Portfolio Challenge Teaches Investment Strategy
Published: Thursday, January 24, 2013
Updated: Thursday, January 24, 2013 00:01
The Boston College Portfolio Challenge (BCPC), a new club dedicated to providing students with an opportunity to learn about investing in the stock market, held its first event, featuring investment advice from three BC alumni, Tuesday night.
The presentation, entitled “Investing on a Budget,” was meant to offer advice for college students on how to effectively invest with a limited amount of money, and specifically provide information for students interested in taking part in a three-month-long portfolio challenge organized by the club.
Guest speakers Kevin Queally, BC ’83, Brian Hanson, BC ’96, and Jennifer Fo, BC ’09, all hold positions in the investment field and shared insight for young investors getting into the stock market.
Queally, a senior vice president at Morgan Stanley, discussed the “macro standpoint” on investing in the stock market, a viewpoint he said involves taking into account bigger-picture ideas such as economic cycles, interest rates, and global circumstances rather than simply looking for the “best stock.”
“You can pick the best stocks out there, but if the market goes down 15 percent, 95 percent or more of the stocks are going to go down,” he said. For this reason, specific stocks labeled as “good” would not necessarily be beneficial if the entire market climate is suffering. “Knowledge is power…[you have to] find out where we are and what’s going on,” he said.
Using this macro standpoint, Queally said he spends probably 40 percent of his time just reading, figuring out which industries are good investments at which times. Currently, Queally said, transportation companies are booming, due to the stability of energy prices.
Hanson, a director of research at Fidelity Investments, and Fo, an equity research analyst at Fidelity, spoke to a second way of approaching investing, which is a bottom-up, “micro” perspective in which analysts delve down and try to find the best of the best stocks. Hanson indicated, though, that young research analysts do not try to call the market based on macro assumptions.
A key factor that must be explored when researching stocks is what stock drivers are at work for an individual company. Figuring out the most relevant stock drivers, two to three swing factors that could include data or product releases or new earnings reports, is an “art form” according to Hanson, who told students to “try to sort through all the noise” to focus on the most important drivers.
Fo added that the time horizon impacts investment decisions as well, and that young investors should try to look for companies with catalytic events approaching in the trading period. Stocks that have been beaten down recently, she said, also have the potential to rise in the near future. As for the size of the bet made on each stock, Fo said she ranks the bet sizes in order of her level of confidence in the stock and the probability of risk and reward.
Hanson emphasized a problem that new investors often encounter when choosing stocks: differentiating between companies that are successful and companies whose stocks are also successful. “Just because you’re a good company doesn’t necessarily mean you’re a good stock,” he said.
In general, Hanson advised against “swinging for the fences” with risky picks and too much reliance on trends and momentum. Not only would teams have trouble justifying an unconventional and perhaps unwise virtual investment strategy in a real-world scenario, but also, if a stock with momentum takes a fierce turn, teams “would be obliterated.”
Queally also described how a diverse stock portfolio has “lower risk, but also lower return”—therefore, for participants in the challenge, there might be a trade-off between winning and truly learning about investing.
BCPC was founded by five Carroll School of Management (CSOM) students who wanted to learn more about the stock market without any personal financial risk, according to Luke Stephan, co-founder of BCPC and CSOM ’14. With guidance from Michael Barry of the finance department, the students took their interest beyond themselves, creating the club and competition that allows anyone to gain experience investing on a virtual stock market.
Competing teams will have a period of 52 trading days and $100,000 in virtual money to create a diverse stock portfolio on marketwatch.com. The three teams with the highest return at the end of the trading period will be invited to present before a panel of judges on their investment strategy and results, with the winning team earning a trip to Boston-based Fidelity to tour the trading floor and meet with a portfolio manager.
Beyond simply learning about the stock market for personal investments, students successfully participating in the challenge also have the opportunity to garner attention from investment companies such as Fidelity, which recruits heavily from BC, alongside Ivy League universities and other top institutions.