January 9, 2005 in Business

Real-world lessons

By The Spokesman-Review
 

Jordan Schenk doesn’t own any stocks. The Washington State University student finds himself a bit short of funds for playing the market, what with tuition and all.

But The Spokesman-Review is giving Schenk and other students the chance to test their investing prowess in a new stock-picking contest. Schenk’s team from Washington State University will face off against a team from the University of Idaho that’s captained by Faere Coats.

The students are all members of investment clubs at the two schools.

Here are the ground rules: Each team “buys” one share of five different companies, chosen from among the 48 listed each day in the Spokesman-Review’s “Stocks of Local Interest” chart. The teams can trade one of their selections on both Feb. 1 and March 1, although it’s not required. At the end of the first quarter, the team whose portfolio value has increased by the greatest percentage will win.

The teams followed one basic rule of investing when choosing their stocks: they diversified. Each team chose at least one retailer and bank. The UI team leaned more toward heavy industry with its choice of aluminum producer Alcoa, while the WSU team included an Internet company, Amazon.com.

“You’re always in better shape if you diversify your stock holdings in different industries rather than put them all in the same area,” explained Scott Murock, an investment representative with Edward Jones in Spokane Valley. That’s because your portfolio can take a beating if you lean heavily toward one or two industries and there’s an unexpected hiccup in the market.

The challenge for the two student teams, one that wouldn’t be shared by a typical investor, is to achieve the greatest return in a short three months.

Murock said Edward Jones advises its clients to invest with a three-, five-, or even seven-year horizon in mind.

“It’s really difficult, if not impossible, to pick good stocks for a three-month holding period,” he said. “In the short term emotion drives the markets more.”

A negative headline or a monthly dip in government economic data can send the markets reeling for a few days, he said.

Long term, “the markets more predictable because they’re driven by the earnings of companies that comprise the market,” Murock said.

The Spokesman-Review will check up on the teams’ portfolios each month, then declare a winner after March 31, the end of the first quarter.

Their reward? Not riches and acclaim, unfortunately, but perhaps a second-best: T-shirts and bragging rights.


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