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What FAs Can Learn from Sixth-Graders

December 11, 2017

Seasoned financial industry hands could use a reminder about effective portfolio management, as Matt Sommer found out mentoring a sixth-grade class in a mock stock market competition.

Sommer, director of retirement strategy at Janus Henderson Investors, was tasked with helping guide a class at a Denver-area elementary school competing with other Colorado teams in investing a hypothetical $100,000 over two months, he writes in ThinkAdvisor. The only stipulations were that they were limited to 300 trades, but the class could invest the money in any security, according to Sommer. He and the teacher agreed to add these caveats: no trading after the security was bought; no margin trading; and no investing in derivatives. In addition, the stock pickers had to limit themselves to eight to 10 stocks, he writes in ThinkAdvisor.

That approach scored Sommer’s team fifth place in the competition, suggesting that simplicity is often far better than complexity, he writes. The class also learned about the value of conviction and patience, according to Sommer: When one of the stocks dropped 14%, he got an email asking whether they should sell. Sommer said they could, but reminded them that they would have “to be right twice:” once when selling and then when buying again. The team decided to stay put, with the final loss in the stock clocking in at a more reasonable 8%, he writes.

The class was also smart enough to diversify, despite Sommer’s worry that they would invest only in video game and hand-held device companies, he writes. Their selections included companies across a variety of industries, including retail and consumer durables, with the end result that they only had one losing stock at the end of the two months. Finally, while the team didn’t consider dividends given the two-month time horizon, they were happy to get dividends from some of their stocks — as are most people, according to Sommer.

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.