Bright spots in a dark market

October 20 2008 by Ellen Roseman

Despte the stock market drop, a few stocks are still going up — or at least not going down as quickly as everything else is.

I just finished teaching a course, Investing for Beginners, for about 40 University of Toronto students in the continuing education department. I asked them to pick a stock or exchange-traded fund listed on the Toronto Stock Exchange and track it over a four-week period (Sept. 19-Oct. 10).

I’m pleased to report that Hakeem Ferasta found a real winner in Tanganyika Oil (TYK), a Calgary-based oil company with properties in Syria that started trading on the TSX on Sept. 15. Soon after, it received a $31.50 a share offer by Sinopec, a Chinese oil company.

When the contest ended, Tanganyika’s shares had drifted down to $25.64. But since Ferasta had picked them when they were trading at $17.50, he racked up a 46.5 per cent gain in four weeks.

How did he make his lucky strike? He read a story in the Globe and Mail’s Report on Business, he said.

A second prize went to Meena Jethalal, who picked junior miner High River Gold (HRG). The shares started at 35 cents and rose to 64 cents. But when the contest ended, they were back to 34 cents (a 2.9 per cent loss). I just checked the stock price and it’s now 16 cents.

Two students tied for third place by picking Barrick Gold (ABX), which went from $36.50 to $35.22 during the four-week period.

As for me, I also favoured gold. But instead of picking a stock, I went with the iShares gold sector exchange-traded fund (XGD), which was down 14.3 per cent during the four-week contest. Close, but no cigar.

I’m not recommending that you buy stocks for short-term gains, unless you have lots of time to watch the markets and trade quickly. My contest lasted four weeks because the course was four weeks long and I wanted students to get some hands-on experience of stock picking.

But the students’ success shows that some stocks do well even when the market is going down — and anyone can find them.

10 comments

  1. Horace Kelson

    Oct 20 2008

    Ellen,

    Your course encouraged stock picking and contests between students. The applicability of both as an investment strategy (and for beginners!) is horrendous: they start the wrong way. I would have expected to read that they learned not to time the market, that diversification is key and that short-term trading is not at all appropriate for long-term investing.

  2. Brian

    Oct 21 2008

    I totally agree with Horace. But when you say “anyone can find them”, I think this is untrue. The winners in this contest won entirely on luck. Even professionals who pick stocks can’t reliably “win” over the long term let alone the average person.

  3. Andy

    Oct 21 2008

    I agree with Horace and Brian. The standard advice for equity buyers is that you should choose a stock that you will own for at least a decade. That means you look for value. If you get lucky in the short term, SELL! As we have seen recently, what goes up, goes down.

    Your students should deduct the cost of your course from their “winnings”! What is the general thrust of your investment advice? Sounds like sandbox investing to me.

  4. Mark Yamada

    Oct 22 2008

    Comments may be a little unfair. Followers of Ellen’s column know that she promotes the use of ETFs and the diversification that they offer. For novice investors, it is important to engage their interest so they understand the process. Any of them who tries to pick winners (in a down market no less!) will realize what they can and cannot do pretty quickly. Good lesson.

  5. Ellen Roseman

    Oct 22 2008

    Can you learn to swim without getting into the water? Can you learn to play golf without picking up a club and hitting a few shots?

    The course I teach is about long-term investing. I’m not into active trading and don’t recommend it for others.

    But I think it’s good for beginners to do some research, pick a stock or ETF they think will prosper and follow its ups and downs while they’re taking the course.

    The reason I teach this stuff is to get people involved with their portfolios and accountable for their results. When dealing with an investment adviser, they can learn to ask questions, to be impatient with jargon and doubletalk and to persist until they get satisfactory answers.

    I often hear from people who’ve been victimized by investment salespeople. They trust their advisers too much. They don’t read their statements from one year to the next. When they seek compensation, they’re held responsible for not doing anything to mitigate their losses and waiting too long to react.

    These students won’t fall into that trap, I hope. This hands-on experience may teach them that investing is not a science and not restricted to professionals. They can try it themselves and win prizes. (I hand out Chapters and Second Cup gift cards.)

    It’s an exercise in not being intimidated and learning through participating.

  6. Scott McKibbon

    Oct 23 2008

    Exactly. Ellen’s approach was very similar to that used in a high school course I took on business and personal finance over 30 years ago. A stock market contest was part of that curriculum as well.

    The point wasn’t to encourage high risk speculative behavior, it was to provide some hands-on experience that would allow students to see what can happen when investing in stocks.

    Teams that did well were rewarded for the efforts, but there were just as many who lost all of their imaginary float making speculative bets that went against them.

    Is it not better to lose all your money in make believe rather than learning the hard lesson with real savings?

  7. Mary Gibbons

    Oct 27 2008

    I’m sorry, but I have to complain about journalists who write business columns. Just because you took some fluffy Arts degree courses in economics doesn’t mean you should be writing national pieces.

    For once, I would like to see the letters CA or CGA behind a journalist name. You are nothing but a glorified Arts student.

    Stick to what you know, go write a piece on the apostrophe.

  8. Jim E

    Oct 27 2008

    Mary, who put a bee in your bonnet?? You’re obviously a new reader to Ellen’s columns/blogs, or you’d know that she is way more than just a “glorified Arts student”.

    Most (and I said most, not all) CA’s, CGA’s, and CMA’s couldn’t put two sentences together; they are bean counters that are most comfortable with spreadsheets and tax returns. They usually cannot relate to people, hence their career choice behind the scenes.

    Ellen has a way of explaining things that most people can understand. I’ve been a faithful reader of hers for many years, and I believe I know much more now (financially speaking) than I did 5 years ago, in great part to her columns.

    Keep up the terrific work, Ellen.

  9. Mike Macdonald

    Oct 28 2008

    Yikes, I am not accustomed to venom on this site!

    I have a B.A. in economics, have taken the CSC, CFPC and PDO exams, and was licensed to sell mutual funds for years. I work with some of the best investment experts in the industry and I will say unequivocably that Ellen Roseman is one of the most knowledgeable writers in the industry. What makes her insight so valuable is she is not a paid shill for anybody! Her unbiased, consumer focused approach makes her one of the very, very few journalists I would allow near young students!

    As for Mary, we all make mistakes but unlike you, Ellen does her homework before she writes her articles!

    Keep up the GREAT work, Ellen!