Beating benchmark indices to generate alpha is every investor's dream. Three children from Amity International School in Noida, Uttar Pradesh has achieved just that at a humble age of 16 years.
The three students -- Prabhnoor Singh Kohli, Tijil Gupta and Amol Singh Cheema -- won the Husky Investment Tournament, a virtual investment competition held between March 1 and April 16. They recorded 10.47 per cent returns in a span of six weeks. By comparison, S&P 500 and Nasdaq 100 rose 9.81 per cent and 8.78 per cent, respectively during the same period. The trio fell short of beating Dow Jones 30 index by a small margin.
Organised by the College of Business at Michigan Technological University in the US, 31 teams had participated in the tournament. The two runner-up teams scored 9.47 per cent and 5.08 per cent returns, respectively.
The Indian teens developed an interest in stock market after watching financial market documentaries, web series and movies such as Big Short, Wolf of Wall Street, and Scam 1992- The Harshad Mehta story. "We all like money and the stock market is the easiest way to make lots of it. The competition gave us real-life exposure," says Tijil.
The students found out about the tournament in February and approached Virendra Verma, a portfolio manager with a Mumbai-based investment firm, to mentor them.
Each team was given $1 million virtual US dollars to invest in the US markets. The stocks had to be above $2 and not more than 10 stocks could comprise the portfolio at a given time. The students traded in 118 stocks in a span of six weeks. The most rewarding stocks included Wipro, Takung Art, Dolphin Entertainment, Shockwave Medical, Tesla and GameStop.
"We shortlisted bluechip companies in the first week, but we realised these firms grow at a slower pace. We changed our mindset to core trading strategies in the second week and selected companies on the basis of technicals, chart patterns and news. During third week, we found out about volatile stocks and the fact that the higher the risk, the higher the returns, as happened in the case of GameStop," says Tijil.
Going into details of the strategy, Amol says they used various sources like Webull, Investing.com and Yahoo Finance. "We particularly used technical analysis indicators keeping in mind the investment duration of the competition. Our favourite tools were MACD, MA ,RSI, Stochastics ,and candlestick patterns; however, we also kept track of news and used fundamental analysis," says Amol.
Sharing his best learning, Prabhnoor says, he came across many trading strategies, including combining two indicators, candlestick patterns and Fibonacci retracements. "I learned about momentum stocks and trading against the trend. For example, if a stock falls steeply, there are certainly more chances for it to bounce back, but there are certain limitations on it depending upon the stock, whether it's a growth or a penny stock," he says.
The students, who have just reached Class 12, are not legally allowed to invest, but they have virtual trading accounts to keep up with the stock market trading. "My parents will give me some amount to create my portfolio as I turn 18," says Tijil.
No wonder the trio look forward to careers in finance. While Tijil wants to manage all his investments by himself, sticking to equities, Prabhnoor and Amol want to diversify among commodities, bonds and real estate.
Sharing his experience about mentoring the students, Verma says, the students have motivated him to take the financial literacy drive to a national scale. "Financial awareness on the investment side hasn't taken off well in India. These students caught me by surprise the way they went about the competition. Now I can say it is not the age or qualification, but the intent that matters," he says.
The students have won $1,000 to be divided among three. The students were based in Delhi-NCR and Verma in Mumbai. "Them winning a global tournament is an excellent example of a real virtual world - Three Delhi-based students, mentored by a teacher in Mumbai, winning a competition in the US," says Verma.