Students taking the investments class at the International College of the Cayman Islands this past fall term favoured technology, energy and healthcare stocks in an investment competition that simulated real-world stock trading.
The investments class, taught by Brad Bishop, who specialises in private wealth management at Butterfield, said the stock simulation competition was a key feature in the course, because it encouraged business students to research and evaluate company data and learn from their successes and misses.
“Until students can live and experience investing themselves the theory taught can only go so far,” said Bishop. So experience, in my mind, trumps theory.”
To kick off the stock simulation competition, students started with $100,000 in imaginary cash and were required to invest in stocks over several weeks.
As the weeks went on, Bishop noticed that students gravitated toward companies or industries they were interested in either a professional or personal capacity.
Technology, health care and energy stocks were favoured by many students in the class. However, one student broke out from the pack and invested in companies producing beauty care consumer products.
“At first, a number of students were hesitant to risk any of their imaginary capital. Certainly as the competition progressed and the students became more comfortable with what they were doing, we saw a little more excitement, energy and risk taking. It was great to observe the enthusiasm,” said Bishop.
What struck student Theodecia Sonlin was the enormous amount of information on the stock simulation website (www.investopedia.com). She quickly made use of the educational financial videos and tutorials to help her pick her stocks and track performance versus the S&P 500 Index. Sonlin picked her first stock from the technology sector using the “most popular buys” feature.
“This stock was the worst performing of all my stocks, so I realised that I couldn’t rely on the basis of what’s a hot pick,” said Sonlin. “After that, my strategy was to diversify my portfolio, buying stocks across different sectors such as technology, healthcare, consumer staples and energy. My best performing stock was Procter and Gamble, part of the consumer staples sector. I found my diversification strategy worked because I was able to balance losses in one sector with gains in another even when the S&P 500 Index was down.”
Another student, Davin Barrett, who also works at Fidelity, said he chose Google as one of his performing stocks, because of its reputation as a stable company, expected growth rate of 15 per cent and a low debt-to-equity ratio.
“A company that has a low debt-equity ratio is one of many good markers for a potential stock pick and one of the reasons why I invested in Google,” said Barrett.
Massey Energy was another stock Barrett bought during the stock simulation, especially when he noticed an interesting trend. Early in the day, Massey Energy would trade at lower rates and would gradually edge up higher as the day progressed. Barrett decided to use this morning-afternoon, taking advantage of a time horizon style of trading to his advantage to increase his capital gains.
Following the simulation competition, Barrett is interested in furthering his stock investment experience in real life, however, he will take a cautious approach.
“It is a quick way to make profits if you know what you are doing. But it is can also be a quick way to incur losses if you don’t,” he said.
Bishop added: “I truly hope the students further their studies in this area, if not for their professional careers, then for their personal financial well-being.”