The Share Challenge: Our amateurs leave the experts chasing their shadows

A tricky month for stocks has shaken up our Share Challengers, says Jamie Feli

The Share Challenge competition is already getting tough. Two months into The Independent's stock-picking contest, the amateur Bucket & Spade investment club from Bournemouth is in the lead, but its portfolio is down 4.1 per cent. Former frontrunner and City expert Colin McLean, head of SVM Asset Management, has fallen to last place with losses of 11.3 per cent. In second position is our team of 15-year-old students from Leicester, which is down 6.5 per cent.

It has been a difficult month for our stock-pickers, with a sideways stock market that shows no sign of improving. In the search for value, the three contestants' notional £5,000 portfolios are down £206, £323 and £564 respectively.

The market is drifting at the moment - which makes it difficult for amateurs and professionals alike to pick winners, says Andy Yates, director of financial website Digitallook.com. "But with plenty of potential merger and takeover activity around, as well as a flood of new issues, there are chances for the contestants to make a big splash."

Without a strong sense of where the market is heading, fund manager Colin McLean knows prudent stock selection is more important than ever. The expert is taking a focused approach with his competition portfolio, ploughing his cash into oil and mining shares.

Natural resource shares have proved spectacular earners for McLean's funds and he is convinced the sector will continue to benefit from high prices and strong worldwide demand.

McLean says he is prepared for the shocks and believes the end result will be worth it. "Natural resources represent 62 per cent of my competition portfolio, which is a high degree of concentration, but I am not discouraged by the share price falls over the past few weeks," he says. "Long-term investing requires patience and resolve."

Shares in First Calgary, an Alternative Investment Market-listed oil company which McLean bought earlier this month, have been particularly volatile. After surging 13 per cent in one week, they have since tumbled back on themselves and are down 21 per cent.

"It would be premature for me to change tack now. It is important for investors to take share price volatility in their stride and not let short-term sentiment derail their strategy," says McLean. "The use of stop-losses are not a good risk management tool with my investment strategy."

David Lawrence, chairman of the Bucket & Spade Club, disagrees with the expert. "The discipline of a stop-loss policy has helped us minimise losses from falling sharese," he says.

Like many investment clubs, the group adheres to a stop-loss policy that requires it to sell any share that drops more than 20 per cent below the purchase price. For shares that have increased more than 20 per cent, the stop-loss level is readjusted to 10 per cent below the new high.

The nine-strong group of colleagues, who all work as engineers in British Telecom's Bournemouth office, set up their stop-loss policy after an early investment in Marks & Spencer turned into a serious loss.

The team is disappointed its stock picks in the competition have not yet performed, but Phil Burden, the treasurer, believes the position could be much worse without their stop-loss rule.

The 15-year-old business studies students from Leicester have also learned the importance of selling sinking shares. The girls, who have no prior investing experience, are the most active traders in the competition.

Still their latest holdings are doing well. Shares in Cadbury Schweppes, which the team bought after thorough research, are up 6 per cent, for example.

Abbey Sharedealing is sponsoring The Independent Share Challenge. Log on to www.abbeysharedealing.com, or call 0800 389 2324.