Interactive Investor

Diary of a 16-year-old trader

22nd August 2016 13:32

Sam Brown from interactive investor

My name is Sam and I am 16 years old. Last week I came to London to do work experience at Interactive Investor. As part of the preparation for my week, my Dad, "something in the City", wanted to get me more interested in how the market works so we came up with a cunning challenge over five days to see who was the best (or luckiest) stock picker.

The Rules: To select one stock from the FTSE 100 every evening and see how it does the following day; a simple head-to-head battle to see which share performs the better of the two before choosing another stock for the following day.

The participants (this is where it gets interesting):

I'm just 16 and officially clueless! I have spent a lifetime listening to my parents (both City pros) who are interested in investing, but only about an hour learning about how the stockmarket works and what really moves individual sectors and shares - so, disclaimer alert, this article will not be the perfect guide for those looking for tips about how to start investing.

My Dad is 48 years-old and has been an active investor for the last 25. His name is deliberately being withheld to protect his ego, should the week's challenge go unexpectedly well for me!

The following is a diary of the choices we made each evening, the rationale behind them (well to be honest, my best guess and my Dad's considered opinion) and the ultimate outcome. Let the games begin.

Day 1 - Sunday evening

Sam - Paddy Power Betfair

With such little knowledge, my choice of Paddy Power Betfair is based on little more than instinct. I like playing sport and I also like watching sport - a lot. Indeed, along with most of the country I have probably spent most of the weekend watching the Olympics on TV. This, alongside the football season starting is enough for me to think that this bookmaker might not be a bad bet.

Dad - easyJet

Dad says he likes looking for undervalued companies, so today he's gone and picked one of the FTSE100's least-loved businesses. Since the Brexit vote, easyJet shares have collapsed, but Dad reckons that's an overreaction. Just because Brits can't afford to fly abroad any more, doesn't mean other people won't want cheap holidays in Britain.

Monday - Paddy Power Betfair +2.3%, easyJet -1.3%

Result! Paddy Power Betfair not only comprehensively outperformed easyJet on the day, but it actually found its way onto the Winners table. "Inspired" says my Dad. "More like blind luck," quips my 14-year-old brother - who has always been rather annoying. Either way I find myself in the unexpected position of being 1-0 up. Bring it on.

Day 2 - Monday evening

Sam - Legal & General

Fresh from my early success, which could possibly best be described as inspirational luck, I want to capitalise on my win, so I've spent a couple of hours reading about investing in the stockmarket. Ultimately, this hasn't help me much with this particular competition as the articles are focused on long-term investing, diversification and compound interest - but at least it has made me more aware about price/earnings (PE) ratios and dividend yields. Armed with a little bit more knowledge, I think that opting for a company that has both a high yield and relatively low PE could be a good move, so Legal & General is my choice.

Dad - Antofagasta

Raw materials have had a rough few days, and whilst BHP's results are expected to be awful, Dad thinks Antofagasta's are more likely to be OK. Therefore, on a relative basis, the market could potentially rotate back into the stock so his money is on the copper producer.

Tuesday - Legal & General -1.8%, Antofagasta +8.7%!

Ouch, that hurts! However, I got beaten fair and square today and frankly I'm feeling quite relieved that we're not basing the results on percentage returns across the week. Running score 1:1

Day 3 - Tuesday evening

Sam - Barclays

After the disappointment of today's annihilation, I need to choose another stock for tomorrow. I've looked at the earnings calendar to try and establish whether I should attempt to replicate Dad's success, but it is a high risk strategy and I genuinely don't know how car insurer Admiral's results, due tomorrow, will stack up. Instead, I turn my attention to the banks, which, despite recovering a bit from the Brexit battering, are still down substantially. Maybe Barclays can be my saviour, especially as I've just read an article rating it as a 'buy'.

Dad - SSE

Dad says he's feeling defensive. If the market is as short sterling as today's bounce suggests, the pound could rally further, which wouldn't be great news for UK stocks, apparently. So Dad's going for a defensive utility company (whatever that means) - SSE.

Wednesday - Barclays -1%, SSE -0.7%

Somehow, that's even more painful than yesterday's defeat, losing by just 0.3%.

Day 4 - Wednesday evening

Sam - Antofagasta

Bearing in mind that I'm 2:1 down, I have limited options so need to choose a stock that is likely to be volatile and that means mining stocks. Antofagasta gets my vote - based partly on the fact that, after the rise on Tuesday, the share price fell back by nearly 3% today. So, with little more than a prayer, I have to hope that my bet comes off.

Dad - Admiral

Dad tries to explain how the insurer's performance and the market's reaction don't add up. In a world in which bond yields have dropped to near zero and investors have embarked on a desperate search for dividend cash-flow, a company which provides just such an attractive yield should not have got pummelled today just because of the sharp Brexit-induced drop in gilt yields.

Yes, lower yields have damaged Admiral's solvency ratios and, by implication, its ability to return surplus capital to investors, but a 5%-plus dividend from a rapidly expanding business sure beats investing in longer-dated gilts so the market has therefore overreacted - I have to admit I'm not entirely sure what all of that means, but it sounds good!

Thursday - Antofagasta +5.2% Admiral +2.4%

Yes! 2:2, Dad is equally incredulous, asking which crystal ball I was using for my choice. Frankly, however, I don't care, and this is miraculously going down to the wire. I'm still not expecting to win, but it would give me bragging rights for weeks if I could snatch victory on the final day.

Day 5 - Thursday evening

Sam - Royal Dutch Shell B

Right, its 2-2, I have to win this. Shell was one of the very few companies down today so I'll just have to hope that the quote "what goes down must come up" comes true. Along with quite a decent bounce in oil prices this evening, that might just be enough to beat Dad tomorrow. One small problem - I have to choose between two shares; Royal Dutch Shell A and Royal Dutch Shell B. I just hope that both shares are above Dad's choice because if one share is above and one is below and I choose the wrong one then I will be gutted.

Dad - British Land

Dad's clearly getting a bit spooked here - he's choosing a real estate company despite the recent referendum result to leave the EU. After the raft of unexpectedly positive data out of the UK this week, Dad says it might be time to think the unthinkable and invest in a sector perceived to have been very negatively affected by the UK's imminent departure from Europe.

British Land owns a portfolio of property split evenly between retail and London, hence the poor share price performance since late June. But if things genuinely aren't as bad as the market had come to believe, perhaps this real estate company will finally begin to appreciate once again.

Royal Dutch Shell -0.4% British Land -0.7%

3:2 - Wow!

Although it was a bit of a damp squib in the end, the 0.3% differential goes my way this time, making it bragging rights for me! Dad grudgingly admits defeat, although I think he'd probably be quite happy with his overall percentage gain for the week as a whole.

Where to from here?

Although the competition probably encouraged risk taking and emulated both the benefits and the pitfalls of chasing quick returns, it did have some positive outcomes. It has given me far more insight into the equity market as a whole and the individual companies and sectors.

Will I be starting an investment portfolio straight away? Probably not, but a virtual portfolio sounds like a good option. I might even take on some of my mates with a fantasy investment game, which could be more productive than the fantasy football we usually play. I've had a great week, but it's clear that I still have a long way to go even to make it onto the first rung of the investment ladder. However, I hope that being interested is a good start.

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.

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