The investment club takes it with a final dip for the line
The competitors in our Share Challenge battled it out to the end. Jamie Felix reports
Saturday 04 March 2006
In a nail-biting finish to The Independent's year-long Share Challenge contest, the Bucket & Spade investment club has clinched the trophy. It defeated challenges from a City professional and a group of students to take the £2,000 cash prize.
After 12 months of trading, the Bournemouth-based club finished with profits of 30 per cent, just beating the 16-year-old pupils with their 27 per cent gain. Both amateur teams knocked the socks off expert fund manager Colin McLean, who ended with a mere 8 per cent profit.
With the FTSE All Share index up just 17 per cent over the same period, the amateur competitors nearly doubled the performance of the market.
"The results demonstrate that you don't have to be an expert investor to make money in the markets," says John Bosdet, head of Abbey Sharedealing, which sponsors the competition.
The competitors each started with £5,000 in "virtual" cash to invest in stocks and shares. Twelve months on, the investment club, students and fund manager have turned their initial pots into £6,492, £6,332 and £5,360 respectively.
Although fund manager Colin McLean dominated in the early months, he was later eclipsed by the amateurs as they gained more confidence and honed their investing skills. Since then, it has been a neck-and-neck race between the club and the students.
"You wouldn't believe what a relief it is to win," says David Lawrence, secretary of the Bucket & Spade club. "At one point we only had a £19 lead over the students. Tense is not sufficient to describe the atmosphere here at the end," he says.
The Bucket & Spade club's 11 members, who all work as engineers in the Bournemouth office of British Telecom, have spent the past five years honing their winning investment strategy, combining long-term growth with selective plays in smaller, more volatile shares.
Investments in blue-chip giants such as Tesco, the supermarket chain, and BAE Systems, the defence contractor, provided steady gains, but it was the club's smaller shares that really lined its pockets.
Vedanta Resources, an Indian mining company, was the team's top performer, delivering an 88 per cent gain in less than four months. Aquarius Platinum, a metals firm based in Australia, also shone, with profits of 58 per cent.
"When the general market started to turn a bit flat in October, we knew we needed to look at smaller shares in growth areas, so we started researching the metals sector," explains David Lawrence, the club's chairman.
As part of the contest, Abbey provided the club with free share-dealing for a year, which has also encouraged the team to become more adventurous with their stock selections.
"The free dealing has allowed us to buy smaller shares that we would not normally have bought, because we'd have been worried about the dealing commissions and the percentage lost if we had to sell out," says Lawrence.
While private investors may not have access to free share-dealing, they can learn similar lessons using a virtual portfolio that runs alongside their real investments. The website bullbearings.co.uk offers free virtual-investing services and runs monthly competitions for cash prizes.
Meanwhile, although the students are disappointed with their silver-medal finish, their performance is nothing short of inspirational. The 16-year-old girls from Moat Community College in Leicester, who had no prior knowledge or experience of investing, delivered a 27 per cent return in just 12 months.
"The students have developed into real investors. They are now obsessed with following the stock market," says Claire Jackson, the team's business teacher, adding: "A lot of my students go on to further business studies courses, but this contest has encouraged them even more," she says.
The girls only had a year's experience under their belt, but their 27 per cent profit was good enough to beat most of the City's top fund managers. The average UK equity fund returned just 23 per cent over the past 12 months, according to TrustNet, an independent fund research website.
"Given the results, we can't help thinking that in the future we'd rather make our own investment decisions than rely on a fund manager," says Jackson.
From day one, the team's emphasis on diversification proved the key to their solid, steady performance month after month. Their broad mix of consumer, financial and natural-resources shares helped them weather stock-market dips better than their competitors, but it also failed to line their pockets at the same speed as the winning investment club.
If there is any fault with the girls' strategy, it is that they were too cautious, banking profits too early, and letting their inexperience get the best of their nerves. In November, the team earned a tidy 8 per cent profit after selling their shares in the retailer Marks & Spencer at 419p. Yet a busy holiday season and strong earnings kept investors snapping and the share is currently trading at 518p. Had the girls held out, they would now be sitting on a 33 per cent gain.
The students' knack for finding golden shares has not gone unnoticed. "We are most impressed with the girls and the shares they've chosen," says David Lawrence of the Bucket & Spade club.
Colin McLean, chief executive of SVM Asset Management, is not nearly as chuffed with his final results. Lagging in last place, McLean was only able to pocket £360 in profits, versus nearly £1,500 in earnings by the winners.
Despite a strong start, McLean's strategy of investing heavily in natural resources and mining shares backfired when the market turned cooler towards these sectors last April. McLean's largest holding in First Calgary, a gas exploration company, was sinking fast, but the expert held on, ploughing even more cash into the plummeting stock. With the stock stuck at 490p, McLean stood firm.
Despite his patience, First Calgary failed to recover and with just a few months left to make up his losses, McLean finally sold out. The asset manager still defends his strategy. "I think given two years or more there will be a higher value to First Calgary's assets," he says.
McLean's performance has been exemplary since he sold out of his problem stocks, with double-digit gains in a robust crop of companies, including Peter Hambro Mining, Invensys and Crosby Capital Partners, a merchant banking firm with a strong presence in the Far East.
But it has been a case of too little too late, and with the other teams putting in strong performances, McLean simply could not catch up by the end date.
McLean believes the contest's rules, which restrict each team to five shares at any one time, is at odds with his professional fund-management skills and is partially to blame for his performance. But McLean is magnanimous in defeat. "I must commend the other two teams on their excellent performances," he says.
The winning Bucket & Spade investment club plans to put part of its £2,000 cash prize towards a celebratory dinner. It will plough the rest back into the club portfolio to help generate next year's dazzling returns.
* Fancy a chance to win £2,000 and free sharedealing for a year? We're looking for an investment club to take part in The Independent's next Share Challenge. E-mail your club's name and contact details to firstname.lastname@example.org.
* In addition, look out in April for details of the contest, which will include monthly prizes for Save & Spend readers.
* Abbey Sharedealing, the discount broker, sponsors The Independent's Share Challenge. For more information on Abbey's services, visit www.abbeysharedealing.com or call 0800 389 2324.
* For more information on the teams and their winning portfolios, log on to www.bullbearings.co.uk/independent. The site runs a range of free fantasy-fund-management games that allow you to test your stock-picking skills without investing real money.
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