The Share Challenge: Teenagers give the city slicker a lesson in stock picking

College students are outperforming a fund expert in The Independent Share Challenge, writes Jamie Felix
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The Independent Online

To keep their achievements in perspective, the girls from Moat Community College have only just clawed back all their early losses and are now broadly breaking even with where they started six months ago. Meanwhile, the Bucket & Spade investment club from Bournemouth has dropped to second with a loss of 2.1 per cent, while stock expert Colin McLean, managing director of SVM Asset Management, languishes in last place with a loss of almost 21 per cent.

It has been a refreshing reversal for the girls, who have no prior investment experience, and had been on a losing streak earlier in the competition. "I am very pleased with the girls' turnaround," says Claire Jackson, the students' teacher. "They are not trading as often as when they started, and are choosing their shares more carefully - they work well as a team and spend time bouncing ideas off one another before they buy or sell."

Despite a busy end-of-term exam schedule, the girls have carefully monitored their portfolio and have bulked up on blue chips for the summer months. Their current holdings, which include BP, BT Group, and HSBC, are mostly defensive plays that are faring well in today's uncertain market conditions.

A steady 6 per cent profit from Cadbury Schweppes, the confectioner, along with similar gains in HSBC, the banking group, and BP, the oil giant, have helped the girls edge out the former leaders, the Bucket & Spade investment club.

Selective punts on smaller shares have also paid off for the girls, including a 15 per cent gain in Randgold Resources, the African mining group that the team bought in April for 680p. In June, the shares spiked to 800p after the company announced strong earnings and ambitious growth targets for the rest of the year. On the first sign that the price was softening, the girls sold out at 779p, locking in a 15 per cent profit.

But it is the girls' discipline that has proved the most valuable asset. By pulling out of volatile shares before they tumble, the team's stop-loss strategy has helped them lock in gains and stem the severe losses that afflict many amateur investors when they hold on for too long to dud shares.

The students' discipline serves as a healthy reminder for Colin McLean, the fund manager, who has watched his portfolio of natural resources shares sink 20.7 per cent since the start of the competition. McLean's firm, SVM Asset Management, has made notable profits from energy and mining investments in the past, but the expert's stock picks in this competition have not weathered the volatile market forces quite so successfully.

First Calgary Petroleum, the Canadian oil exploration business, has haunted the expert since he bought the shares in March for 990p. When rumours emerged of problems with the firm's major partner, Repsol, the shares started tumbling. But McLean stayed bullish, adding even further to his holdings at 795p.

It was a risky bet that did not pay off. In June, First Calgary announced it had terminated its partnership with Repsol, and McLean finally sold out - but not before racking up losses of 50 per cent that wiped more than £450 off the value of his portfolio.

Shares in Oriel Resources, the Alternative Investment Market-listed mining group, have also proved disappointing. The shares, at 27p, are trading well below the 51p price that McLean paid in March, but the stock picker continues to hold on for recovery despite his losses.

"In my view Oriel is still an inexpensive mining business with nickel, chrome and gold interests," McLean says. "It has been caught up in institutional aversion to smaller mining shares that are not yet in production. The stock has weakened because the company is behind schedule in proving its extraction process for nickel, but in the meantime it has moved on to a Toronto listing and appears likely to sell its gold interests. That would leave a more focused business that would have significant cash on the books."

The fund manager concedes that his risky picks have not panned out as expected, but says his performance has been hampered by the competition's five-share limit. "The competition highlights how difficult it can be to balance your risk with just five stocks," McLean says. "A limit of 20 shares would be a more reasonable number to achieve a sound portfolio spread."

Indeed, the challenge illustrates the importance of diversification when building a portfolio of stocks. But Andy Yates, director at Digital Look, the stock information portal, takes a more pragmatic view of the results so far. "The competition explodes some of the myths surrounding the City and shows that amateurs can beat the professionals," he says. "You don't have to sit in a posh building in the City to be successful at stock picking. Anybody can invest like the student and the investment club teams and apply their everyday knowledge of products and services to pick stock market winners."

There are still six months left in the competition and anything can happen. But with the market on holiday for much of August, time is ticking and the fund manager will have to mine some golden shares if he expects to turn around his portfolio and catch the amateur teams before it's too late.

Keep on top of Share Challenge during summer. Log on to www.bull-bearings.co.uk/ independent for real-time portfolio updates and details of how to start your own competition. Abbey Sharedealers is sponsoring the Independent Share Challenge. Call 0800 389 2324 or log on to www.abbey-sharedealing.com for more information on Abbey's accounts.

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