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Meet the country's best young investors
By Sam Brown | Fri, 11th August 2017 - 16:15
The only thing that I really regret about the Student Investor Challenge 2017 was the team name that we chose: "The Underdogs Judd". I mean, seriously! Anything would have been better. There was Dwayne the Stock Johnson; Lock, Stock and Load; He Who Shares, Wins; and numerous more attractive options other teams opted for. Nonetheless, even with all the ribbing I got for the name, I wouldn't change a thing. This is the journey of me and three of my friends to the final.
We were apprehensive to begin with. Over 10,000 teams of four students take part every year in a seven-month investment challenge - all trying to make money from investing. Run by the London Institute of Banking and Finance (LIBF) and supported by Bloomberg and FTSE, it involves three different rounds of investing skills - managing money, forecasting and a final with live trading simulations and presentations.
Remember, I had little to no investing experience, apart from a week trying to beat my dad last year in a trading challenge at Interactive Investor. My team mates were equally inexperienced. It was a step into the unknown for us, but what a step it was.
During the first round of the competition we had to manage two different £100,000 virtual portfolios. One was an active portfolio where we could trade as often as we liked throughout the four-month period, the other was a strategic portfolio limited to 10 trades per month.
Teams could invest in FTSE 100 (UKX) shares, a list of around 50 smaller companies, and some exchange traded funds (ETFs). To avoid a situation where teams who didn't invest could sail up the rankings in a bear market, there was a windfall tax applied to any team which held more than £15,000 in cash - that meant serious penalties if you didn't stay invested. Just 500 teams would make it through to the semi-final, so the pressure was on.
I would like to say that we had a ground-breaking investing strategy right from the start, but we didn't really. We made up for it though with enthusiasm. We were hooked, checking our share picks every hour to see how we were doing, researching potential stocks, watching the financial news.
The competition began less than two weeks ahead of the US Presidential election, so we were quite apprehensive about what direction markets would take, and we certainly didn't cater for the spectacular Trump Trade that caused both the dollar and commodity stocks to soar.
We made a deliberate decision to avoid potential volatility in the small-cap sector. Among our chosen FTSE 100 stocks, we made some good investments in easyJet (EZJ) and Barclays (BARC), and were fortunate enough to be invested in Sky (SKY) when Rupert Murdoch launched his bid for full ownership.
We weren't doing too badly over the first couple of months, but were well behind teams who had been more aggressive and invested in mining stocks. Nonetheless, we were keeping it steady without taking too much risk and were optimistic that we would go through to the next round.
But complacency is a dangerous thing in investing; stockmarkets wobbled after the Trump inauguration and within two weeks our active portfolio lost around £15,000 thanks to some panicked trades and other mistakes. It wasn't so certain anymore. Thankfully, our strategic portfolio did well, finishing up 15% over the 15 weeks. We made it through to the next round.
Through to the semis
The semi-final was based on forecasting share prices. At the start of each week we were given four or five different stocks and asked to predict where they would finish at market close on Friday. Points were awarded for accuracy and how long the prediction had been held. The best three-week periods out of four would count. Only the top eight teams out of the 500 would make it through to the live final.
We upped our game and did far more research. With each of the individual stocks, we watched both for earnings announcements and ex-dividend dates for that week. We also looked at previous weekly performance to gauge average trading ranges and potential volatility.
Once we had decided what we thought the stock might do, we put in our prices and crossed our fingers. In the first week, the ex-dividend date proved crucial, with easyJet falling its expected 5% on the Thursday - teams who weren't paying attention got burned.
Yet again we started off well and were in the top eight after two rounds. But there was still a long way to go, especially as all teams could drop their worst week. After the third round, we were in tenth place, so it all came down to the last week's basket of stocks.
It looked at one point like we might miss out as our price for Anglo American (AAL) was way off, but a bid from Indian billionaire Anil Agarwal sent the shares up 10%, meaning everyone had to change their forecast - the faster the better. This good fortune, combined with great timing and accurate predictions for the other stock prices was enough. We had managed to make it through to the final with a chance of winning a trip to New York!
The big day
The live final in London featured two halves. The first was a set of "live" trading simulations, followed by a pre-prepared presentation. Each simulation was made up of three hours' worth of historic data condensed into a two-minute intense trading game which mimicked the actual market reaction. The three different simulations involved trading the euro, gold and oil, based on market data and central bank decisions and comments.
The anticipation was immense and our nerves were jangling. We could go long or short and decide on how much leverage we wanted to take, but had just split seconds to decide what the market would do, whether the data was better or worse than anticipated, and if the initial reaction would then overshoot and provide a secondary trading opportunity.
Part of our preparation for the final had involved deciding what factors moved commodity prices and currencies, so that helped and we made a great start, leading after the first and second rounds. The final simulation looked at oil prices and, even though we were reasonably confident, we dialled back our risk levels and played safe, reducing leverage and trade levels. It worked! We finished the first round in second place, hoping our presentation would bring it home for us.
As you can guess I had about three bites to eat that lunch, as did most of us. It all came down to this. Seven months' work culminating with a single eight-minute presentation on our outlook for a set currency.
Our team had been allocated the US dollar, the objective being to determine the short and medium-term outlook and what it meant for investors. Initially, we thought this was the perfect currency to get because the dollar drives markets and Donald Trump was making it a fascinating time for investors. However, it was also one of the hardest currencies to predict because of Trump and his unorthodox presidential style. Anything could happen!
The first time sitting down to discuss the presentation we had no idea where to start - there was so much to talk about and so much to research; it was all a bit overwhelming. But we soldiered on and put together what we thought were interesting and thought-provoking slides, balancing both economics and political factors, then analysing what stocks investors could buy to benefit from our outlook.
We spent hours rehearsing. We practised at home, we practised at school. People peppered us with questions to make sure we could justify all our points. We just had to hope that the judges liked what we had to say.
We had to be under eight minutes or else we would start losing points - we clocked in at just under, perfect. We'd done all we could, so there would be no recriminations, irrespective of the result. We listened carefully to all the other presentations on the yen, euro and sterling, and all the teams did a really good job. Now all that was left was the hour long (very long) wait to find out if we'd done enough.
Did we win? Well, we are currently planning our upcoming trip to the Big Apple, which will involve a visit to the floor of the New York Stock Exchange and numerous other highlights.
Many commentators suggest that school leavers have little financial education and are unprepared for real life. But thanks to the LIBF, this competition is doing all it can to change that.
According to the LIBF, more than 400,000 students have taken part over the past 10 years and that's fantastic. Any school can register, so if you have kids or grandkids in secondary school, get them to look up the student investor challenge and take the plunge - in my opinion it is definitely worth it.
I say that not just as a team member who has been lucky enough to win, but because even though the trip to New York will be incredible, it is the interest, experience and passion for investing that we gained that is the real prize.
This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.