets."

THE FUND MANAGERS: Professional who's tough to beat

The amateurs have their work cut out if they want to topple our stock-market expert, Sean O'Flanagan. He manages the Unicorn Free Spirit Fund, which returned an eye-popping 70 per cent last year compared with 31 per cent for the average UK All Companies index fund and a 15 per cent gain in the FTSE All-Share Index.

Mr O'Flanagan attributes his fund's stellar performance to the unique variety of assets in his portfolio. Unlike other managers restricted by their funds' parameters, Mr O'Flanagan is free to invest in any UK-listed share, similar to the strategy of most investment clubs. The fund moves between small, mid-cap and large companies as it seeks out undervalued and cyclical businesses with strong growth potential.

The fund's largest holdings include Volex Group, a manufacturer of PC cables; Incisive Media, the publishing house; and Whittard of Chelsea, the tea and coffee retailer. "Whittard is really a one-off for the fund because we are avoiding retailers," Mr O'Flanagan says. "Consumer-related spending will need to slow if the Bank of England is to resist getting tougher. That said, we see Whittard as a promising turnaround story with the new chief executive, Richard Rose. He has brought renewed focus and strong commercial leadership to the troubled tea-seller."

Mr O'Flanagan is also bullish on recruitment services and electronic equipment manufacturers. "They will benefit from the robust economy and strong job market going forward."