Sam Brown, sixth form student from The Judd School in Tonbridge, reflects on his successful experience of the Student Investor Challenge.
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; numerous more attractive options that other teams opted for. Nonetheless, even with all the ribbing I got from the name, I still wouldn’t change a thing. This is the journey of me and three of my friends to the final.
At the start, we were quite apprehensive about the challenge. 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 & Finance (LIBF) with share prices provided by Bloomberg and FTSE it involves three different rounds of investing skills; managing money, forecasting and a final with live trading simulations and presentations. Given I had little to no investing experience, apart from a week trying to beat my Dad last year in a trading challenge, and 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 portfolio was an active portfolio where we could trade as often as we liked throughout the four-month period and one was a strategic portfolio where we were only allowed ten trades per month. Teams could invest in FTSE100 companies, 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 – so there were serious penalties if you didn’t stay invested. At the end of the four-month period 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 really didn’t. We made up for that though with enthusiasm. We were hooked; checking our stock picks every hour to see how we were doing, researching potential stocks, having a look at the financial news.
The competition began less than two weeks ahead of the US Presidential election, so we were quite apprehensive about what direction stock markets would take and we certainly didn’t cater for the spectacular Trump Trade that saw the dollar soar and commodity stocks rocket. We made a deliberate decision to avoid the small cap sector to avoid the potential volatility. Among our chosen FTSE-100 stocks, we made some good investments in EasyJet and Barclays and were fortunate enough to be invested in Sky when it soared after Rupert Murdoch’s bid for full ownership.
We weren’t doing too badly over the first couple of months, but we were well behind those teams who had been more aggressive and invested in mining stocks. Nonetheless, we were keeping it steady without taking too much risk and we were optimistic that we would go through to the next round. But complacency is a dangerous thing in investing; the stock markets wobbled after the Trump inauguration and within two weeks our active portfolio lost around £15,000 thanks to some panicked trades and other mistakes and it wasn’t so certain anymore. Thankfully, our strategic portfolio managed to hold together, finishing 15% up over the 15 weeks and we made it through to the next round.
The semi-final round was based on forecasting share prices. At the start of each week we were given four or five different stocks and had to predict the price that the stocks would finish at market close on Friday. Points were awarded according to how accurately the closing price was predicted and how long the prediction had been held. The best three weeks out of four would count. Only the top 8 teams out of the 500 would make it through to the live final.
For this stage, we tried to up our game and did far more research. With each of the individual stocks, we looked to see if there were any earnings announcements throughout the week or whether any of the stocks were going ex-dividend. We also looked at previous weekly performance to see the average trading range and potential volatility of the stocks. Once we had decided what we hoped the stock was likely to do we put in our prices and crossed our fingers... In the first week, the ex-dividend date was to prove crucial, with EasyJet falling its expected 5% on the Thursday – severely denting the score of any teams who weren’t paying attention.
Yet again we started off well and were in the top 8 after the first two rounds. But we knew 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. During the week, it looked like we might miss out as our prediction in Anglo American was way off, but a bid from Indian billionaire, Anil Agarwal, sent the share price up 10%, meaning everyone had to change their forecast – the faster the better. This good fortune, combined with good 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 live final in London was made up of two halves. The first part 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 of what we were to face 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 looking at what factors moved commodity prices and currencies, so that helped and we got off to 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 the 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 that meant for investors. Initially, we thought this was the perfect currency to get because the dollar drives markets and Donald Trump was certainly making it a fascinating time for investors. However, it was also one of the hardest currencies to predict because of Trump and his distinctly unorthodox presidential style. Anything could happen!
The first time sitting down to discuss the presentation together 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 managed to put together what we thought was an interesting and thought-provoking presentation, balancing both economics and political factors and then looking at what stocks investors could buy to benefit from our outlook…. We spent hours rehearsing. We practised at home, we practised at school. We had people peppering 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 8 minutes, perfect. We were happy that we had done all we could, so there would be no recriminations, irrespective of the result. We listened carefully to all the other presentations, including ones 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 lucky enough to be planning our upcoming trip to the Big Apple, which will involve a visit to the floor of the New York Stock Exchange as well as numerous other highlights.
Many commentators suggest that school leavers have no financial education and are therefore unprepared for real life, but thanks to the LIBF this competition is certainly doing all it can to change that. According to the LIBF, more than 400,000 students over the past 10 years have taken part and that is fantastic. Any school can register, so if you have kids or grandkids in secondary school, then get them to look up the Student Investor Challenge
and take the plunge – in my opinion it is definitely worth it. And 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 and passion for investing that we gained by doing this that is the real prize.
- Sam Brown, team member of The Underdogs Judd from The Judd School in Tonbridge
To find out more about the Student Investor Challenge and how to enter, click here.